Earnings call transcript: Washington Trust Q1 2025 misses EPS forecast

Washington Trust Bancorp Inc. (WASH) reported its financial results for the first quarter of 2025, revealing a slight miss on earnings per share (EPS) compared to forecasts. The company posted an EPS of $0.61, falling short of the anticipated $0.64. Despite this, revenue exceeded expectations, reaching $59.07 million against a forecast of $50.2 million. The stock responded with a pre-market decline of 3.33%, closing at $27.21, reflecting investor concerns over the earnings miss. According to InvestingPro data, the company maintains a remarkable 42-year streak of consecutive dividend payments, with a current yield of 8.23%. InvestingPro analysis suggests the stock is currently trading below its Fair Value, presenting a potential opportunity for value investors.

Key Takeaways

• Washington Trust’s Q1 2025 EPS of $0.61 missed the forecast of $0.64.
• Revenue surpassed expectations, totaling $59.07 million.
• The stock fell by 3.33% in pre-market trading.
• Net interest income increased by 11% quarter-over-quarter.
• The company expects low single-digit loan growth moving forward.

Company Performance

Washington Trust displayed mixed performance in Q1 2025. While the EPS miss was a setback, the company achieved significant revenue growth, surpassing forecasts by a notable margin. This performance was bolstered by an 11% increase in net interest income compared to the previous quarter. Despite the earnings miss, the company maintained strong deposit growth and low credit risk, positioning itself competitively in the market. InvestingPro analysts have identified several key factors affecting the company’s performance, with 2 analysts recently revising their earnings expectations upward for the upcoming period. For deeper insights into WASH’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Financial Highlights

• Revenue: $59.07 million (↑17.8% from forecast)
• Earnings per share: $0.61 (↓4.7% from forecast)
• Net interest income: $36.4 million (↑11% quarter-over-quarter)
• Net interest margin: $2.29 (↑34 basis points)
• Wealth management revenues: $9.9 million (↓2%)
• Mortgage banking revenues: $2.3 million (↓19%)

Earnings vs. Forecast

Washington Trust’s Q1 2025 EPS of $0.61 missed the expected $0.64, marking a 4.7% shortfall. However, the revenue of $59.07 million significantly exceeded the forecast of $50.2 million, representing a positive surprise of 17.8%. This discrepancy highlights the company’s ability to generate higher-than-expected revenue despite challenges in meeting EPS projections.

Market Reaction

Following the earnings announcement, Washington Trust’s stock experienced a 3.33% decline in pre-market trading, closing at $27.21. This reaction reflects investor concerns over the EPS miss, despite the strong revenue performance. The stock is currently trading closer to its 52-week low of $24.70, indicating cautious sentiment among investors. InvestingPro data shows analyst price targets ranging from $34 to $36, suggesting potential upside from current levels. The stock’s beta of 0.78 indicates lower volatility compared to the broader market, which may appeal to defensive investors seeking stability.

Outlook & Guidance

Looking ahead, Washington Trust projects low single-digit loan growth and anticipates a net interest margin of $2.35 for Q2. The company also aims to reduce its dividend payout ratio to the mid-to-low 80s by year-end. These strategic initiatives are expected to strengthen the company’s financial position and support future growth.

Executive Commentary

Ron Osberg, CFO, emphasized the company’s strategic shift towards interest rate neutrality, stating, "We’re much closer to rate neutral." CEO Ned Handy highlighted the company’s customer-centric approach, noting, "Our teams continue to listen to our customers and prospects." Osberg also acknowledged the competitive deposit environment, remarking, "Deposit competition remains very intense."

Risks and Challenges

• Intense deposit competition could pressure margins.
• Potential volatility in interest rates may impact financial performance.
• Ongoing economic uncertainties could affect loan demand.
• Regulatory changes may pose compliance challenges.
• Market saturation in certain segments could limit growth opportunities.

Q&A

During the earnings call, analysts inquired about the company’s interest rate sensitivity and credit quality of commercial real estate loans. The management provided insights into potential share buybacks, further demonstrating their commitment to shareholder value.

Full transcript - Washington Trust Bancorp Inc (WASH) Q1 2025:

Conference Operator: Today’s call is being recorded. And now I will turn the call over to Sharon Walsh, SVP, Director of Marketing and Corporate Communications.

Sharon, you may proceed.

