Earnings call transcript: Washington Trust Q4 2024 beats EPS, revenue misses

Washington Trust (NASDAQ:WASH) Bancorp reported its fourth-quarter 2024 earnings, exceeding EPS expectations but missing revenue forecasts. The company achieved an adjusted EPS of $0.59, surpassing the forecasted $0.57. However, revenue fell significantly short, recording a loss of $44.96 million compared to the anticipated $47.78 million. Despite the EPS beat, shares fell 3.91% in premarket trading to $31.21, reflecting investor concern over the revenue miss and net loss.

Key Takeaways

• Adjusted EPS of $0.59 beat expectations by 3.51%.
• Revenue miss with a significant shortfall, reported at a loss of $44.96 million.
• Premarket stock declined 3.91%, indicating negative investor sentiment.
• Strategic focus on deposit growth and balance sheet repositioning.
• Net interest income increased by 2%, with a 10 basis point rise in net interest margin.

Company Performance

Washington Trust Bancorp faced a challenging Q4 2024, posting a net loss of $60.8 million. Despite this, the adjusted EPS of $0.59 indicated effective cost management. The company is focusing on strategic initiatives to enhance future performance, including deposit growth and balance sheet repositioning.

Financial Highlights

• Revenue: -$44.96 million, missing the forecast of $47.78 million.
• Earnings per share: $0.59, beating the forecast of $0.57.
• Net interest income: $32.9 million, up 2% from the previous period.
• Total (EPA:TTEF) loans decreased by $377 million, or 7%.

Earnings vs. Forecast

Washington Trust’s adjusted EPS of $0.59 exceeded the forecast by $0.02, a 3.51% surprise. However, the revenue fell significantly short, with a loss of $44.96 million against the expected $47.78 million, highlighting a major revenue miss.

Market Reaction

The stock fell 3.91% in premarket trading to $31.21, reflecting investor concerns over the revenue miss and net loss, despite the EPS beat. The stock’s performance is closer to its 52-week low, indicating caution among investors.

Outlook & Guidance

Washington Trust projects a net interest margin of $230 million to $235 million in Q1 2025, increasing to $245 million to $250 million by Q4. The company aims to continue paying down wholesale funding and expects an effective tax rate of 22.5% for the full year 2025.

Executive Commentary

"We’re building back the pipeline," said CEO Ned Handy, emphasizing the company’s focus on strategic growth. Handy also highlighted opportunities for approximately 3% growth in commercial loans, reinforcing a positive long-term outlook.

Q&A

Analysts raised questions about the impact of balance sheet repositioning and the expiration of swaps in May 2026. The company addressed concerns over its office loan portfolio and discussed potential loan growth strategies.

Risks and Challenges

• Continued revenue challenges could pressure future earnings.
• Decline in total loans may impact growth prospects.
• Broader economic conditions and interest rate fluctuations could affect financial performance.
• Market saturation in key areas may limit expansion opportunities.
• Regulatory changes could introduce additional compliance costs.

Full transcript - Washington Trust Bancorp Inc (WASH) Q4 2024:

Operator: Good morning and welcome to Washington Trust Bancorp, Inc. Conference Call. My name is Lydia and I’ll be your operator today.

As a reminder, today’s call is being recorded. I’d now like to turn the call over to Sharon Walsh, Senior Vice President, Marketing Strategy and Planning. Please go ahead.

Sharon Walsh, Senior Vice President, Marketing Strategy and Planning, Washington Trust Bancorp: Thank you, Lydia. Good morning and welcome to Washington Trust Bancorp, Inc. Conference call for the Q4 of 2024. Joining us this morning are members of the Washington Trust executive team Ned Handy, Chairman and Chief Executive Officer Mary Nunes, 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 yesterday 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 website at ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol WASH. I’m now pleased to introduce today’s host, Washington Trust Chairman and Chief Executive Officer, Ned Handy. Ned?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thank you, Sharon. Good morning and thank you for joining our Q4 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. After our prepared remarks, Mary and Bill will join us for the Q and A session.

We previously announced the December capital raise of $70,500,000 and subsequent balance sheet repositioning, which entailed selling lower yielding securities and loans and reinvesting into higher yielding securities and paying down expensive wholesale funding. The security sale and reinvestment occurred in the Q4 and the loan sale pricing was locked in the Q4, but the actual sale of the loans occurred last week. The reduction of maturing wholesale funding will occur over the next few months and Ron will provide some detail beyond that. Though this initiative resulted in a loss recognized in the Q4, it will favorably impact future revenues and provide additional capacity for growth and investment. These actions combined with positive organic momentum preceding them have further strengthened our financial foundation allowing us to focus on providing enhanced value for shareholders as well as the customers and communities we serve.

