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Washington Trust Bancorp (WASH) Q1 2019 Earnings Call Transcript

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Washington Trust Bancorp (NASDAQ: WASH)
Q1 2019 Earnings Call
April 22, 2019 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator 

Good morning, and welcome to Washington Trust Bancorp Inc.'s conference call. My name is Sherry, I will be your operator today. [Operator instructions]. Today's call is being recorded.

And now I will turn the call over to Elizabeth B. Eckel, senior vice president, chief marketing and corporate communications officer. Ms. Eckel.

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Elizabeth Eckel -- Senior Vice President, Chief Marketing and Corporate Communications Officer

Thank you, Sherry. Good morning, and welcome to Washington Trust Bancorp Inc.'s first-quarter 2019 conference call. Today's call will be hosted by Washington Trust's executive team, Ned Handy, chairman and chief executive officer; Mark Gim, president and chief operating officer; and Ron Ohsberg, senior vice president -- senior executive vice president, I'm sorry, chief financial officer and treasurer. Please note today's presentation may contain forward-looking statements and actual results could differ materially from the statements made on today's call.

Our complete safe harbor statement appears in our earnings press release and in other documents filed with the SEC. Please visit our investor relations website at ir.washtrust.com to review the complete safe harbor statement and other document. Washington Trust trades on NASDAQ under the symbol WASH. I'm now pleased to introduce Washington Trust's Chairman and Chief Executive Officer, Ned Handy.

Ned Handy -- Chairman and Chief Executive Officer

Thank you, Beth. And good morning, and thank you for joining us on today's conference call. Earlier today, we released our first-quarter 2019 earnings. I'll now take a few minutes to review some highlights from the quarter and then Ron will provide more in-depth overview of our financial performance.

And then Mark, Ron and I will answer any questions you might have about the quarter. Washington Trust posted solid first-quarter earnings with net income of $17.5 million or $1 per diluted share. That's up from both the fourth quarter of 2018 and a year ago. Profitability metrics remained strong, and we continue to rank highly among our peer group for key performance ratios.

We had good activity across all business lines resulting from favorable market conditions, recent branch expansion and continued marketing and business development efforts. Let me take a few moments to discuss these activities in more detail. Total deposits amounted to $3.5 billion at March 31, down from year-end, but up from a year ago. In January, we opened a branch in North Providence, Rhode Island, further expanding our presence in the Northern part of the state.

We've had great success with de novo branching over time and have already seen evidence with this new branch as we've been warmly welcomed by the North Providence community and the branch has met out financial expectations. There continues to be aggressive competition for deposits in our market with banks and credit unions offering high rate CD and money market's specials during the quarter. As we mentioned on previous calls, back in mid-2017, we got ahead of the curve and had some very successful CD campaigns. These promotions brought in both new money and new customers, especially in the markets where we've opened new branches in recent years.

We're now working to deepen those relationships with all these new households. Total loans were $3.7 billion at March 31, up 2% from year-end and up by 10% from a year ago. We had good CRE growth during the most recent quarter resulting from originations and construction loan funding. CRE payoffs were modest during the first quarter.

As always, competition remains heated. After a strong fourth quarter in 2018 and a good start in the first quarter of 2019, we're now rebuilding the commercial pipeline. Our mortgage banking area continues to perform well, generating $2.6 million in revenues for the first quarter, up from fourth quarter. The decline in first-quarter interest rates helps spur mortgage applications and, while activity was primarily weighted toward the purchase market, we did see an uptick in refinancing as customarily happens when rates drop.

As we entered the second quarter, the local housing market remained healthy and our mortgage pipeline remained strong. Artificial mortgage banking model with quick loan turnaround times and high customer satisfaction is the source of both high-quality balance sheet growth and fee income. Wealth management revenues amounted to $9.3 million for the first quarter, up from fourth quarter levels. First-quarter revenues reflect seasonal tax reporting and preparation fees, which are generally concentrated in the first half of the year.

Wealth management assets under administration stood at $6.4 billion at March 31, up from both year-end and a year ago. Our wealth management division is a key business line and generates a consistent stream of revenues for the company. As with other business lines, we've introduced new technology and added experienced staff members to support future growth, enhance the client experience and promote internal efficiencies and productivity. I'll now like to turn the discussion over to Ron Ohsberg, who'll provide an in-depth review of our financial performance.