Sharon Walsh, SVP, Director of Marketing and Corporate Communications, Washington Trust Bancorp: Thank you, Jayla. Good morning, and welcome to Washington Trust Bancorp’s Call for the First Quarter of twenty twenty five. Joining us this morning are members of Washington Trust executive team Ned Handy, Chairman and Chief Executive Officer Mary Noons, President and Chief Operating Officer Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer and Bill Ray, Senior Executive Vice President and Chief Risk Officer. Please note that today’s presentation may contain forward looking statements, and our actual results could differ materially from what is discussed on today’s call. Our complete Safe Harbor statement is contained in our earnings release, which was issued earlier today as well as other documents that are filed with the SEC.

All of these materials and other public filings are available on our Investor Relations Web site at ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol WASH. I’m now pleased to introduce today’s host, Washington Trust’s Chairman and Chief Executive Officer, Ned Handy. Ned?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thank you, Sharon, and good morning, and thank you all for joining our first quarter conference call. We respect and appreciate your time and interest in Washington Trust. I’ll briefly comment on the quarter, and then Ron will provide more detail on the financial results. And after our prepared remarks, Mary and Bill will join us for the Q and A session. Washington Trust first quarter results show the positive effects of our Q4 balance sheet restructuring with improvements in NIM, loan to deposit ratio, dividend coverage and capital.

We also saw our deposit growth strategies deliver results in both in market deposits and new households. In market deposits reached an all time high of $5,130,000,000 While intentional reduction in our residential mortgage portfolio, elevated payoffs in our CRE book and reduced line utilization outstripped new loan fundings in the quarter, pipelines continue to build and we expect low single digit growth to be achievable. Our retail branches continue to compete well in the neighborhoods they serve and we’ve now supplemented them with a team of retail sales officers, full time sales professionals dedicated to servicing loan and deposit opportunities complementary to our branch business and commercial bankers. Our teams continue to listen to our customers and prospects and to build solutions to the varied challenges and opportunities that arise in uncertain times. We remain committed in service to all the communities, customers and stakeholders who count on our consistent presence and performance.

I’ll now turn the call over to Ron for additional details on the quarter. We’ll then be glad to address any questions. Ron?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. Thanks, Ned, and good morning, everyone. For the first quarter, we reported net income of $12,200,000 or $0.63 per share. Excluding two infrequent transactions that I will discuss shortly, adjusted net income amounted $11,800,000 or $0.61 per share. Net interest income was $36,400,000 up by $3,500,000 or 11% on a linked quarter basis.

The margin was $2.29 up by 34 basis points, reflecting benefits from the recent balance sheet repositioning transactions. Turning to fees. As previously disclosed, five branch locations with a total net book value of $4,800,000 were reported as held for sale at December 31. Sale leaseback transactions were completed in Q1 and a pre tax net gain on the sale of these properties totaling $7,000,000 was recognized within non interest income. Excluding infrequent transactions, adjusted net income amounted to $15,600,000 and was down $394,000 or 2%.

Wealth Management revenues were $9,900,000 down by $158,000 or 2% and Mortgage Banking revenues totaled $2,300,000 down $544,000 or 19%. Our mortgage pipeline at March 31 was $95,000,000 up by $35,000,000 or 59% from the December. Turning to expenses in connection with our previously disclosed termination of our qualified pension plan, plan assets were distributed in Q1, which resulted in a pretax non cash pension settlement charge of 6,400,000.0 recognized within non interest expenses. This charge reflected the recognition of pretax actuarial losses previously reported as a reduction in AOCI. Excluding the pension settlement, adjusted non interest expenses totaled $35,800,000 up by $1,500,000 or 4% compared to Q4.

Salaries employee benefits expense was up $547,000 or 3%, which includes higher payroll taxes due to the start of the new calendar year. Income tax expense in the first quarter totaled $3,500,000 and the effective tax rate was 22.3%. Our full year effective tax rate is expected to be 22.4%. Turning to the balance sheet, total loans were down by $42,000,000 or 1% from December 31. This included a 1% reduction in residential loans as well as 1% reduction in commercial loans due to higher than expected pay downs.

