Good morning, and welcome to Washington Trust Bancorp, Inc.'s conference call. My name is Lydia, and I'll be your operator today. [Operator Instructions] Today's call is being recorded. And now I'll turn you over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications to begin. Please go ahead.

Thank you, Lydia. Good morning, and welcome to Washington Trust Bancorp, Inc.'s Conference Call for the Third 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 the 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's Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon. Good morning, and thank you for joining our third quarter conference call. We respect and appreciate your time and your interest in Washington Trust. I'll briefly comment on our financial results, and then Ron will provide more details on the quarter. After our remarks, Mary and Bill will join us for the Q&A session. This quarter, we realized net income of $10.8 million. We resolved 2 credit exposures that resulted in an elevated provision for credit losses this quarter as we detailed in an 8-K filed earlier this month. That said, we are confident in our current portfolio quality and that we will continue our long track record of strong credit performance. This quarter, we saw strong performance across our core business lines with increases in margin, wealth revenues and mortgage revenue. We also saw in-market deposit levels increase and AUM growth. This performance underscores our continued commitment to long-term value creation. Additionally, this quarter, we made several key investments to drive growth. We completed an asset purchase from Lighthouse Financial Management, which added AUM of approximately $195 million. This transaction also added 4 advisory and tax planning team members to our Wealth Management division. We also hired Jim Brown as Senior Executive Vice President and Chief Commercial Banking Officer. Jim has more than 38 years of experience in the financial services industry, an extensive network and a proven track record in leading high-performing commercial banking teams. He's focused on building and deepening our commercial relationships and will be working closely with our wealth division on continuing to integrate these services. We're pleased with the direction we are headed in and excited about our investments in future growth. We look forward to continuing to build long-term relationships with our customers and support their financial service needs throughout their lives, whether they are buying a home, starting a business or investing in their future. 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?

Okay. Thanks, Ned, and good morning, everyone. For the third quarter, we reported net income of $10.8 million or $0.56 per share compared to $13.2 million or $0.68 per share for the preceding quarter. Pre-provision pretax revenue, or PPNR, was up 17% from Q2 and 48% compared to the third quarter of last year. As previously disclosed, we resolved 2 significant credit exposures this quarter, which resulted in an elevated provision for credit losses. Net interest income in Q3 amounted to $38.8 million, up by $1.6 million or 4% on a linked-quarter basis and by $6.6 million or 20% year-over-year. The margin was 2.40%, up by 4 basis points and up by 55 basis points compared to last year. Noninterest income comprised 31% of revenue in Q3, up 3% compared to Q2 and up 8% year-over-year. Wealth management revenues were up 3%. This includes a 6% increase in asset-based revenues in Q3, reflecting market appreciation and the purchase of $195 million of managed assets from Lighthouse Financial Management. End-of-period AUA totaled $7.7 billion, up $501 million or 7%. Mortgage banking revenues totaled $3.5 million, up 15% for the quarter and 22% year-over-year. Noninterest expense totaled $35.7 million in Q3, down by $804,000 or 2%. Salaries and employee benefits expense was down by $351,000 or 2%, reflecting lower levels of performance-based compensation. Outsourced services declined by $284,000 or 6% due to lower third-party software costs and volume-related changes. Our full year effective tax rate is expected to be 22.5%. Turning to the balance sheet. Total loans were down by $18 million. In-market deposits were up $179 million or 4% from the end of Q2 and up by $431 million or 9% year-over-year. Wholesale funding was down 21% compared to June and 53% compared to last September, and our loan-to-deposit ratio decreased…

Thank you, Ron. We'll now take any questions you might have about the quarter. Thanks, Lydia.

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

Ned, I wonder if you could share with us how much you have in remaining shared national credits, how big that book is?

Yes. I'm going to turn to Bill on that, but it's a pretty limited portfolio.

It is. It's about $173 million, and it's split between C&I and commercial real estate.

Okay. And then secondly, Bill, while I've got you, I think last quarter in response to another analyst question, you said we have appropriate specific reserves on that one credit. I think you had $2.3 million against it. What changed from then until now that caused you to have to take another $6 million charge-off on that loan?

Sure. A lot of the other bank groups were in the exact same situation. We were operating off the information we had from our agent bank and the advisers in the context of a Chapter 11. There were 2 primary means of recovery in Chapter 11, both of which were significantly reduced following the end of the quarter in terms of the outcome. So they came in at about maybe 20% or so of what was -- what the expectations have been. We had done our reserving at the end of the second quarter based on what at the time was a fairly conservative view of what the recovery might be. It turns out that was certainly erroneous. And we, along with all the other banks, ended up taking a very significant loss.

