Washington Trust (WASH) Q3 2026 Earnings Call Transcript

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DATE

Tue, Oct 20, 2026

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Ned Handy
• President and Chief Operating Officer - Mary Noons
• Senior Executive Vice President, Chief Financial Officer and Treasurer - Ron Ohsberg
• Senior Executive Vice President and Chief Risk Officer - Bill Wray
• Senior Vice President, Director of Marketing and Corporate Communications - Sharon Walsh

TAKEAWAYS

• Net Income -- $19.4 million, representing a 21% increase from the second quarter.
• Diluted EPS -- $1.01, up $0.18 sequentially from the prior quarter.
• Net Interest Income -- $44.7 million, up 15% year over year, including a $283,000 benefit from a loan returned to accrual status.
• Net Interest Margin -- 2.84%, expanding 44 basis points year over year due to asset sensitivity and deposit management.
• Wealth Management Revenue -- $11.1 million, down 1% from the second quarter due to a seasonal decline in tax servicing fees.
• Mortgage Banking Revenue -- $3.2 million, down 10% year over year, reflecting lower pipeline volume and higher interest rates.
• Loan-Related Derivative Income -- $1.5 million, up $924,000 from the prior quarter, driven by commercial borrower demand for interest rate swaps.
• Noninterest Expense -- $38.8 million, up 0.5% from the second quarter, reflecting modest growth in outsourced services.
• Total Loans -- $5.2 billion, up 1% from June 30, 2026, driven by commercial real estate growth.
• Commercial Loans -- $2.8 billion, increasing 2.3% sequentially, primarily due to commercial real estate portfolio additions.
• Total Deposits -- $5.4 billion, a record level representing 4% year-over-year growth.
• Wholesale Funding -- $376 million, down 52% year over year as increased deposits reduced the reliance on Federal Home Loan Bank advances.
• Nonaccrual Loans -- 0.48% of total loans, down from 0.78% in the second quarter, following the resolution of a large office loan.
• Past Due Loans -- 0.54% of total loans, decreasing from 0.81% sequentially.
• Office Loan Resolution -- $22.3 million, resulting in $18.5 million returned to accrual status and a $3.8 million charge-off.
• Common Equity Tier 1 Ratio -- 11.93%, increasing from 11.89% at the end of the prior quarter.
• Tangible Book Value Per Share -- $24.27, down 4.7% from the previous quarter due to a decline in the fair value of available for sale securities.
• Assets Under Administration -- $7.9 billion, a 3% increase year over year in the wealth management segment.
• Q4 Net Interest Margin Guidance -- 2.85% to 2.90%, assuming the impact of the September rate hike.
• Q4 Expense Guidance -- $1.5 million increase, reflecting investments in technology, marketing, and two new branch openings.
• Commercial Loan Growth Target -- 10% annualized, with management targeting quarterly growth of 2% to 3%.

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RISKS

• Bill Wray stated, "We just felt it was the appropriate time to look at potential valuation risk," regarding a $6 million Class A office loan moved to nonperforming status despite the sponsor never missing a payment.
• Ron Ohsberg warned that noninterest expenses are expected to increase by $1.5 million in the fourth quarter, reflecting a shift in previously planned growth and new branch investments.

SUMMARY

Washington Trust Bancorp, Inc. (NASDAQ:WASH) reported a significant improvement in profitability and asset quality for the third quarter, driven by expanding margins and the successful resolution of a substantial nonaccrual office loan. Management reported that record deposit levels have significantly reduced the company's reliance on wholesale funding, while net interest margin benefited from the bank's asset-sensitive position and recent interest rate hikes. The company is continuing its footprint expansion in Rhode Island with two new branches scheduled to open in the coming months, supporting a strategic focus on growing local deposit relationships and commercial lending. Capital levels remain above regulatory minimums, with the company prioritizing balance sheet growth over share repurchases in the current environment.