End market deposits were up by 195,000,000 or 4%. Broker deposits were down by $270,000,000 and FHLB borrowings were down by $275,000,000 reflecting increases in deposits and the redeployment of cash resulting from the balance sheet repositioning. Our loan to deposit ratio decreased from 105.5% to 100.7%. Total equity amounted to $522,000,000 at March 31, up by 22,000,000 from the end of Q4. The dividend remained at $0.56 per share.

And for regulatory capital, CET1 improved 56 basis points to 11.76% and total risk based capital improved by 66% to 13.13%. Our asset and credit quality metrics remain solid. Non accruing loans were 0.42% at March 31 and past due loans were 0.2% on total loans. The allowance totaled $41,100,000 or 81 basis points of total loans and provided NPL coverage of 190%. The first quarter provision for credit losses was 1,200,000 This reflected loss allocations on individually analyzed non accruing commercial loans and reflected our estimate of forecasted economic conditions.

We had net charge offs of $2,300,000 in the first quarter. And at this point, I will turn the call back to Ned.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thank you, Ron. And at this point, we’ll open it up for questions.

Conference Operator: Our first question comes from Mark Fitzgibbon with the company Piper Sandler. Mark, your line is now open.

Mark Fitzgibbon, Analyst, Piper Sandler: Hey guys, good morning. Good morning, Mark. Hey, Mark. Ron, I was curious, how much will the quarterly operating cost be impacted as a result of the sale leaseback and the pension curtailment? Maybe asked a different way, what do you think sort of run rate operating expenses will look like going forward?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. So the on an annual basis, the sale leaseback adds about a net $700,000 to occupancy and equipment. But that was all embedded in the guidance that we gave in January.

Mark Fitzgibbon, Analyst, Piper Sandler: Okay. And what about the pension curtailment impact?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. I don’t there’s really no ongoing expense related to the pension. And again, any that was all factored into guidance that we gave at year end. And I would just say Mark, I would just say that the guidance I gave at the end of in the first quarter is for expenses both on the salary line and on the other expense line is consistent.

Mark Fitzgibbon, Analyst, Piper Sandler: Okay, great. And then secondly, I know Ned you mentioned that the pipelines were strong. Can you give us any color on sort of size and complexion?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yes. Mark, it’s a little over 100,000,000 the commercial side, which is not historic highs, but maintained despite about $50,000,000 of formation in the first quarter. So, we’re kind of in rebuild mode. The early stages of the pipeline are stronger. We don’t typically report on proposals out.

We report on stuff where proposals have been accepted. But that early stage is growing as well. So I feel confident that the low single digit guidance we gave is still reachable and there’s a lot of good activity going on. Mary, I don’t know on the resi side, do want to?

Sharon Walsh, SVP, Director of Marketing and Corporate Communications, Washington Trust Bancorp: Sure. So we’re hitting the seasonal period where it starts to grow on the resi side. Again, a lot of that is going towards fee generation, but it’s up from where it was at $3.31.

Mark Fitzgibbon, Analyst, Piper Sandler: Okay, great. And then Ron, assuming we follow the forward curve, I assume you think the net interest margin will continue to steadily rise a few basis points a quarter across the remainder of the year. Is that a fair statement?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. So we’re thinking well, obviously a lot of uncertainty with the Fed’s rate policy. So I’d like to just limit my guidance to the second quarter. And we’re looking at $2.35 for the quarter and then we’ll see what happens.

Mark Fitzgibbon, Analyst, Piper Sandler: Okay. Fair enough. And then lastly, I guess I was curious what your longer maybe intermediate term or longer term expectations or targets would be for the dividend payout ratio? Where would you like to see that?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yeah. We’d like to see it lower obviously. We as we’ve said it, have no intention of reducing it. That from this point forward, I think the point is to be improving net income and bringing the ratio down. So we expect to be certainly in the mid to low 80s by the end of the year and we’ll see where it goes from there.

Not not likely to increase the the dividend anytime soon for sure.

Mark Fitzgibbon, Analyst, Piper Sandler: Right. But do you feel like, that could constrain your ability to grow when the environment starts to get better if if you’ve got such a high payout ratio?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. Well, it could. We’ll just have to see when we get there.

Conference Operator: Our next question comes from Damon DelMonte with the company KBW. Damon, your line is now open.

