Washington Trust Reports Fourth Quarter and Full-Year 2024 Results

On December 20, 2024, the Corporation announced the execution of balance sheet repositioning transactions to support continued organic growth and capital generation.  The Bank sold available for sale debt securities with an amortized cost balance of $409 million (fair value of $378 million) and a weighted average yield of 2.65% and reinvested $378 million into purchases of available for sale debt securities with a weighted average yield of 5.30%.  The sale of debt securities resulted in a net pre-tax realized loss of $31.0 million (after-tax of $23.5 million) that was recognized in the fourth quarter of 2024.

Pursuant to the terms of a sales agreement effective December 30, 2024, the Bank committed to sell residential mortgage loans with an amortized cost balance of $345 million and a weighted average rate of approximately 3.02%.  These loans were reclassified to held for sale and written down to a fair value of $282 million, resulting in a net pre-tax loss of $62.9 million (after-tax of $47.7 million) that was recognized in the fourth quarter of 2024.  The sale of these loans was completed on January 24, 2025.  The net proceeds received from the equity offering were used, and the proceeds from the loan sale will be used, to pay down wholesale funding balances.

"Washington Trust's 2024 results reflect the strategic actions we took in December to reposition our balance sheet," stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer.  "Though the sales resulted in a loss recognized in the fourth quarter, the equity offering and repositioning will favorably impact future revenues and provide additional capacity for growth and investment.  This strategy has further strengthened our financial foundation, allowing us to focus on providing enhanced value for our shareholders, as well as the customers and communities we serve."

For the full-year ended 2024, the Corporation reported a net loss of $28.1 million, or a loss per diluted share of $1.63, compared to net income of $48.2 million, or earnings per diluted share of $2.82, reported for the prior year.  In addition to the losses recognized on the sale transactions mentioned above, noninterest income included the receipt of a $2.1 million ($1.6 million after-tax) litigation settlement in the first quarter of 2024 and a gain of $988 thousand ($739 thousand after-tax) on the sale of a bank-owned operations facility in the second quarter of 2024.  Additionally, in 2023, a state legislative tax change resulted in a reduction in income tax expense of $3.3 million.  Excluding these items, full-year 2024 adjusted net income (non-GAAP) was $40.9 million, or $2.37 per diluted share, compared to adjusted net income (non-GAAP) of $44.9 million, or $2.63 per diluted share, reported for the prior year.

Other selected financial highlights for the fourth quarter and full-year 2024 include:

• The net interest margin was 1.95% in the fourth quarter, up by 10 basis points from the 1.85% reported in the preceding quarter. Full-year net interest margin for 2024 was 1.87%, down by 18 basis points from the 2.05% reported in the prior year.
• A provision for credit losses of $1.0 million was recognized for the fourth quarter, up by $800 thousand from the third quarter. The provision for credit losses in 2024 totaled $2.4 million, compared to $3.2 million recognized in the prior year.
• Wealth management revenues in the fourth quarter increased by 1% from the preceding quarter. End of period assets under administration ("AUA") totaled $7.1 billion, up by 0.4% from September 30, 2024 and up by 7% from December 31, 2023.
• Mortgage banking revenues in the fourth quarter decreased by 1% from the preceding quarter. Full-year 2024 mortgage banking revenues were $11.0 million, up by 65% from the same period in the prior year.
• Total loans amounted to $5.1 billion, down by 7% from September 30, 2024 and down by $510 million, or 9%, from December 31, 2023, largely due to the reclassification of residential mortgage loans to held for sale in connection with the balance sheet repositioning transactions.
• In-market deposits (total deposits less wholesale brokered deposits) amounted to $4.8 billion, up by 1% from September 30, 2024 and up by 3% from December 31, 2023.

Net Interest Income
Net interest income was $32.9 million for the fourth quarter of 2024, up by $674 thousand, or 2%, from the third quarter of 2024.  The net interest margin was 1.95% for the fourth quarter, an increase of 10 basis points from the preceding quarter.  This improvement reflected the partial impact on the quarter of the December balance sheet repositioning transactions, and the net effect of lower market rates on deposits, wholesale funds, and variable rate loans.  Linked quarter changes included:

• Average interest-earning assets decreased by $235 million, reflecting a decline of $119 million in deposits at correspondent banks, as well as decreases in loans and securities. The yield on interest-earning assets for the fourth quarter was 4.83%, down by 16 basis points from the preceding quarter.
• Average interest-bearing liabilities decreased by $251 million, as in-market deposits increased by $96 million while wholesale funding balances decreased by $347 million. The cost of interest-bearing liabilities for the fourth quarter of 2024 was 3.41%, down by 29 basis points from the preceding quarter.