Ron?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Thank you, Ned. Good morning, everyone, and thank you for joining us on our call today. I'll review our first-quarter operating results and financial positions as described in our press release, which was issued this morning. As Ned mentioned, net income was $17.5 million or a $1 per diluted share as compared to $17 million and $0.98 in the fourth quarter.

We also reported return on equity of 15.52% and a return on assets of 1.39%. Net interest income for the first quarter rose by $706,000 or 2%. The net interest margin was 2.93%, down 2 basis points. Income from loan payoffs and prepayment penalties totaled $49,000 compared to $144,000 in the fourth quarter.

Excluding these amounts, the margin was 2.93%, down 1 basis point compared to the fourth quarter. The average balance of interest-earning assets rose by $227 million or 5% on a linked-quarter basis. Average investment securities were up by $124 million, and average commercial loans were up by $97 million. The yield on average earning assets increased by 11 basis points from the preceding quarter to finish at 4.24%.

On the funding side, average end market deposits were up $53 million and the average balance of wholesale funding sources was up $172 million from the fourth quarter, largely defined in our securities purchases. The cost of end-market deposits was 82 basis points, up 7 basis points in the quarter, and the cost of wholesale funding was 2.48%, rising by 17 basis points. Net interest income comprised 31% of total revenue in the first quarter and amounted to $15.4 million, which was up by $204,000 or 1% from Q4. Wealth management revenues were $9.3 million, up $240,000 or 3%.

Transaction-based wealth management revenues totaled $331,000, up by $249,000 on a linked-quarter basis due to tax reporting and preparation fees, which are generally concentrated in the first half of the year. Asset-based wealth revenues totaled $8.9 million, down modestly by $9,000 or 0.1% on a linked-quarter basis. The decline in asset-based revenues reflected a modest decline in the average balance of assets under administration. While the March 31 end-of-period balance of wealth management assets increased from the end of 2018 reflecting financial market appreciation, the average balance declined by about $5 million or 0.1% from Q4.

Our mortgage banking revenues totaled $2.6 million in the quarter, up by $668,000 or 34%. These results reflected an increase in the fair value adjustments on mortgage loan commitments and loans held for sale as well as a higher sales yield compared to Q4. Our origination pipeline at March 31 was $140 million, an increase of $58 million or 72% since December. This reflected the recent sharp decline in 30-year mortgage rates.

Loan-related derivative income was $724,000, a decrease of $650,000 compared to the previous quarter's above-average level of commercial borrower loan swap transactions. Now let me turn to non-interest expenses. Total expenses increased by $282,000 or 1%. There were two significant items in the fourth quarter.

First, an OREO written-down of $833,000 was recognized, and we had no such writedowns in Q1. And second, we recorded a $187,000 contra expense to reverse a contingent consideration liability related to a prior acquisition. Excluding these items, non-interest expenses were up $928,000 or 4%. The increase was primarily due to increases in salaries and employee benefits expense and largely due to a routine increase in payroll taxes associated with the start of a new payroll year.

Our outlook for expenses remains unchanged at a 3% to 4% year-over-year increase. Income tax expense totaled $4.8 million in Q1. The effective income tax rate was 21.7% compared to 21% last quarter. There is no change to our estimated 2019 tax rate of 21.5%.

Turning to the balance sheet, we had strong growth in earning assets. Total loans were up $58 million or 2% from the end of the fourth quarter and $351 million or 10% from a year ago. Total commercial loans were up $61 million or 3%. The CRE portfolio increased by $71 million, while the C&I portfolio declined by $10 million.

Residential loans were down by $1 million and consumer loans were down $2 million. Investment securities increased by $57 million reflecting purchases of debt securities. Total deposits were down $20 million or 1% in the quarter and were up $248 million or 8% from a year ago. In-market deposits were down by $27 million, and wholesale brokered CDs were up $7 billion.

