Sharon Walsh; Senior Vice President and Director of Marketing and Corporate Communications; Washington Trust Bancorp Inc
Edward Handy; Chairman of the Board, Chief Executive Officer of the Corporation and the Bank; Washington Trust Bancorp Inc
Ronald Ohsberg; Chief Financial Officer, Senior Executive Vice President, Treasurer of the Corporation and the Bank; Washington Trust Bancorp Inc
Mary Noons; President, Chief Operating Officer of Corporation and the Bank; Washington Trust Bancorp Inc
William Wray; Senior Executive Vice President, Chief Risk Officer of the Bank; Washington Trust Bancorp Inc
Mark Fitzgibbon; Analyst; Piper Sandler
Damon DelMonte; Analyst; Keefe Bruyette & Woods Inc
Laurie Hunsicker; Analyst; Seaport Research Partners
Operator
Good morning, and welcome to the Washington Trust Bancorp Inc conference call. My name is Jayla. I will be your operator for today. (Operator Instructions)
To get into the queue. 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
Thank you, Jayla. Good morning and welcome to Washington Trust Bancorp Bank's conference call for the first quarter of 2025. 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 Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer; and Bill Wray, 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 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's Chairman and Chief Executive Officer, Ned Handy. Ned.
Edward Handy
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&A session.
Washington Trust's 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 $513 million.
While intentional reduction in our residential mortgage portfolio, elevated payoffs in our pre-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 surfacing 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.
Ronald Ohsberg
Ron, thanks, Ned, and good morning, everyone. For the first quarter, we reported net income of $12.2 million or $0.63 per share, excluding two infrequent transactions that I will discuss shortly. Adjusted net income amounted to $11.8 million or $0.61 per share.
Net interest income was $36.4 million, up by $3.5 million or 11% on a quarter basis. The margin was 229, 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 $4.8 million 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 million was recognized within non-interest income. Excluding infrequent transactions, adjusted net income amounted to $15.6 million and was down $394,000 or 2%.
Wealth management revenues were $9.9 million, down by $158,000 or 2%, and mortgage banking revenues totaled $2.3 million, down $544,000 or 19%. Our mortgage pipeline at March 30th was $95 million up by $35 million or 59% from the end of December.
Turning to expenses in connection with our previously disclosed termination of our qualified pension plan assets were distributed in Q1, which resulted in a pre-tax non-cash pension settlement charge of $6.4 million being recognized within the non-interest expenses.
This charge reflected the recognition of pre-tax actuarial losses previously reported as a reduction in AOCI. Excluding the pension settlement, adjusted non-interest expenses totaled $35.8 million up by $1.5 million 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 $3.5 million 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 million or 1% from December 31. This included a 1% reduction in residential loans, as well as a 1% reduction in commercial loans due to higher than expected pay downs. In market deposits were up by $195 million or 4%. Broker deposits were down by $270 million and FHLB borrowings were down by $275 million reflecting increases in deposits and the redeployment of cash resulting from the balance sheet repositioning.
A loan to deposit ratio decreased from 105.5% to 100.7%. Total equity amounted to $522 million on March 31, up by $22 million 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-occurring loans were 0.42%. At March 31 and past due loans were 0.20% on total loans. The allowance total of $41.1 million or 81 basis points of total loans and provided MPL coverage of 190%. The first quarter provision for credit losses was $1.2 million.
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 $2.3 million in the first quarter.
And at this point I will turn the call back to Ned.
Edward Handy
Thank you, Ron, and at this point we'll open it up for questions.
Operator
(Operator Instructions)
Mark Fitzgibbon, Piper Sandler.
Mark Fitzgibbon
Hey guys, good morning.
Ronald Ohsberg
Morning, Mark.
Mark Fitzgibbon
Hey Ron, I was curious, how much will the quarterly operating cost be impacted as a result of the sale lease back and the pension curtailment or maybe asked a different way, what do you think sort of run rate operating expenses will look like going forward?
Ronald Ohsberg
Yeah, so on an annual basis, the sale lease back adds about net $700,000 to occupancy and equipment, but that was all embedded in the guidance that we gave in January.
Mark Fitzgibbon
Okay. And what about the pension curtailment impact?
Ronald Ohsberg
Yeah, I don't think 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 in the first quarter is for expenses both on the salary line and on the other expense line is consistent.
Mark Fitzgibbon
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?
Edward Handy
Yeah, Mark, it's a little over $100 million on the commercial side, which is not, historic highs but maintained despite about $50 million of formation in the first quarter. So you know 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, still reachable and there's a lot of good activity going on. Mary, I don't know on the resi side you want.
Mary Noons
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, feed generation, but it's up from where it was at 331.
Mark Fitzgibbon
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?
Ronald Ohsberg
Yeah, 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 [235] for the quarter and then we'll see what happens.
Mark Fitzgibbon
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?
Ronald Ohsberg
Yeah, we'd like to see it lower, obviously we, as we've said that and we have no intention of reducing it so that from this point forward I think that the point is to be improving that 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 likely to increase the dividend anytime soon for sure.
Mark Fitzgibbon
Right, but do you feel like that could constrain your ability to grow when the environment starts to get better if you've got such a high payout ratio?
Ronald Ohsberg
Yeah. Well, it could, we'll just have to see when we get there.
Mark Fitzgibbon
Thank you.