Noninterest Income
Noninterest income was a loss of $77.9 million for the fourth quarter of 2024, compared to income of $16.3 million in the third quarter of 2024.  Included in noninterest income in the fourth quarter of 2024 was a pre-tax loss of $93.9 million recognized on the aforementioned balance sheet repositioning sale transactions.  Adjusted noninterest income (non-GAAP) was $16.0 million, down by $229 thousand, or 1%, from the preceding quarter.  Our two largest sources of noninterest income are discussed below:

• Wealth management revenues amounted to $10.0 million in the fourth quarter of 2024, up by $60 thousand, or 1%, from the preceding quarter. This included an increase in asset-based revenues of $140 thousand, or 1%, which was partially offset by a decrease in transaction-based revenues of $80 thousand, or 37%. The end of period AUA balance at December 31, 2024 amounted to $7.1 billion, up by $25 million, or 0.4%, from September 30, 2024.
• Mortgage banking revenues totaled $2.8 million for the fourth quarter of 2024, down by $18 thousand, or 1%, from the preceding quarter. Loans sold amounted to $113.1 million in the fourth quarter of 2024, down by $7.2 million, or 6%, from the third quarter of 2024. In the fourth quarter of 2024, 88% of residential real estate loan originations were originated for sale, compared to 81% in the preceding quarter.

Noninterest Expense
Noninterest expense totaled $34.3 million for the fourth quarter of 2024, down by $212 thousand, or 1%, from the third quarter of 2024.  Salaries and employee benefits expense, our largest component of noninterest expense, amounted to $21.9 million, up by $525 thousand, or 2%, from the preceding quarter, largely reflecting adjustments to performance-based compensation accruals.  The linked quarter increase in salaries and employee benefits expense was more than offset by a timing-related decline in advertising and promotion expense and other modest changes across a variety of expense categories.

Income Tax
For the fourth quarter of 2024, an income tax benefit of $19.5 million was recognized, reflecting an effective tax rate of 24.2%.  Excluding the impact of the balance sheet repositioning sale transactions, adjusted income tax expense (non-GAAP) was $3.2 million, reflecting an adjusted effective tax rate (non-GAAP) of 23.7%, compared to income tax expense of $2.8 million, reflecting an effective tax rate of 20.6% in the preceding quarter.  Based on current federal and applicable state income tax statutes, the Corporation currently expects its full-year 2025 effective tax rate to be approximately 22.5%.

Investment Securities
The securities portfolio totaled $916 million at December 31, 2024, down by $57 million, or 6%, from September 30, 2024.  The linked quarter included the balance sheet repositioning securities transactions mentioned above and reflected a temporary decrease in the fair value of available for sale securities, as well as routine pay-downs on mortgage-backed debt securities.  The securities portfolio represented 13% of total assets at December 31, 2024, compared to 14% of total assets at September 30, 2024.

Loans
Total loans amounted to $5.1 billion at December 31, 2024, down by $377 million, or 7%, from the end of the preceding quarter.  These changes included:

• Residential real estate loans decreased by $403 million, or 16%, from September 30, 2024, largely reflecting the reclassification of $345 million to held for sale.
• Commercial loans increased by $29 million, or 1%, from September 30, 2024.
• Consumer loans decreased by $2 million, or 1%, from September 30, 2024.

Deposits and Borrowings
Total deposits amounted to $5.1 billion at December 31, 2024, down by $56 million, or 1%, from the end of the preceding quarter.

In-market deposits, which exclude wholesale brokered deposits, amounted to $4.8 billion at December 31, 2024, up by $26 million, or 1%, from September 30, 2024.  As of December 31, 2024, in-market deposits were approximately 59% retail and 41% commercial.  The average size of our in-market deposit accounts was approximately $37 thousand at December 31, 2024.

Wholesale brokered deposits amounted to $298 million and were down by $82 million, or 22%, from September 30, 2024.  FHLB advances totaled $1.1 billion at December 31, 2024, down by $175 million, or 13%, from September 30, 2024.  The linked quarter decrease reflected the use of excess cash liquidity and the net proceeds from the equity offering to pay down wholesale funding balances.

As of December 31, 2024, contingent liquidity amounted to $1.5 billion and consisted of available cash, unencumbered securities, and unused collateralized borrowing capacity.

Asset Quality
Nonaccrual loans were $23.3 million, or 0.45% of total loans, at December 31, 2024, compared to $31.1 million, or 0.56% of total loans, at September 30, 2024.  The composition of nonaccrual loans at December 31, 2024 was 45% commercial and 55% residential and consumer.  The net decrease in nonaccrual loans in the fourth quarter was largely attributable the resolution of one commercial real estate loan totaling $10.5 million, partially offset by another commercial real estate loan totaling $3.3 million that was placed on nonaccrual status.

