Good morning, and welcome to Washington Trust Bancorp Inc.'s conference call. My name is Lydia, and I will be your operator today. [Operator Instructions] Today's call is being recorded. I'd like to turn the call over to Sharon Walsh, Senior Vice President and Director of Marketing and Corporate Communications. Ms. Walsh, over to you.

Thank you, Lydia. Good morning, and welcome to Washington Trust Bancorp, Inc.'s conference call for the second quarter of 2025. Joining us this morning are members of the 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; 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 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 you to today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon. And good morning, and thank you for joining our second quarter conference call. We respect and appreciate your time and your 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&A session. Washington Trust second quarter results reflect our diversified business model performing positively. We realized growth in net interest income, wealth management revenue and mortgage banking revenue and we continue to build capital. This was a solid quarter with loan and deposit growth on target. This quarter, while we continue to focus on deposit generation, we enhanced our wealth management team with the addition of a new client services manager and business development additions to our wealth advisory and private clients teams. This added expertise will be instrumental as we continue to grow and evolve to meet the needs of our clients and communities and continue to provide the highly personalized consultative experience that has defined our firm for generations. Also in the quarter, we finalized the conversion of our core wealth management system, which will ensure enhanced customer experience. The company remains committed to providing exceptional full-service banking, mortgage and wealth services to our customers and is focused on continuing to be a financial partner that provides solutions and resources that customers need for all life stages and the unique opportunities and challenges that come with those milestones. I'll now turn the call over to Ron for some additional details on the quarter. We'll then be glad to address any of your questions. Ron?

Thank you, Ned, and good morning, everyone. For the second quarter, we reported net income of $13.2 million or $0.68 per share compared to $12.2 million and $0.63 per share last quarter. As previously disclosed, there were 2 infrequent items included in first quarter results, a pension termination charge and a sale leaseback net gain. Excluding these items, adjusted net income increased by $1.5 million or $0.07 per share. Net interest income was $37.2 million, up by $763,000 or 2% on a linked quarter basis. The margin was $2.36, up by 7 basis points. Noninterest income totaled $17.1 million in Q2. Excluding Q1 sale leaseback net gain of $7 million, adjusted noninterest income was up by $1.4 million or 9%. Wealth management revenues were $10.1 million, up by $229,000 or 2%, reflecting an increase in transaction-based and seasonal tax servicing fee income. Asset-based revenues were down modestly, reflecting a decline in average AUA balances. However, at the end of period AUA balances totaled $7.2 billion, up by $363 million, or 5%. Mortgage banking revenues totaled $3 million, up by $730,000, or 32%. Our mortgage pipeline at June 30 was $102 million, up $6 million or 7% from the end of March. Loan related derivative income, which is transactional in nature, totaled $676,000 in the second quarter compared to $101,000 in Q1. Noninterest expense totaled $36.5 million in Q2, excluding Q1's pension plan settlement charge of $6.4 million, adjusted noninterest expense was up by $770,000 or 2% on a quarter basis. Salaries and benefits expense was up by $603,000 or 3%, largely due to volume-related increases in mortgage originator compensation. Income tax expense in the second quarter totaled $3.9 million and the effective tax rate was 22.7%. Our full year effective tax rate is expected to be 22.4%. Turning to the balance sheet. Total loans were up by $44 million or 1%. Total commercial loans increased by $57 million or 2%, while residential loans decreased by 1%. In-market deposits were up by $30 million or 1% from the end of the first quarter and by $407 million or 9% on a year-over-year basis. Brokered deposits were down by $25 million and FHLB borrowings were up by $151 million. Our asset and credit quality metrics remained solid. Nonaccruing loans were 51 basis points and past due loans were 27 basis points compared with total loans. The allowance totaled $41.1 million or 80 basis points on total loans and provided NPL coverage of 157% and the second quarter provision for credit losses was $600,000. We had net charge-offs of $647,000 in the second quarter. And at this time, I will turn the call back to Ned.

Thanks, Ron. And Lydia, we can open it up to questions.