• Ron Ohsberg indicated that institutional banking teams helped drive noninterest-bearing deposit growth by onboarding new operating accounts.
• Management noted that the residential mortgage portfolio provides a margin tailwind of 1 to 2 basis points per quarter as lower-yielding loans amortize and are reinvested at higher current rates.
• Ned Handy reported a commercial loan pipeline of $230 million as of Sept. 30, 2026, which is weighted toward commercial and industrial lending and institutional education deals.
• Management stated that newly opened branches typically carry an annual operating expense of $750,000 to $800,000 per location.
• Bill Wray noted that a $28 million lab space property currently in special mention status is 95% leased and may migrate out of classified status in the near term as tenants begin paying full rent.
• Ned Handy stated, "The market's very competitive and spreads are getting a little thinner," noting that spreads for high-quality commercial real estate assets are currently in the 170 to 180 basis point range.
• Management confirmed it has no plans for stock buybacks, with Ron Ohsberg stating, "the prudent thing for us to do right now is to deploy that capital into the growth of the business."

INDUSTRY GLOSSARY

• AOCI: Accumulated Other Comprehensive Income, a component of shareholders' equity that includes unrealized gains and losses on certain investments.
• Asset Sensitive: A financial position where a bank's interest-earning assets reprice faster than its interest-bearing liabilities when interest rates change.
• Class A Office: High-quality office buildings characterized by superior construction, modern systems, and premium locations.
• CRE: Commercial Real Estate, including loans secured by income-producing properties like offices, retail spaces, or multifamily housing.
• C&I: Commercial and Industrial loans made to businesses for working capital or capital expenditures, typically not secured by real estate.
• FTE: Fully Taxable Equivalent, a method of adjusting interest income from tax-exempt securities to make them comparable to taxable ones.
• PPNR: Pre-provision Net Revenue, a measure of a bank's earnings before taxes and the provision for credit losses are deducted.
• SOFR: Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated derivatives and loans.
• Wholesale Funding: Sources of funds for banks other than customer deposits, such as Federal Home Loan Bank (FHLB) advances or brokered deposits.

Full Conference Call Transcript

Operator: Good morning, and welcome to Washington Trust Bancorp Inc.'s Q3 2026 Conference Call. My name is Hillary, and I'll be your operator today. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. As a reminder, today's call is being recorded. I'll now turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Sharon, please go ahead.

Sharon Walsh: Thank you, Hillary. Good morning and welcome to Washington Trust Bancorp Inc.'s Conference Call for the Third Quarter of 2026. Joining us this morning are members of Washington Trust's 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 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 Chairman and Chief Executive Officer, Ned Handy. Ned?

Ned Handy: Thank you, Sharon. Good morning, everyone, and thank you for joining our third quarter conference call. We continue to appreciate your time and your interest in Washington Trust. I'll begin with a few comments about the quarter, and then Ron will provide more detail on our financial performance. Following our remarks, Mary and Bill will join us for the question and answer session. We delivered another strong quarter marked by growth and earnings and net interest income, continued margin expansion, and improved operating efficiency. Our asset quality metrics improved, reflecting the resolution of a commercial real estate office loan. Our capital position remains strong and supports prudent growth.

We're continuing to expand our presence in Rhode Island with two new branches opening in the coming months. These locations will provide the trusted advice, comprehensive solutions, convenience, and personalized service that our customers deserve. We look forward to building long-term financial partnerships with individuals, families, and businesses in these markets. Now I'll turn the call over to Ron to provide additional details on our third quarter financial results. Ron?

Ron Ohsberg: Yeah. Thanks, Ned, and good morning, everyone. Third quarter net income was $19.4 million or $1.01 per share, up by $3.4 million or $0.18 from the preceding quarter. Pre-provision pre-tax net revenue or PPNR was up 20% from Q2 and up by 26% year-over-year. Net interest income was $44.7 million, up by 7% from Q2 and up by 15% year-over-year. The margin was 284, up by 11 basis points from Q2 and up by 44 basis points year-over-year. The third quarter included $283,000 of second quarter interest income from a loan that was returned to accrual during the quarter, and this benefited NIM by about 2 basis points.

Non-interest income was up by $1.6 million or 9% compared to Q2 and up by 15% year-over-year. Wealth management revenues were down by 1% compared to Q2 and up by 7% year-over-year. In the third quarter, an increase in asset-based revenues were offset by a decline in tax servicing fee, a seasonal decline in tax servicing fee income. Mortgage banking revenues totaled $3.2 million, down by 9% from the second quarter and down by 10% year-over-year, reflecting a decrease in the mortgage pipeline as well as rising market interest rates. Loan-related derivative income was up by $924,000, and income from bank-owned life insurance was up largely due to the recognition of a gain of $954,000 in the third quarter.