Damon DelMonte, Analyst, KBW: Thank you. Good morning. So just wanted to circle back on the margin. If we do see a couple of rate cuts in the latter part of this year, how has your interest rate sensitivity changed given the restructurings and other items that have occurred in the last few months for you guys?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yeah. So we historically, we were pretty asset sensitive and we strayed away from that. And I would say even with liability sensitive probably at an inopportune time for sure. The restructuring that we did took a lot of that liability sensitivity off. So we’re much closer to rate neutral, I would say.

So if we did see some good benefit in the fourth quarter from the Fed cutting the 100 basis points that they did. I think there’s less upside to future rate reductions for us to improve the margin. And so as I mentioned, we’re seeing five or six basis points improvement in Q2 and we’ll just be working hard if the Fed cuts to manage our deposit costs down as quickly and as much as we can.

Damon DelMonte, Analyst, KBW: Got it. Okay. I don’t think you’ll see the

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: expansion that we saw in the third and fourth quarter just because of the restructuring.

Damon DelMonte, Analyst, KBW: Got it. Okay. That’s good. And then you guys had some good in market core deposit growth this quarter. What kind of drove that?

And has there been a shift in approach to gathering local deposits? Or could you just provide a little color on that?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. So a couple of things. So we had good growth in the quarter. About half of that was a single relationship. So I’ll put that out there.

So the other half of it I think was just good strong organic deposit growth kind of across the board. Ned mentioned that we’ve hired a couple of retail sales officers to kind of get out there and do a better more targeted job of bringing in deposits. We’re trying a few things on deposit promotion. I can tell you that deposit competition remains very intense. And we tried a couple of promotions in the quarter on both the CD and on the money market side, and saw a good deposit growth.

So we’ll see if we’re able to maintain that.

Damon DelMonte, Analyst, KBW: Got it. Okay, great. That’s all that I had for now. Thank you.

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Great. Thanks, Dan. Our

Conference Operator: next question comes from Laurie Hunsicker with the company Seaport Research Partners. Laurie, your line is now open.

Laurie Hunsicker, Analyst, Seaport Research Partners: Great. Hi. Thanks. Good morning.

Damon DelMonte, Analyst, KBW: Hi Laurie. Good morning Laurie.

Laurie Hunsicker, Analyst, Seaport Research Partners: Just going back to expenses. So when in the quarter did the sale leaseback happen?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: It well, it happened in February and March.

Laurie Hunsicker, Analyst, Seaport Research Partners: Okay. So we really didn’t see the the drag back in. So when we when we think about it and you just sort of reiterated, obviously, similar guidance to what you gave out last quarter, you’re still thinking, you know, as we’re looking at the core number here, the 35,800,000.0, that probably still jumps to about 37,000,000 even though things like no removal, etcetera, come out?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yeah. So so I think my guidance at at year end was for, you know, for all other expense, which that would be in there about $13,500,000 a quarter. We were 13,300,000.0 in the first quarter, but the $13,500,000 I think is a good estimate for the non salary expense line.

Laurie Hunsicker, Analyst, Seaport Research Partners: Okay. And then what the the 2,700,000.0, the other other, was there anything nonrecurring in that that compares to 2,000,000 in the fourth quarter?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yeah. You know, the the other other, you know, at at year end, we had some, you know, accrual adjustments and, you know, there there’s it’s all other. Right? So there there’s nothing there’s nothing notable going through there.

Laurie Hunsicker, Analyst, Seaport Research Partners: Okay. And then last question on expenses here. You’re still planning to make a charitable foundation contribution in the fourth quarter?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes.

Laurie Hunsicker, Analyst, Seaport Research Partners: Is that right? The 5

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes.

Laurie Hunsicker, Analyst, Seaport Research Partners: 2,000? Okay. Just making sure I got that right. Okay. And then just back to margin, and I know you’ve already touched on this, but do you have a spot margin for March?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: I do. Yeah. For for March, it was it was $2.31.

Laurie Hunsicker, Analyst, Seaport Research Partners: 30 1. Okay. Great. And then going to to credit, and I appreciate all the details you give. But can you just refresh us, you know, specifically on on some of these office properties?

And then just help us think about the the class b that that dropped from, you know, 10,000,000 last quarter down to 7,600,000.0. Was that all charge offs or did something cure, or how should we think about that? And I guess, specifically, you know, around the the loans that I would love a refresh. I know you had a and these are numbers from last quarter, 7,800,000.0 class b that was 50% vacant. It was still performing.