[Operator Instructions] Our first question today comes from Mark Fitzgibbon with Piper Sandler.

First question, Ron, I had for you was sort of how you're thinking about the net interest margin and what you're assuming for Fed rate cuts in the back half of the year?

Yes. So for the third quarter, I would say you can see our margins starting to level out. So I think we're expecting a pretty modest expansion in the margin, maybe only a couple of basis points in the third quarter. What we are seeing higher than previously rated deposit costs. So that kind of reaching the top on that. As far as the Fed, we're a lot less liability sensitive than we were last fall when the Fed was cutting. And I think we did a good job last fall of repricing our deposits down. We will aggressively reprice our deposits down as much as we feel, we can without causing attrition if the Fed indeed does start to cut, but I don't think that we'll necessarily see as much impact as we did in the third and fourth quarter of last year.

Okay. Great. And then it looked like you had pretty good mortgage origination, this quarter, I think $181 million. I guess I was curious, how much of that was purchase versus refi? And also, what was the mix between sort of hybrid ARMs and 30-year fixed?

Mark, this is Mary. We have about 75% of our origination related to the purchase market. It goes as high as 80% depending on the time frame. As far as the mix, predominantly the salable is 30-year fixed. But we do some origination into portfolio that is hybrid ARMs mostly 7/1.

Okay. Great. And then I guess, Ned, I'm curious with all the consolidation that we've seen up in Massachusetts this recently, it would seem like kind of an opportune time to maybe open some branches up there or even consider a merger with a bank up in the mass market since you have so much of your portfolio up there, and you have the mortgage business, the wealth business. I guess I'm curious, is that in the cards for you all, or how are you thinking about sort of strategic expansion into Massachusetts?

Yes, always on the list of possibilities. We think there's probably some talent opportunity. We've added a few people in wealth that have spent prior periods in their life in the Boston marketplace. We think, Mark, we've got locations in Rhode Island that we can build out where our brand is stronger before we jump into the Massachusetts as market on the de novo branching side. We'll see what comes out of the various transactions that are going on in terms of -- obviously, 1 of those transactions has Rhode Island presence. That's going to be interesting to see kind of what opportunities come out of that. M&A, our history, nobody would accuse us of being overly acquisitive. But if the right transaction were to come up at the right price point and enabled us to grow reasonably, we'd have to think about it. So I think we've got work to do...

What about the other -- what about -- I'm sorry.

Go ahead. No, no, go ahead.

I was going to say, what about the other way, there is some much bigger banks up in Massachusetts now that seem to be looking south would -- could Washington Trust be a target for 1 of those banks at some point?

I suppose we could. We haven't -- it hasn't come to our attention yet. We think we're -- obviously, Mark, our job is to try and maintain independence, and we know we have earn that, and we know we've got work to do on the organic front to assure that and that's where we're focused. And so we're -- we like our independence, and we want to stay independent. We'd rather be an acquirer than acquired. But that's always -- obviously, we have a fiduciary duty to respond to any kind of activity, but we haven't seen any yet.

Okay. And then lastly, and I hate to beat a dead horse here because I've asked about this in the past, but we've had, I think, 13 consecutive quarters of net outflows in the wealth management unit. Could you talk about maybe some of the things you're doing to try to stem that or change the direction?

Yes. As I pointed out, we've added some talent not, not hundreds of people, but a few people that are going to add to our client service capabilities and our sales capabilities in the Private Clients Group. We just finished the conversion of our wealth core system, which I know will create a better customer experience going forward. That's just being rolled out now. I think we've talked about small M&A activity in the -- primarily in the Rhode Island marketplace, where our brand is strongest and that continues to be in our sort of strategic plan. So -- and I think -- there's a little bit of marketing activity and that we're embarking on. But I think the combination of all those things, there's no silver bullet market. It's a hard business to grow organically. We know that. You've made that point, and you're not wrong that in addition to market support, we need to see net growth. And so we're -- all I can tell you is that we're focused on that incrementally on a lot of fronts.

Our next question comes from Damon DelMonte with KBW.