I’d like to take this opportunity to thank our shareholders who showed tremendous support for this strategy. Again, Ron will provide details on the impact. I’m also very pleased to mention that in the Q4, we hired a new Head of Retail Banking. Michelle Kyle, a Rhode Island native joined us from Digital Federal Credit Union, where she led retail branch services, business development and customer experience. We very much look forward to Michelle’s impact on our deposit growth strategies.

I’ll now turn the call over to Ron for some more detail 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: Thanks, Ned, and good morning, everyone. As Ned said, we reported a net loss of $60,800,000 or $3.46 per share in the 4th quarter. Excluding the balance sheet repositioning asset losses, adjusted net income amounted to $10,400,000 or $0.59 per share. Net interest income was $32,900,000 up by $674,000 or 2%. The margin was 195,000 up by 10 basis points.

This improvement reflected the net effect of lower rates and the partial impact of the balance sheet repositioning on the margin. Adjusted non interest income amounted to $16,000,000 and was modestly down by $229,000 or 1%. Wealth Management revenues were $10,000,000 up by $60,000 or 1%. And spot AUA balances totaled $7,100,000,000 at the end of the year. Mortgage banking revenues totaled $2,800,000 down by $18,000 or 1%.

Turning to non interest expenses. These totaled $34,300,000 and were down by $212,000 or 1%. Salaries and benefits expense was up by $525,000 or 2% reflecting adjustments to performance based compensation accruals. Also advertising and promotion expense decreased by $297,000 in the 4th quarter due to timing. Adjusted income tax expense amounted to $3,200,000 and the adjusted effective tax rate was $23,700,000 for the Q4.

We expect the full year 2025 effective tax rate to be about 22.5 Turning to the balance sheet, total loans were down by $377,000,000 or 7%. Residential loans decreased by $403,000,000 or 16% largely due to the reclassification of $345,000,000 to loans held for sale. Total commercial loans increased by $29,000,000 or 1%. End market deposits were up $26,000,000 or 1% and brokered deposits were down $82,000,000 and FHLB borrowings were down by 175,000,000 dollars Our loan to deposits ratio decreased from 106.2 to 105.5. Our asset and credit quality metrics remain solid.

Non accruing loans were 45 basis points at the end of the year compared to 56 basis points at September 30 and past due loans were 23 basis points compared to 37 at September 30. The allowance totaled $42,000,000 or 82 percent of total loans and provided NPL coverage of 180%. The 4th quarter provision for credit losses was $1,000,000 We had net charge offs of $1,900,000 in the 4th quarter $2,000,000 for the full year of 2024. This time, I’ll turn the call back to Ned.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thanks Ron. And now Lydia, we can take questions.

Operator: Thank We have a question from Laurie Hunsicker with Seaport Research Partners. Your line is open. Please go ahead.

Laurie Hunsicker, Analyst, Seaport Research Partners: Yes, hi. Thanks. Good morning, Ned and Mary and Ron and Bill and Karen. So hoping, Ron, that you can start with margin and just really help us think about all of the moving parts, especially because some of this obviously isn’t even reflected now until the end of January. So maybe if you could help us quantify it in terms of basis points, the impact on different items, if you have a December spot margin and then also forward looking the impact in terms of the pay down of wholesale funding balances and how you’re thinking about that, especially in light of your loan to deposit ratio, how do you think about CDs, etcetera.

So anything you can help us think about on margin? And then also, I just wanted to clarify your swap expiration was supposed to be a 12 basis point pickup starting at the beginning of May. Just wanted to check on that too. So anything you can help us with in margin would be great.

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. So Laurie, just on that swap piece, that’s May of 2026.

Laurie Hunsicker, Analyst, Seaport Research Partners: And is that May 1?

Damon Jamon, Analyst, KBW: Yes.

Laurie Hunsicker, Analyst, Seaport Research Partners: Okay. And that’s still 12 basis points?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. What we published hasn’t changed.

Damon Jamon, Analyst, KBW: Perfect.

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: So, yes, so the balance sheet repositioning will be very impactful to 2025. We’re projecting a NIM of between $230,000,000 $235,000,000 for the Q1. That will increase over the course of the year to about $245,000,000 to $250,000,000 in the Q4. Over that span, we expect our average earning assets to be in the $6,300,000,000 to $6,400,000,000 range after the settlement of the loans which we sold on Friday. So that will bring our earning asset balances down somewhat.