FHLB borrowings increased by $105 million to fund investment security purchases and loan growth. Asset quality remained very strong. Nonaccruing loans were 0.33% of total loans compared to 0.32% last quarter, and delinquent loans were 0.39% of total loans compared to 0.37%. Net charge offs were $78,000 versus $237,000 in the previous quarter, and the allowance for loan losses was 0.74% of total loans and provided NPL coverage of 224%.

The loan loss provision was $650,000 compared to $800,000 in Q4 and reflected growth in the loan portfolio. And finally, our shareholders' equity was $470 million, up $21.7 million from the end of 2018. Washington Trust remains well capitalized with a total risk-based capital ratio of 12.59% and a tangible equity to tangible assets ratio of 7.83%. And finally, our fourth quarter dividend declaration of $0.47 per share was paid on April 12.

And at this time, I'll turn the call back to Ned.

Ned Handy -- Chairman and Chief Executive Officer

Thanks, Ron. Washington Trust had another solid quarter as earnings increased from fourth quarter, capital and asset quality remained strong, and we increased the dividend for our shareholders. We're off to a good start in 2019, but know that we must be prepared to face any new challenges and opportunities that may arise. Amazing to think that the global economy, including trade conflicts and Brexit and other sad things happening around the globe, could affect our little corner of the world, but it does.

Federal Reserve interest rate changes and financial market fluctuations can significantly impact financial service companies. Washington Trust has a solid foundation and, as our results have shown, has performed well through various economic cycles over the past 218 years. Tomorrow, we'll host our annual meeting and look forward to sharing these favorable results and presenting our 2019 outlook with our shareholders. Thank you for your time and your continued interest and support of Washington Trust.

And now Mark, Ron and I are happy to answer any questions you may have about the quarter. 

Questions and Answers:

Operator

[Operator instructions] Our first question is from Mark Fitzgibbon from Sandler O'Neill. Please proceed with your question.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Hey, guys, good morning.

Ned Handy -- Chairman and Chief Executive Officer

Good morning, Mark.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Mark.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

A couple of quick questions on the wealth management business. I'm curious if -- of the sort of $6.35 billion of AUA, would it be possible to break down sort of what the mix looks like between equities and fixed income?

Mark Gim -- President and Chief Operating Officer

Yes. Mark, this is Mark. In rough terms, about 55% of the assets under management are related to equity securities. We have used -- the S&P you could use as a proxy for that.

35% or so would be fixed income and then 10% other, the majority of which will be cash, but there might be some other assets within that.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

OK. And then I'm curious of the roughly $80 million of client outflows this quarter. How much of that is attributable to those folks that left? Is -- are we getting to the end of that?

Mark Gim -- President and Chief Operating Officer

Yeah, we think we are getting to the end of that, Mark. It was a nominal amount but not outside the ordinary course of business. And you referring to the departure of several client-facing counselors from Weston Financial Group in the first quarter of 2018, I think we gave some estimates as to the amount of assets and revenues that will be impacted. And we think substantially all of that has taken place in the last 12 months or so.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

OK. And then changing gears a little bit on the deposit front. It sounds like Citizens Financial is really putting the pedal to the metal on -- in terms of competing for deposits up there. What kinds of things can you do to combat that? And how high would you be willing to let the loan-to-deposit ratio go? Thank you.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yeah, Mark, this is Ron. So I think there's a bunch of things that we're doing. We're doing the de novo branching. I think we were quite aggressive in our market as far as CD promotions beginning in the summer of 2017, and we burned in about $300 million in that time period of new money, which, I think, added some market share to us.

And we're also quite aggressive on the commercial money market side in terms of cities and towns and the colleges locally. So we're doing all of those things. If Citizens is more aggressive, they implemented their new access account. That's more of a national product.

Do we see them locally? Yes, sure we're competing with them locally. To be honest, we actually back our CD promotion from 3% down to 2.5%. So we're seeing market rates sticking at that CD rate of about 3%, which we think doesn't make economic sense to us. So we filed that back and that might be a little bit why our deposit growth slowed a little bit.

But even at that 2.5%, we raised another $10 million. So we compete against Citizens and we compete against BofA and a number of smaller institutions locally, so really no change there.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

OK. And then, Ron, I'm curious, given the competitive pressures on the liability front, should we expect the net interest margin to continue to squeeze down a little bit?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yeah, I think that's probably fair. We're probably looking for the year probably closer to 2.90%, perhaps upper 2.80s at the moment. So I mean, couple of things there. We did grow our balance sheet.