Non-interest expense totaled $38.8 million in the third quarter, up by $200,000 or 0.5%. Our third quarter effective tax rate was 20.4%, and we expect our full year 2026 rate to be approximately 21.5%. Turning to the balance sheet, total loans were up by 1% from June 30. Total commercial loans increased by $62 million or 2.3%, driven by growth in the CRE portfolio. Deposits were up by $77 million or 1% from the end of the second quarter and up by $213 million or 4% year-over-year. Wholesale funding was down by $80 million or 18% from the end of June. Total equity amounted to $531 million, down by $23 million from the end of the second quarter.

In the third quarter, net income was offset by a decline in the fair value of available for sale debt securities as well as the quarterly dividend. The dividend remains at $0.56 per share. Turning to asset and credit quality. Overall, our asset and credit quality metrics improved. At September 30, non-accrual loans were 48 basis points on total loans, decreasing from 78 basis points, and past due loans were 54 basis points on total loans, down from 81 basis points at the end of the second quarter. The improvement was largely driven by the resolution of an office loan of $22.3 million that was placed on non-accrual in the first quarter.

During the third quarter, this loan was restructured, resulting in $18.5 million being returned to accrual and $3.8 million being charged off. In the third quarter, we recognized $1.8 million provision for credit losses. At this time, I will turn the call back over to Ned.

Ned Handy: Thanks, Ron, and we'll move to question and answers.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Justin Crowley from Piper Sandler. Your line is open. Please go ahead. A reminder to unmute yourself locally if you would like to ask the question on your device. I will move to the next question.

Please rejoin the queue if you are looking to ask a question. Your next call comes from the line of Damon DelMonte from KBW. Your line is open. Please go ahead.

Damon DelMonte: Hey, good morning, guys. Hope everybody's doing well today, and thanks for taking my questions.

Ned Handy: Good morning.

Damon DelMonte: Morning, guys. Just wanted to start on the outlook for the margin. You've had a string of consecutive quarters of nice margin expansion. Just curious, Ron, to get your thoughts on how you see it playing out over the back half of this year and as we go into 2027, especially with the rate hike that we had in September and the prospects of additional hikes over the coming quarters as well.

Ron Ohsberg: Yeah. Damon, it's probably a little early to be talking about 2027, but we've revised our guidance for Q4. We're going to guide to a range of 285-290.

Damon DelMonte: Okay, great.

Ron Ohsberg: Yeah, I would say that we remain modestly asset sensitive, so that guidance includes just the September rate hike at this point. We think that each 25 basis point hike probably gives us 1-2 basis points on the run rate.

Damon DelMonte: 2 basis points on the run rate. Okay, great. Kind of along those lines, the non-interest-bearing deposit growth has been really strong the last couple of quarters. Just any color on what's driving that?

Ron Ohsberg: Yeah. I think a good part of it is the institutional banking team onboarding operating accounts related to the relationships that they're bringing in is probably the biggest driver. I think we have kind of an across-the-board approach to taking in deposits across both retail and commercial at this point. Yeah, we had pretty good growth in the quarter, and we'll see if we can maintain that.

Damon DelMonte: Got it. Okay. Just one more for me. On the expense outlook, good quarter this quarter, pretty much flat. Just curious on your outlook for the fourth quarter and kind of any puts and takes around that. Thanks.

Ron Ohsberg: Yeah. On the last call, we guided to a million-dollar increase in the quarter, and we came in below that. I would say a lot of that is timing related. We are going to see a shift to some of that previously expected expense growth shifting into the fourth quarter. For the fourth quarter, we are looking at an increase of about $1.5 million. We are making some targeted investments in a few areas, including some new branches that are coming online, some marketing spend, some technology spend, some personnel spend. That $1.5 million is kind of evenly distributed across that. None of that includes our annual $750,000 contribution to our charitable foundation.

That would be incremental to the $1.5 million.

Damon DelMonte: Got it. Okay, great. Okay, that is all that I had for now. I will step back. Thank you.