I guess first question on loan growth. Good to see some positive movement here with, I think you had about 3% linked quarter annualized for the whole portfolio. But you really got the majority of the growth on the commercial side, about 9%. Could you just talk a little bit about kind of how your pipelines are looking today and kind of what your expectations are here for the back half of the year?

Yes. Thanks, Damon. Yes, we were happy with the growth and the pipeline continues to grow. At quarter end, it was close to $145 million, which is not the highest it's been over the last 5 to 10 years, but it's up substantially from the end of first quarter with pretty equal balance between C&I and CRE. We're happy with the activity levels and continue to support kind of the low single-digit growth for the year. The second quarter was obviously strong. Payoffs were down a little bit. We do have some projected payoffs still in the second half of the year. So I think we stay with the guidance that we've given, but we're happy with the growth in the quarter.

How would you characterize the sentiment of your borrowers today versus, call it, 90 days ago, when there was a lot more uncertainty coming out of D.C. Do you feel like people are believing in the economy and believing in their businesses and looking to take the next step forward with investing, or do you think there's still some of skepticism out there?

Yes, it's interesting. I've been looking at some of the larger regional bank reports, and I've seen a couple of people comment on higher utilization of lines. We haven't necessarily seen that. And we don't have a whole lot of lines of credit, but I think there's still a level of uncertainty. On the real estate side, I think projects are costing more and people are being all the more careful for it. I think investment in machinery and equipment is not -- certainly not back to sort of the old days. But I think people are optimistic but careful, I would say. And I think we're -- put us in the same category. We're optimistic about the opportunities we're seeing. We're seeing some -- a little more construction opportunity, although that's slowed down a fair amount in our footprint. So I'd say it's a little better than lukewarm, but it's not quite warm yet. How is that?

That sounds good. That's good characterization. And then I guess on the fee income, the swap gains were up or the derivative income was very strong this quarter. Do you think that, based on what you're seeing today, like you could kind of repeat a level of this quarter? Or do you think it kind of goes back to a more normalized level after this quarter's results?

I would lean towards more normal. I mean, they're hard to predict, right? They're chunky in nature. And we're working with our customers and making sure that they understand that the product is available to them ultimately, it's whatever works best for the customers. But I think we're pushing that a little harder than we were, say, last year. So hard to know Damon exactly what we'll comment on that.

[Operator Instructions] We have a question from Laurie Hunsicker with Seaport Research Partners.

Just saying it was noninterest income for a moment, the BOLI looked a little bit outside. So was there anything onetime in that?

No.

Okay. Okay. And then just going back to NIM here. Your wholesale brokered down to almost 0, which is great. But obviously, you had a sharp jump in your FHLBB. How do we think about that? And do you have a spot margin for us for the month of June?

Yes. I'll start with the spot margin, which was 238. And so wholesale funding, whether it's brokered or FHLB is really just a balancing function on the rest of the balance sheet. We're probably carrying a little bit higher interest-bearing deposits at other banks just from a timing standpoint, so we will pay down that FHLB with excess cash as soon as those advances hit maturity. So there's no particular reason for it, Laurie, other than that just kind of what the balance sheet called for. Brokered CDs are way down because they're just not economical for us right now. They're -- we look at those as interchangeable with FHLB just depending on price and the CD market is just more expensive than FHLB. So we're not doing it.

Okay. Okay. That's helpful. And then on expenses, the sale leaseback that you did, is that fully reflected from an standpoint this quarter, or just remind me when that happened last quarter, what was the timing?

Yes. It happened in the -- we did them in the first quarter. And so I think the leases kicked in February. So that's all in there. And it was in the guidance that I gave back in January.

Right. Okay. So we had about half a quarter expense last quarter to fully in this quarter.

Yes.

Okay. Great. And then -- okay. And then any de novos planned for this year, next year? How do you think about that?

Next year. Middle of next year.

And how many are you looking at?

Right now, it's 1.

Okay. Okay. Great. And then just going back over to loan growth, your multifamily growth was substantial this quarter and even last quarter too, but really this quarter. Can you just remind us, I don't think there's anything, but can you just remind us, do you have any New York City rent controlled exposure? Do you have any New York City exposure? How should we think about that?