We're funding that with wholesale funding. So we've got a tighter spread, and we continue to see our older CD promotions mature and reprice upward as well as our and FHLB funding. So we'll see probably another quarter or so of that phenomenon happening. And there continues to be pressure on money markets.

That's where we see the -- I think the beta is probably most apparent on money market at the commercial end.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

OK. And then...

Mark Gim -- President and Chief Operating Officer

Mark, this is Mark. Just some color on that too. As Fed policy has changed prospectively, we would think that pricing for deposits would begin to become more rational as the year unfolds and expectations for margin change at banks. How fast that lessening of deposit rate pressure occurs is unknown as yet.

So we think it has some -- it's got some time to ripple through the competitive pricing landscape as management teams adjust their expectations and move deposit rates accordingly.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

And then lastly, is it too early to provide any guidance on Cecil?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yes.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

OK.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

We're told that we're in line with everyone else, and that we're maybe a little ahead of the pack in terms of planning but too early to give you any math on it.

Mark Gim -- President and Chief Operating Officer

And, Mark, just I don't think I answered your loan-to-deposit ratio question. So that's obviously a metric that we care about and we look at and we're trying to grow our deposits as quickly as we can. I would say that we won't turn down loans that make sense just to protect the loan-to-deposit ratio. So if we find competitive deals on the loans side, we will continue to do those.

We have plenty of liquidity to do that, and we would continue to do that.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

But given the other businesses, we're not as margin-dependent as perhaps others and can and should be careful about the loans we choose to do and the yields we earn on themselves. So I think we're being a little bit more picky perhaps than we have been even though we've always played on the safe end of the curve.

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Thank you.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yep.

Operator

Our next question is from Damon DelMonte with KBW. Please proceed.

Damon DelMonte -- KBW -- Analyst

Hey, good morning, everyone. How is it going today?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Damon.

Damon DelMonte -- KBW -- Analyst

So first question, just talking a little bit about loan growth kind of started off the year pretty good. I think you're up 6% on a linked-quarter-annualized basis for end-of-period balances. Can you guys give a little update on your outlook for the remainder of the year? And do you we feel comfortable with your previous guidance?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yes. Thanks, Damon. So yes, we feel comfortable with previous guidance. One thing to note in the first quarter is we really didn't have the kinds of payoffs that we've seen in prior quarters.

We do expect that to pick up a little bit in second quarter. So I don't think we'll see the same kind of growth certainly in the next quarter based on what we know. So I don't think there's any reason to change our sort of mid-single-digit growth outlook at this point, although the first quarter was healthy and the fourth quarter was very strong. Pipeline is rebuilding.

It's kind of about $100 million, which is not the highest it's been by any stretch. So we're in a little bit of a rebuild mode. I think second quarter should be fine, but I think the same guidance for the balance of the year.

Ned Handy -- Chairman and Chief Executive Officer

Yeah, the biggest factor, Damon, that changed growth rates from what we had anticipated was a slower pace of participated payoffs and pay-downs that we had expected to go through in the first quarter and have been deferred to the second.

Damon DelMonte -- KBW -- Analyst

Got you. OK. And then driving that growth, again, continues to be commercial real estate opportunities throughout your footprint, is that fair?

Ned Handy -- Chairman and Chief Executive Officer

Yeah. I think, balanced between our main three states and across product type, fair amount of construction. So we're seeing -- first quarter, we saw kind of $15 million a month on average construction fundings, which is helpful. Our construction book is about 50% funded right now.

So that should keep going for a while and will be a nice offset to payoffs. But I think CRE has certainly been the focus. We had a couple of nice C&I approvals in the first quarter, probably won't close for another couple of weeks, but I think we're -- we continue to try and balance out C&I and CRE growth, but CRE has certainly been dominant.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

And most of those payoffs, Ned, would come from CRE-related credits, correct.

Ned Handy -- Chairman and Chief Executive Officer

Correct.