Okay. And then I guess kind of a similar question on the office building sale, it looked like the reduction in value versus -- the charge-off necessitated essentially a 70% reduction in the value of the property versus where you were carrying it last quarter. I guess I'm curious, how could you be off by that much if you had recent appraisals and valuations done on it when it went nonaccrual.

Well, as required by accounting, we had this marked to its most current appraised value less selling costs. And that happened to be about 1/3 of what this property was originally estimated to be. So we had it marked down to what the appraiser suggested was the appropriate time, even accounting for difficult market. We ended up liquidating it because we weren't seeing any positive momentum. And as you understand, it's very difficult for appraisals of office properties in this market, especially when there's not consistent demand to get the numbers right. So ultimately, we decided that instead of a series of descending appraisals based on limited information, we take an actual note sale offer and dispose of it that way. So that's why that final mark was made.

Well, then I guess I'm curious, how do you have any confidence in any of the appraisals that you have on those other office portfolios? How do you -- what makes you feel comfortable that those are good numbers?

I feel comfortable those are good numbers because there are different properties in different markets. And so when there's some leasing momentum underway, appraisal estimates tend to have more validity. The actual submarket in which the final charge-off occurred was a town in Connecticut, where there had literally been no office deals done, no office leases in the last 2 years. So that's when we decided, especially because opportunities for alternative redevelopments weren't happening, we decided to take the loss and move on. Now I do want to also point out that, for example, we had another property in Connecticut that was also nonaccrual, happened to be related to the same borrower where we saw some momentum and we ended up recovering 90% of that with a short sale. So that's why I'm saying it's really -- it really comes down to the property and the market that it's in. And so I feel very comfortable that we're taking a conservative approach with our other office properties as well. We've got a very active watched asset process that -- where we're going over this as a senior team intensively once every -- at least once every quarter. And so we feel comfortable with our numbers.

Okay. But in fairness, Bill, you felt comfortable last quarter with the $2.3 million reserve on that loan as well.

We did along with about $200 million worth of other bank lenders.

He was talking about the size of deal.

Got you. Okay. Just changing gears, Ron, I wondered if you could share with us what client flows were in the Wealth Management business this quarter.

Yes. No, we're not doing client flows anymore.

Okay. You're just unwilling to share that anymore with us?

Yes. We brought our disclosures in line with our peers.

Okay. Lastly, I wonder if you could share with us any thoughts on the margin.

Yes. We're looking at margin expansion in the fourth quarter of, we'll call it, 5 basis points, plus or minus.

Our next question comes from Damon DelMonte with KBW.

So first question, I just want to talk a little bit about loan growth and kind of how you're looking at your pipelines going into year-end and kind of where you think that would be tracking after kind of a flattish third quarter here?

Yes. I think, Damon, we'll stick with the sort of the low single-digit growth for the year. We did have a couple of paydowns right at the end of the quarter. The pipeline is still kind of in the $180 million range. So pretty healthy from where it started at the beginning of the year. Really excited that we brought Jim Brown on board. He's got to bring a brand-new Rolodex of opportunities, COIs and the like to the bank, and he's already busy sort of strengthening the existing team and building bridges across our various businesses. And so I'm really excited about the prospects that he brings. But pipeline is healthy other than the formation in the quarter, actually, we had $115 million of new formation. We just had $103 million of payoffs. Some of them rather large right at the end of the quarter. So I'm going to stick with that sort of low single-digit growth, and we'll keep the pedal to the metal in the fourth quarter.

Got it. Okay. That's helpful. And then maybe one for Ron on the expense side here. With the addition of Lighthouse and then some hires that you guys have made and you kind of look at where expenses are kind of here in this last quarter, I mean, do you kind of expect things to kind of go back up towards like around a $36 million, maybe a little bit higher per quarter level once you kind of readjust for accruals and whatnot?

Yes. Yes. Yes. So Damon, I would say that the guidance that we provided in January was about $37 million per quarter, and we've been running below that pretty consistently for the first 3 quarters. We do have some timing issues. We're going to have higher levels of marketing in the fourth quarter. We're going to have a $500,000 contribution to our foundation in the fourth quarter. So I would say $37 million, which is kind of what we originally guided in January is close to where we'll be in the fourth quarter.

Got you. Okay. That's helpful. And then I guess just lastly, I hear the commentary on the buyback that you -- what you bought during the quarter plus what you bought in October got you to your $7 million internal limit. So should we not expect any more buybacks for the remainder of the year? Is that fair?