And the expectation is that we will be paying down primarily FHLB funding over the next couple of months. The spot margin for December was 2.07.

Laurie Hunsicker, Analyst, Seaport Research Partners: Okay. And then just how are you thinking about deposits and CDs and repricing there?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. So the Fed’s cut four times and we will continue to see included this is included in the numbers I just gave you, but we still have some short term maturing wholesale funding brokered CDs over the next few months that will reprice on that. And also our regular retail CDs will be repricing down. I know you’ve asked about brokered CDs in the past. We will use those when it makes sense to.

Right now brokered CDs are somewhat more expensive than FHLB and when that reverses, then we’ll rely a little more heavily on that. But the trend on wholesale funding is to be paying it down anyway.

Laurie Hunsicker, Analyst, Seaport Research Partners: Okay. Okay. And then on capital, I just want to clarify the 2,199,000 dollars share issuance in December, does that include the issue?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Say that again, Lauren?

Laurie Hunsicker, Analyst, Seaport Research Partners: Is the issue already in the numbers?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: The green I’m sorry, Laura.

Laurie Hunsicker, Analyst, Seaport Research Partners: Definitely include the issue.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yes. The additional green shoe. That would include the ship size.

Damon Jamon, Analyst, KBW: Yes. Yes. I’m sorry, I couldn’t hear

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

Damon Jamon, Analyst, KBW: But yes. Perfect. Okay.

Laurie Hunsicker, Analyst, Seaport Research Partners: That’s all the questions as of December 31. Okay. And then, Ned, just a question for you on dividend. Obviously, it’s looking substantially more safe. Can you just comment on that and target payout ratio, how you’re thinking about that?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. We’re not it’s

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: an important part of this trend. Go ahead, Rob.

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. So we’re not planning on making any changes to the dividend lowering.

Laurie Hunsicker, Analyst, Seaport Research Partners: Perfect. Okay. But the coverage ratio is

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: obviously better.

Laurie Hunsicker, Analyst, Seaport Research Partners: Right. Much better. Okay. Just wanted to hear it from you. Okay.

Credit, can you just help us think about a couple of things, I guess with respect to office, the $10,500,000 resolution, that’s awesome. You stated that was coming, it came. How much in charge offs was that this quarter? And any color you can give us there? And then I guess more broadly, the $3,300,000 that’s new to non accruals, is that a Class B office?

I’m just looking at that line item above your chart, but just wanted a little color on those two things.

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Bill, do you want to take that?

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

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yes, I can jump

Bill Ray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: in. The charge off was about the nonaccrual resolution was about half of the total. And so the other one you talked about that came in is actually under agreement to be resolved probably, I would guess late this quarter but more likely next quarter. So again, with all of these, we’re paying a lot of attention. We’re looking for expeditious resolution.

So we’re hoping to continue to keep these numbers at these low levels.

Laurie Hunsicker, Analyst, Seaport Research Partners: Okay, great. And the $3,300,000 that was in office. Is that correct?

Bill Ray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: Yes. That’s the one that’s under agreement.

Laurie Hunsicker, Analyst, Seaport Research Partners: That’s under agreement. Okay. Okay, great. And then just 2 more office questions. The, what is your overall office reserve now?

And then also, do you have any kind of a refresh on the leasing that $20,500,000 lab, which had gone sort of from 0 to I had in my notes 52% as of last quarter. Do you have a refresh on that number? Thanks.

Bill Ray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: Sure. The first one, we don’t carry a specific reserve against office. We don’t manage it as a segment because it doesn’t work under CECL. We don’t have enough data to drive it. But our CRE segment, which includes office, I think has I’m just guessing here about 125 basis points of reserve.

And then we use the way we manage office within that is we use call factors to reflect the fact that appraisals and other things are definitely under stress. So that’s again no specific office reserve, but our CRE segment is very adequately reserved. And then your other question was on the large lab space, which is now more than 50% occupied. Leasing activity has been slow this quarter. They’re starting to see it pick up already for 2025 though.

So we feel there, especially with the significant investment.

Laurie Hunsicker, Analyst, Seaport Research Partners: Great. Thank you.

Operator: Thank you. We have a question from Damon Jamon with KBW. Please go ahead. Your line is open.

Damon Jamon, Analyst, KBW: Hey, good morning, everyone. Hope you’re all doing well. Sorry, I thought I had queued in, and I was wondering why I wasn’t being called on, but apparently I didn’t queue in. So in any event, thanks for all the color on the outlook for the margin and the expected impact from the restructuring. That was very helpful.