Damon DelMonte -- KBW -- Analyst

Got it. OK. Great. And then with respect to expenses, do you feel comfortable with this quarter's level as a go-forward rate? I know you kind of reiterated the 3% to 4% growth.

But I mean is there anything unique to this quarter that we should maybe not include in the run rate going forward?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Oh, yeah. I think just the payroll tax items that I talked about. So I would say the rest of our expenses are on track.

Damon DelMonte -- KBW -- Analyst

OK. Great. And then I guess just lastly on the bit of leverage you put on this quarter with securities and funding them with wholesale borrowings. Is that something we should expect more of in the coming quarters? Or is this something you just felt was appropriate this quarter and probably not going to increase from this level?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yeah. We don't have any plans to do more. We did $100 million at the end of December and another $50 million in mid-January. And we felt that that was a good time for us to get in with that.

And so we're not expecting more at this time.

Damon DelMonte -- KBW -- Analyst

OK. Great. That's all that I had. Thank you.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Thanks, Damon.

Operator

Our next question is from Laurie Hunsicker with Compass Point. Please proceed.

Laurie Hunsicker -- Compass Point -- Analyst

Yeah. Hi, thanks. Good morning.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Lauren.

Ned Handy -- Chairman and Chief Executive Officer

Good morning.

Laurie Hunsicker -- Compass Point -- Analyst

Just wondering if we could go back to commercial real estate because it was so strong this quarter, I mean, annualized growth of 20%. Can you tell us how much of that book is construction currently? Again, just -- again factoring in -- yes, go ahead.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Sorry, Laurie. So the whole construction book is around about $400 million, of which about $200 million and change is funded. And so we have projects in process that will generate sort of -- they have generated $15 million a month in the last quarter. So we expect that to continue for a while, obviously, is that -- construction is completed, those roll into CRE in the past couple of years and we expect to continue.

We'll see some of those pay off upon completion. And so we expect the payoffs -- with rates staying down, we expect values to stay fairly constant and payoffs to continue as our developers take advantage of people looking for investment returns and buying real estate at still fairly low cap rates and high values. Spread out among the three states, a little bit of growth in Connecticut in the last couple of quarters versus the other two, but pretty much spread out among the states and among property type.

Laurie Hunsicker -- Compass Point -- Analyst

And then, again, if we just think about what overall CRE is going to look like relative to the 20% annualized currently, we layer in payoffs. I mean could that still be a double-digit grower?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

I don't have reason to change our view from sort of mid-single-digit growth for the whole commercial book. Real estate had a very strong first quarter. But again, we had $15 million in payoffs in the quarter, which is very low for our history on a quarterly basis and we expect that to pick up. So -- and also, Laurie, I think where we are in the cycle, we're being particularly careful about new originations.

And so I think -- I don't expect growth to stay at that rate that we saw in the first quarter.

Laurie Hunsicker -- Compass Point -- Analyst

OK, great. Thanks. And then just going over to the funding side. So the biggest piece we did see was the money markets and you touched on that a little bit.

But I just wonder if you could help us think about the overall cost of where that's going. So December quarter, the MMAs were 89 basis points and now they're 101. How should we be thinking about that?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yes. I don't know if I could give you an exact cost of funds on that. But I'll tell you that, our rack rates really haven't moved that much. But we're negotiating our larger accounts on a one-by-one basis.

Mainly reactive, because we do have good conversations with our customers and they'll call us. If they're contemplating doing something different, they'll call us and they'll give us a chance to retain the business. So that's getting more and more competitive. People looking at us and saying why can't I get 2%, why can't I get to 2.20%.

So we're providing the rates that we need to do to retain the accounts. We think, generally, we can keep these customers with a little bit lower than maybe they were being offered somewhere else. It tends to be our history because they like banking with us. But yes, I would expect to see some continued pressure there.

Laurie Hunsicker -- Compass Point -- Analyst

OK.

Mark Gim -- President and Chief Operating Officer

And Laurie, this is Mark. I think a lot of our outlook for margin in 2019 is dependent on what the change in outlook for Fed policy will mean to competitive deposit pricing. And Q1, I think, people haven't really caught up to that reality of no rate increases and maybe declines as the next move. So that could change the competitive landscape and consumer expectations.