Yes. Damon, we'll always look at it. I can tell you that we did what we said we -- internally, what we said we were going to do, and we're going to take a pause right now. And we'll continue to reevaluate whether it makes sense to do more and balancing that off against redeploying our capital back into growth. So at this point in time, we have no plans to do additional share repurchases.

[Operator Instructions] We'll move to our next question from Laurie Hunticker with Seaport Research.

Sticking where Damon was on the buyback and pausing -- I mean it was so great to see you all repurchasing shares and you're still so far below your spot. And obviously, with your commercial nonperformers down to $1 million and outside of the lumps this quarter, I mean, help us think about why not buyback it's so accretive to earnings on a per share basis. What am I missing here?

Yes. Well, listen, Laurie, we are on the lower end of the range on capital ratios. We're aware of that. And we do have hiring Jim Brown coming in. It's too early to give guidance on 2026. However, we are expecting to ramp up our commercial lending. So we want to make sure that we've got appropriate capital levels to support growth. And I guess I will say, I'm not ruling out whether or not we do some more. I'm just saying at this point in time, we're going to take a pause and see what's happening. But yes, from a credit standpoint, we actually feel pretty good having dealt with these 2 problems this quarter. Yes, Laurie, that's the best I can tell you. I mean there's arguments either way to do more or to sit tight. And for the time being, we're going to sit tight.

Got you. Okay. And then just going back to credit, the $173 million in [ SNC, ] what is the breakdown, I guess, Ron or Bill, between what's CRE and what's C&I?

There's $90 million of CRE and $84 million of C&I.

Okay. And just double checking here, NDFI exposure close to 0. How are we thinking...

No.

What is your NDFI exposure?

We don't have any NDFI exposure.

Perfect. Okay. Perfect. Okay. And then office, just switching back over. So just comparing linked quarter within that Class A bucket, and by the way, your disclosures are great, really, really appreciate it. But it looks like you had within Class A $22 million pop into special mention. And obviously, I understand what you cured, et cetera. You gave a lot of detail earlier in the month and obviously here. So it's -- but just the $22 million is not part of anything. So can you help us think about, I guess, what is that and how to think about it? What's the maturity?

Sure. That's a office building, a Class A office building, actually 2 of them in a strong suburb of Hartford. Occupancy has been at 60%. However, this was downgraded to special mention because 2 tenants are vacating. They've actually replaced those tenants, and so they will be getting back up to occupancy of 60%. They also have an LOI out, which -- for which the lease is imminent that we should get them up to a point at which it's got positive debt service coverage. Very strong sponsor. And in addition to the discussion we had earlier about appraised values in office, it's important to understand that the sponsorship support for any given property also gives us a lot of confidence in terms of where we're valuing things. So we think this is one that like many office properties is kind of on the simmer. We don't think this is going to boil over because where it is, they're seeing a fair amount of leasing volume but we did take the downgrade as a precaution given that we knew there were some upcoming vacancies coming up.

Got you. And when -- sorry, when does this loan mature?

I'm looking at my write-up, and I can't tell you. So I'll have to let you know that offline.

Okay. That's helpful.

Not here...

Okay. That's helpful. And then just switching gears, just going back to the income statement, just 2 questions here. The first is other income within the noninterest income bucket, the $619,000, it seems like there might have been some onetime gains in that number. Am I thinking about that right? Or if so, can you?

Yes. There's a miscellaneous item of about $250,000 in there. That's correct.

Okay. Perfect. Okay. And then obviously, you worked down the wholesale, which is great. Your advances came down also. But it looks like just based on the averages, your FHLB advances came down really kind of at the end of the quarter, if I'm backing into that right. Maybe just help us think about where that's going.

Yes. So we've had strong deposit growth in the quarter. Of course, the FHLB gets paid off at maturity. So we've got staggered maturities. Most of that's pretty short term. I think you've got another $350 million maturing in the fourth quarter. So we've got kind of elevated levels of cash on deposit related to those deposit inflows. So we will just pay down the FHLB as it comes due.

Okay. Great.

The maturity on that deal we discussed, the 7-rated is October of '27. So we've got a couple of years to run on that.

Okay. And sorry, one more, just on margin, do you have the spot margin, Ron, for September?

Yes. I'll call it 243.

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

Thanks, Lydia. Well, this quarter, we celebrated Washington Trust's 225th birthday, which really is a milestone that reflects our enduring commitment to customers and communities. We appreciate your continued support, and thank you for your time today and look forward to speaking to you all again soon. Thanks, everybody. Have a great day.

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