Just kind of wondering what your thoughts are now that that’s behind you as far as like loan growth and opportunities, now that you’ve kind of freed up some capacity on the balance sheet and some restrain on the margin, do you feel like loan growth kind of going forward could kind of go back to what we’ve seen in years past? Or you think it’s still more of a kind of a conservative approach for a few more quarters?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yes. It’s a great question, Damon. So we’re building back the pipeline. In 2024, we purposely kind of slowed down the loan growth side of things. And so the pipeline is coming back.

We’re seeing opportunity. We’re kind of thinking about lowish 3% -ish loan growth over the period on the commercial side. We’d like to lean that towards C and I. The pipeline right now is lean towards C and I. We’ve got the CRE concentration limit that we’re aware of.

We’re not there’s no issue there, but it’s over 350 and so we need to be careful on that front. We are still out looking at real estate deals. We’re seeing opportunity. The pricing is decent. The structure is good.

So we’re calibrating the growth there, wanting to make loans, wanting to again focus on C and I because it tends to bring more deposits with it. Our priority is on the funding side of things and making sure we fund loan growth appropriately. It’s an interesting interest rate environment to figure out. We’re seeing more fixed rate requests as people are wondering about the longer term picture of rates. And so it’s an interesting environment, but there is opportunity and we think there might be upside opportunity to our current sight line, but the current sight line is kind of 3% on the commercial side.

Resi, I should let Mary talk about, but resi, we’ve been sort of running off the existing portfolio and then tilting the resi operation towards sales. So we’re still thinking kind of 75% of the volume will be sold, so that side of the balance sheet won’t grow. And Ron, I think we’re actually we’re thinking that we’d have mild reduction in the portfolio over the next couple of quarters, correct?

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

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: In the resi portfolio.

Damon Jamon, Analyst, KBW: Got it.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Hope that helps, David.

Damon Jamon, Analyst, KBW: It does. It does. Yes. Okay, perfect. And then with regards to expenses, Ron, I mean, how are you kind of thinking about it from like the year over year perspective of growth?

If you’re at $137,000,000 for $24,000,000 I mean, is it reasonable for kind of 2% to 4% type of growth over the next year?

Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, Washington Trust Bancorp: Yes. So, yes, with regard to guidance for the rest of the year, let me bring revenue in there as well. So, so for wealth, as you know that largely tracks what the market does. We’re assuming about a 5% increase in wealth revenue year over year. Mortgage largely dependent on market conditions and what origination volume could be.

But we are projecting call it a 5% to 10% revenue growth on the mortgage line. We do need to reset expectations around salaries and benefits run rate. So in addition to annual merit raises which you kind of just referred to, we are also restoring our incentive comp to normal after 2 years of substantially reduced levels. And we’re also making some people investments that we’ve been holding off on. We’ve reduced our headcount by about 40 people over the past 2 years.

So we’re going to do some reinvestment back there. Mortgage commissions will also track the mortgage gains and those are seasonally concentrated in the second and third quarter. So all in, we’re looking at an increase to our run rate on salaries and benefits and projecting call it $23,500,000 per quarter. All of our other expenses are estimated about $13,500,000 per quarter. So increased NIM, increased fee revenue, but we are also seeing an expense increase.

Damon Jamon, Analyst, KBW: Got it. Okay. So add those 2, it’s like, yes, 37. Okay. All right.

So that makes sense. So I mean, yes, you’re getting the relief on the top side. So you can reinvest it into the rest of the franchise after taking a more conservative approach the last couple of years. Okay, makes sense. I guess that probably covers it, because I was going to ask about the fee income as well and you kind of trumped me on that and gave me some insight on that.

So, yes, I think that’s it. Everything else has been asked and answered. So thank you very much for the color and insight today.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Great. Thank you, Damon. Thanks, Damon. Appreciate it.

Operator: Thank you. We have no further questions in the queue. So I’ll turn the call back over to Ned Handy for any closing comments.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thanks, Lydia. And thank you for joining us today. I hope we’ve presented a clear picture of our current state, the positive impact of the Q4 capital raise and our plans going forward. I’d also like to note that on August 22, 2025, Washington Trust will celebrate our 200 and 25th year. And as we mark this occasion, we’re focused on continuing our legacy of making a meaningful difference in the places we live and work and enhancing value for our shareholders, our customers, employees and the communities we serve.

So, we appreciate your time very much today and look forward to speaking with you again soon. Have a great day everybody.

Operator: This concludes our call. Thank you very much for joining. You may now disconnect your line.

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