Is it you know, how how do you think about that? You had a new nonperformer that come up I mean, is is that still planned to resolve in February? You obviously had the 3,400,000.0 class b that was due this quarter. Was that where the charge offs were? I mean, if you could just help us think about that.

And then that last one, that big one, that 20 lab, you know, any new news on that, any new appraisal? I think that’s due in the fourth quarter unless there’s been some restructuring movement. Just just anything on those those four properties would be super helpful.

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yeah. I I’ll I’ll turn it over to Bill. I mean, we we did see a reduction, Laurie. And and, you know, within within non accrual, you know, it’s it’s one it’s one relationship that has two loans that has three three buildings in there. And and so one of them has been under P and S.

I think we talked about that on the call. That’s about $3,300,000 I believe. It’s still on track to settle to close out in the second quarter. And we did take a charge off on the other loan that’s secured by the two properties. So that’s the only change quarter over quarter in the reported balances.

But Bill, I’ll just let you provide a little bit of color on the loans that we’re talking about.

Bill Ray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: Sure, Ron. So as Ron said about of that non accrual, can it’ll close when it closes, but we believe it is very likely that we’ll get that knocked down by 3 point about 3,300,000.0 And then we’ll have the remaining non accrual that’s the other half of that relationship. And that is where the charge off was that was driven by an appraisal. It’s being marketed for sale. We think it’s at a reasonable level to be disposed, but, you know, we’ll see when the offers come through.

With regard to the large asset, that is over half leased now, just over half leased. There are active lease proposals in place. The borrower put a lot of money in, as we’ve mentioned before, to build out spec suites. So that seems to be getting them some momentum. So and the borrower’s been supportive all along.

So again, we believe that’s on the upswing and is in good shape. And over time, as these leases convert from LOI into signed leases, you know, would be reevaluating the classification on that. And then was there another property

Damon DelMonte, Analyst, KBW: you had a question on?

Laurie Hunsicker, Analyst, Seaport Research Partners: Yeah. Well, just on that 20,500,000.0 lab, is that still due in the fourth quarter or is there any any movement on extending that?

Bill Ray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: Let’s see. We did we did two one year extensions that went through 2026 as they put in the, you know, a very significant amount of equity to do that. So I think if I’m reading it right just to make sure this will be early twenty twenty six when this comes back up.

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Bill, I think it’s the end of twenty twenty six.

Bill Ray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: Okay. Yep. I’m sorry. Was reading that wrong.

Laurie Hunsicker, Analyst, Seaport Research Partners: Sorry. I’m hitting you guys with a lot of detailed questions. And, Bill, just just to go back to the the one that you took the the charge off on, which loan was that? Was that the class b office that was due this quarter? Okay.

Gotcha. And is that still I mean, I had in my notes that it was sitting around 70% vacant. Is that still the case, or has that improved at all?

Bill Ray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: It’s 50%. And, again, thankfully, through all these, they continue to pay. So they’re they’re still current, but it’s 50% occupied at this point.

Laurie Hunsicker, Analyst, Seaport Research Partners: So it’s it’s gotten better. Okay. Okay. That’s great. I really, really appreciate the details there.

And then, Ned, just last question for you. You know, with with sort of earnings clarity, dividend coverage clarity, etcetera, you know, really, really starting to shine and the fact now that your stock is 20 plus percent lower than where you did the spot, how do you think about buybacks? How does the board think about buybacks?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thanks. Yeah. It’s certainly something we need to think about and it goes to best use of capital. We want to be careful about it as I think you know and Ron, you should talk about the current state of approvals. I mean, I know we let the approval

Bill Ray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: Yeah.

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: So so we right. So we don’t have a a plan currently in place, Laurie, but it is something that we’re really looking at.

Laurie Hunsicker, Analyst, Seaport Research Partners: Okay. Great. That’s helpful. Thanks for taking my questions.

Mark Fitzgibbon, Analyst, Piper Sandler: Yes. Thanks, Laurie.

Conference Operator: There are no more questions registered in queue. I’d like to pass the conference over to our hosting team for closing remarks.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Well, thank you all for joining us. We appreciate your time and your interest and look forward to talking again soon. Have a great day, everybody.

Conference Operator: That will conclude today’s conference call. Thank you for your participation, and enjoy the rest of your day.

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