Operator
Damon DelMonte, KBW.
Damon DelMonte
Thank you. Good morning. So I just wanted to circle back on the margin. If we do see a couple rate cuts in the latter part of this year, how has your interest rate sensitivity changed given the restructuring and other items that have occurred in the last, few months for you guys?
Ronald Ohsberg
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 you know 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, 5 basis points or 6 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.
Got it. Okay, but I don't think you'll see the, yeah, I don't think you'll see the expansion that we saw in the third and fourth quarter. Just because of the restructuring.
Damon DelMonte
Got it. Okay, that's good. And then, you guys have 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 can you just provide a little color on that?
Ronald Ohsberg
Yeah, 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 you know we. Tried a couple of promotions in the quarter on both the CD and on the on the money market side and so a good deposit growth. So we'll see if we're able to maintain that.
Damon DelMonte
Got it. Okay, great, that's all that I had for now. Thank you.
Ronald Ohsberg
Great. Thanks.
Edward Handy
Thanks Dan.
Operator
Laurie Hunsicker, Seaport Research Partners.
Laurie Hunsicker
Great. Hi, thanks. Good morning. Just going back to expenses, so when in the quarter did the sale lease back happen?
Ronald Ohsberg
Well, it happened in February and March.
Laurie Hunsicker
Okay, so we really didn't see the. The drag back in. So 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, as we're looking at the core number here, the $35.8 million that probably still jumps to about $37 million even though things like no removal, etc. Come out.
Ronald Ohsberg
Yeah, so I think my guidance at year end was, for all other expense, which that would be in there about $13.5 million a quarter, we were 13.3% in the first quarter, but the 13.5%, I think is a good estimate for the non-salary expense line.
Laurie Hunsicker
Okay, and then what the $2.7 million, the other -- was there anything non-recurring in that that compares to humiliate in the four quarter.
Ronald Ohsberg
The other, at year end we had some, accrual adjustments and you know there's, it's all other, right, so there's nothing notable going through there.
Laurie Hunsicker
Okay, and then last question on the census here, you're still planning to make a charitable foundation contribution in the fourth quarter? Is that right? (inaudible) 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?
Ronald Ohsberg
I do. Yeah, from March it was 231.
Laurie Hunsicker
231, okay great. And then going to credit and I appreciate all the details you give but can you just refresh that specifically on some of these office properties and then just help us think about the Class B that dropped from $10 million last quarter down to $7.6 million.
Was that all charge off or did something cure or how should we think about that? And I guess specifically, around the loans that I would love a refresh. I know you had a, and these are numbers from last quarter $7.8 million Class B that was 50% vacant.
It was still performing. Is it, how do you think about that? You had a new non-performer that come up and is that still planned to resolve into two. You obviously have the $3.4 million Class B. It 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 $20.5 million lab, 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 anything on those four properties would be super helpful.
Ronald Ohsberg
Yeah, I'll turn it over to Bill. I mean, we did see a reduction, Laurie and within non-accrual it's one relationship that has two loans, that has three buildings in there, and so one of them has been under PNS. I think we talked about that on the call, that's about $3.3 million 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 is secured by the two properties, so that's the only change quarter over quarter in the reported balances, but Bill, I'll just let provide a little bit of color on the loans that we're talking about.
William Wray
Sure, Ron. So as Ron said about of that non-accrual we can it'll close when it closes, but we believe it is very likely that we'll get that knocked down by 3 -- about 3.3 million, and then we'll have the remaining non-accrual that's the other half of that relationship, and that is where the charge up 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 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 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 sign leases, would be reevaluating the classification on that.
And then was there another top you had a question on?
Laurie Hunsicker
Yeah, well, just on that $2.5 million lab, is that still due in the fourth quarter, or is there any movement on extending that?
William Wray
Let's see, we did to one year extensions that went through 2026 as they put in the, 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 2026 when this comes back up.
Ronald Ohsberg
Bill, I think it's the end of 2026.
William Wray
Okay. Yeah, I'm sorry, I was (inaudible)
Laurie Hunsicker
But I'm here with you guys with a lot of detailed questions, and Bill, just to go back to the one that you took the charge off on, which loan was that? Was that the Class B office that was due this quarter.
William Wray
Yes.
Laurie Hunsicker
Okay, got you. And is that still, I mean, I had in my notes I was sitting around 70% vacant. Is that still the case or has that improved at all?
William Wray
It's 50% and again thankfully through all these they continue to pay so they're still current, but it's 50% occupied at this point.
Laurie Hunsicker
So it's gotten better. Okay, that's great. I really appreciate the details there and then now just last question for you. With sort of earnings clarity, dividend coverage clarity, etc. Really starting to shine, and the fact now that your stock is 20%-plus lower than where you did the spot, how do you think about buybacks? How does the (inaudible) think about buybacks?
William Wray
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 Enron, you should talk about the current state of approvals. I mean, I know we let the approval.
Ronald Ohsberg
So we, right, so we don't have a plan currently in place, Laurie, but it is something that we're really looking at.
Laurie Hunsicker
Okay, great, that's helpful. Thanks for taking my question.
Edward Handy
Yeah. Thanks, Laurie.
Operator
(Operator Instructions) There are no more questions for you. I'd like to pass the covers over to our hosting team for closing remarks.
Edward Handy
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.
Operator
That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.