Hi, Laurie, this is Bill. No, we don't.

Great. Okay. And Bill, probably these next few questions are for you. So just touching here a non-performers. Can you go through that uptick that C&I nonperformer, that [ $9.4 million? ] Any details on that loan, timings, specific reserves, just how you're thinking about that?

This is a potential $11 million exposure to a broadband infrastructure contractor. What happened was during the quarter, their largest customer backed out of a major contract. They had to file for Chapter 11 due to cash flow. We're part of a bank syndicate pushing for expeditious resolution. We have -- we think, appropriate specific reserves. We expect this will be at least partially resolved this year before the end of the year.

Okay. And sorry, how much in reserves do you have on this specific loans?

We have the appropriate amount. I'm sorry to be...

No. I get that. Okay. And then obviously, your -- the Class B office nonperformer the $3.3 million you all said would resolve, resolve which is great. Just are there any details you can share just generally with respect to that resolution? Then I know you had another credit that was part of that same relationship the $4.3 million, which I think is the only pre-nonperformer that you have. Can you update us on the vacancy and the timing of that? And just anything around that would be...

Sure. Just 1 -- as you noted, 1 was sold, that actually was prompted by 1031. So we were pleased to see that go at a loss, but not a reasonable loss. And then on the remaining nonperformer, it's 50% vacant. They are paying. They are trying, they are seeing some leasing activity, but we're not seeing it to be a lot of positive momentum there. So that one, we're still watching carefully, trying to push for expeditious resolution, if we can.

And that is likely going to be resolved? And what do you think in the next couple of quarters, or how do you think about that?

That would be our hope. But right now, they're paying. They're supporting the property, and we're -- it's -- the office market doesn't have demand that's really easily to estimate. So we're pushing all things that we can, looking for potential owner occupancy type sales, maybe other 1031. So I couldn't give you a time line on that other than that we will resolve it as soon as is appropriate.

Okay. Okay. And then just to remind us, I know you took a charge-off last quarter. What's the reserves on that specific loan?

That loan has been -- that loan has been appropriately reduced via a charge-off to the right carry value based on accounting rules. So I don't want to get any more specific than that if I can avoid it.

Okay. Okay. Right. And the $21.5 million the new construction that's part of the [indiscernible], the lab, the $21.5 million. Do you have any updates on that?

Yes, that's gone from 50% to 62% leased. And if we -- things keep moving, it's on track for 70%. If we -- for this LOI out for that, we hope. So good momentum on that project still classified where it is, but we think it's got some traction.

Okay. Okay. Great. I know I asked a lot of questions on credit here. Your credits is really good, but just wanted some details. And I guess, Ned, just very high level back to you. Your capital levels are strong, your stock is still sitting here 15% below your cap rates. Can you talk a little bit about how you're thinking about buyback consideration?

Yes, Laurie, we have the approval in place and Ron, we dipped our toe in the water for a day. Laurie, we really decided that capital preservation and growth is a more prudent thing for us right at the moment. And it's something we keep our eyes. Ron, I don't know if you have.

Yes. Laurie, listen, it's tempting and I can certainly make an argument. And as Ned said, we actually did initiate for a single day. and then decided that we're more focused on operations and just kind of -- our capital is fine, and we think we'd like to have a little bit more. So that's kind of where we are at the moment.

Okay. And how many shares buyback in the quarter?

I think it was 10,000.

We have no further questions. So I'll pass you back over to Ned Handy for any closing comments.

Great. Thanks, Lydia, and thanks, everybody. I hope we presented a clear picture of the current state and our focus going forward. And as we near our company's 225th birthday next month, we want to say thank you to our customers for entrusting us as their partner along their journeys, to our employees past and present for bringing their expertise in heart to every customer interaction and to our shareholders for continuing to support our vision and investing in community banking in general. We certainly appreciate your time today and look forward to speaking to you all again soon. Thanks, everybody. Have a great day.

This concludes our call today. Thank you for joining. You may now disconnect your lines.