But a lot remains to be seen. So market competition is probably going to be the biggest driver if cost of funds increases for the remainder of the year.

Laurie Hunsicker -- Compass Point -- Analyst

Great. That makes sense. And then in your North Providence branch, the new branch, how are deposits coming in there? Are you running any specials? And maybe can you help guide in terms of us thinking how many basis points over your overall cost that new money is running?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yeah. So yeah, we opened the branch in January. We brought in about $10 million in deposits. Yes, we're running some specials there.

But we're getting a lot of foot traffic in. People are excited about that branch. Average cost of funds probably a little higher just because we're getting lift off and offering the CD promo. I don't know what more I can add to that.

Mark Gim -- President and Chief Operating Officer

Yes. No, I think that's fair. I mean, the traffic has been great. The city of North Providence has been very supportive.

And yet, it came online while we were doing CD promotions especially in the newer markets in the greater Providence area. So it definitely benefited from those promos and now -- and most of those promos were in the kind of the two-year range. So that gives our branch a couple of years to introduce us to those new customers and deepen those relationships. And that was sort of the strategy.

I feel very comfortable about it. Mineral Spring Avenue is a very busy thoroughfare in North Providence, and I think our brand and service quality will play very well in that market.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yes. And we've done a lot of direct marketing around that to generate interest in the branch.

Laurie Hunsicker -- Compass Point -- Analyst

OK. And what percentage of that $10 million is CD?

Mark Gim -- President and Chief Operating Officer

It's really early to lead much into the numbers because of the small deposit size I think were...

Laurie Hunsicker -- Compass Point -- Analyst

OK.

Ned Handy -- Chairman and Chief Executive Officer

Yes. I think it's fair to say a lot of it.

Laurie Hunsicker -- Compass Point -- Analyst

OK. OK. That's helpful.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yes. I mean, those promos were out there. So people were certainly taking them and the branch was told to use the promos to bring customers in the door and I think about half of it is municipal. So that wouldn't be, but the other half is probably -- the other half would be highly CD-oriented.

Laurie Hunsicker -- Compass Point -- Analyst

OK. Great. And then just two more questions here. The non-interest income, obviously, you've got the tax prep in March.

And the tax prep run rate typically, historically, has peaked in the June quarter. Is that still the case? So June probably runs $300,000 and then September we see that fall out?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Yes.

Laurie Hunsicker -- Compass Point -- Analyst

OK. Great. And then your outsourced services under non-interest expense, I know it was outsized in the fourth quarter. So it looks like it's still elevated.

Is there anything nonrecurring in that 2.606?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

No. Well, swap fees would go through. Yes, so the higher levels in Q4 largely swap fee related. So we outcoursed some of our swap execution costs.

So that runs through outside services. So we did have higher volume in Q4 than we did in Q1 related to that.

Ned Handy -- Chairman and Chief Executive Officer

So if swap income is higher, then the shared cost goes up too, Laurie. So a larger volume of swap transactions and swap-related revenue will have a corresponding increase in the fee backup.

Laurie Hunsicker -- Compass Point -- Analyst

OK. And then I mean, to the extent, obviously, we saw it cut in half this quarter relative to last quarter. I mean, there's nothing nonrecurring in that 2.6?

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

No.

Mark Gim -- President and Chief Operating Officer

No.

Laurie Hunsicker -- Compass Point -- Analyst

OK. OK. Great. Thank you.

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Thanks, Laurie.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Ned Handy for closing comments.

Ned Handy -- Chairman and Chief Executive Officer

Well, thank you all for joining us. We certainly appreciate your interest in Washington Trust and your support. And we certainly look forward to reporting next quarter. And we will -- we'll talk to you, I'm sure, between now and then.

So have a great day, and thank you.

Operator

[Operator signoff]

Duration: 33 minutes

Call Participants:

Elizabeth Eckel -- Senior Vice President, Chief Marketing and Corporate Communications Officer

Ned Handy -- Chairman and Chief Executive Officer

Ron Ohsberg -- Senior Executive Vice President, Chief Financial Officer and Treasurer

Mark Fitzgibbon -- Sandler O'Neill -- Analyst

Mark Gim -- President and Chief Operating Officer

Damon DelMonte -- KBW -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

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