Past due loans were $12.0 million, or 0.23% of total loans, at December 31, 2024, compared to $20.3 million, or 0.37% of total loans, at September 30, 2024.  The composition of past due loans at December 31, 2024 was 8% commercial and 92% residential and consumer.  The decrease in past due loans in the fourth quarter was largely due to the resolution of the commercial real estate loan noted above.

The allowance for credit losses ("ACL") on loans amounted to $42.0 million, or 0.82% of total loans, at December 31, 2024, compared to $42.6 million, or 0.77% of total loans, at September 30, 2024.  The ACL on unfunded commitments, included in other liabilities on the Consolidated Balance Sheets, was $1.4 million at December 31, 2024, compared to $1.6 million at September 30, 2024.

The provision for credit losses totaled $1.0 million in the fourth quarter of 2024, up by $800 thousand from the preceding quarter, reflecting specific reserve allocations on individually analyzed nonaccrual commercial loans, partially offset by the decline in residential mortgage loan balances described above and relatively stable to improving forecasted economic conditions.  Net charge-offs amounted to $1.9 million in the fourth quarter of 2024, compared to $48 thousand in the preceding quarter.  The charge-offs recognized in the fourth quarter were concentrated in commercial real estate office portfolio segment.

Capital and Dividends
Total shareholders' equity was $499.7 million at December 31, 2024, down by $2.5 million, or 0.5%, from September 30, 2024.  A net loss of $60.8 million, dividend declarations of $10.8 million, and a decrease of $2.0 million in the accumulated other comprehensive income ("AOCI") component of shareholders' equity were largely offset by $70.5 million of net capital raised from the equity offering.

The Board of Directors declared a quarterly dividend of 56 cents per share for the quarter ended December 31, 2024.  The dividend was paid on January 15, 2025 to shareholders of record on January 2, 2025.

Capital levels at December 31, 2024 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 12.47% at December 31, 2024, compared to 12.21% at September 30, 2024.  Book value per share was $25.93 at December 31, 2024, compared to $29.44 at September 30, 2024.

Conference Call
Washington Trust will host a conference call to discuss its fourth quarter results, business highlights, and outlook on Thursday, January 30, 2025 at 8:30 a.m. (Eastern Time).  Individuals may dial in to the call at 1-833-470-1428 and enter Access Code 731757.  An audio replay of the call will be available, shortly after the conclusion of the call, by dialing 1-866-813-9403 and entering the Replay Access Code 473209.  The audio replay will be available through February 13, 2025.  Also, a webcast of the call will be posted in the Investor Relations section of Washington Trust's website, https://ir.washtrust.com, and will be available through March 31, 2025.

Background
Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company.  Founded in 1800, Washington Trust is the oldest community bank in the nation, the largest state-chartered bank headquartered in Rhode Island and one of the Northeast's premier financial services companies.  Washington Trust offers a full range of financial services, including commercial banking, mortgage banking, personal banking, and wealth management and trust services through its offices located in Rhode Island, Connecticut, and Massachusetts.  The Corporation's common stock trades on NASDAQ under the symbol WASH.  Investor information is available on the Corporation's website at https://ir.washtrust.com. 

Forward-Looking Statements
This press release contains statements that are "forward-looking statements."  We may also make forward-looking statements in other documents we file with the U.S. Securities and Exchange Commission ("SEC"), in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors, or employees.  You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters.  You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties, and other factors, some of which are beyond our control.  These risks, uncertainties, and other factors may cause our actual results, performance, or achievements to be materially different from the anticipated future results, performance, or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following:

• changes in general business and economic conditions on a national basis and in the local markets in which we operate;
• changes in customer behavior due to political, business, and economic conditions, including inflation and concerns about liquidity;
• interest rate changes or volatility, as well as changes in the balance and mix of loans and deposits;
• changes in loan demand and collectability;
• the possibility that future credit losses are higher than currently expected due to changes in economic assumptions or adverse economic developments;
• ongoing volatility in national and international financial markets;
• reductions in the market value or outflows of wealth management AUA;
• decreases in the value of securities and other assets;
• increases in defaults and charge-off rates;
• changes in the size and nature of our competition;
• changes in legislation or regulation and accounting principles, policies, and guidelines;
• operational risks including, but not limited to, changes in information technology, cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest, and future pandemics;
• regulatory, litigation, and reputational risks; and
• changes in the assumptions used in making such forward-looking statements.

In addition, the factors described under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC, may result in these differences. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans, and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Supplemental Information - Explanation of Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures.  Washington Trust's management believes that the supplemental non-GAAP information, which consists of adjusted noninterest income, adjusted income before income taxes, adjusted income tax expense, adjusted effective tax rate, adjusted net income, adjusted net income available to common shareholders, adjusted diluted earnings per common share, adjusted return on average assets, adjusted return on average equity, and adjusted efficiency ratio, as well as measurements and ratios based on tangible equity and tangible assets, is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors.  These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures, which may be presented by other companies.  Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.