Ned Handy: Thanks, Damon.

Operator: Your next question comes from the line of Justin Crowley from Piper Sandler. Your line is open. Please go ahead.

Justin Crowley: Hey, good morning. Hopefully, you can hear me now.

Ned Handy: We can, Justin. Good morning.

Justin Crowley: Perfect. Thank you. Ron, just going back to the margin, if I remember correctly, I believe you were going to get another 4 basis points benefit from the terminated swap this quarter. I just wanted to confirm that was the case.

Ron Ohsberg: Yes, it is.

Justin Crowley: Okay. Do you have detail on what loan repricings look like if we go out to the end of 2027? What that looks like from a volume and then just rate pickup standpoint?

Ron Ohsberg: Yeah. We've got, call it about $2.1 billion of SOFR and prime-based loans. Those SOFR loans are resetting monthly. That's kind of the repricing that we see immediately every time the Fed makes a change.

Justin Crowley: Okay. But for the fixed to floating or any of the five-year CRE paper, do you get any benefit there, just kind of given some of the growth you put on back in 2022?

Ron Ohsberg: I'm sorry. Say that again, Justin.

Justin Crowley: Just for the five-year fixed to floating type commercial real estate paper. If I just look back to growth you put on five years ago, I would think there's some benefit there as we get into next year, although perhaps not.

Ned Handy: Justin, it's Ned. I would say that CRE loans that are maturing that were underwritten at much lower rates are obviously, to the extent that they do extend and don't pay off, we still see a fair amount of those paying off even before maturity. But I'd say we get a little bit of a lift, obviously, from the lows. I will tell you, though, that what we're seeing in the market in general is spreads are tightening as rates rise. They tend to, especially in high-quality assets. So we're seeing spreads in the, I don't know, 170s, 180s for high-quality assets. So, that bites into that benefit a little bit.

And obviously, there's a lot of competition for quality assets. So it's a mix. I think we're getting a little bit of a lift off of the lows, but I think in general, the market's very competitive and spreads are getting a little thinner.

Ron Ohsberg: Justin, I can add to that. Really, there's more of a tangible benefit, I think, on the residential side. We've got a $2 billion residential book. So as that's amortizing and we're reinvesting those cash flows, that's giving us a tailwind of about 1-2 basis points a quarter.

Justin Crowley: Okay. Got it. That's helpful. Just on loan growth, I think you guys have talked about mid-single digits previously. It seems like that might be tough to get to just barring a really strong fourth quarter. Just kind of curious how you're thinking about that trend line from here.

Ron Ohsberg: Yeah. Listen, I would say when we think about mid-single digits, we're really talking about run rate versus calendar year. We had strong payoffs in the first and second quarter. We're not going to make that up inside of 2026. But I think our loan growth in the second quarter and in the third quarter was pretty strong, and we're looking at annualized total portfolio growth of 5%, and we're looking at within the commercial book about 10%. So this quarter, the commercial book delivered 2.3%. That's kind of within our target range of 2%-3% quarterly commercial growth, which over the year, we're looking at that averaging out to about 10% annualized growth.

Justin Crowley: Okay. Got it. Then maybe just one last one as a follow-up to that a little. Just any thought on the mix as we go forward? You saw CRE come back after the slower first half with some of the payoffs you alluded to, and then the softer period on the C&I or institutional group. So just kind of curious how you're thinking about both of those areas.

Ned Handy: Yeah. That's a good question. I think as we guided the growth in Q3 would be sort of real estate heavy given the seasonality of the institutional, especially in the education space, the institutional business. But the pipeline going forward, we've got about a $230 million pipeline as of 9/30, which is weighted towards C&I with about $40 million of that today in the institutional group. We did do a $10 million New England school deal in the third quarter. So there was a little bit of institutional, but I think it kind of followed as we predicted that it would slow down a little bit in Q3 and pick up Q4 and into Q1. But pipeline's pretty strong.

Again, weighted towards commercial.

Justin Crowley: Perfect. I will leave it there. Thanks so much.

Ned Handy: Thanks very much, Justin.

Operator: Your next question comes from the line of Laurie Hunsicker, who is a private investor. Your line is open. Please go ahead.

Laurie Hunsicker: Yeah. Hi, Ned and Ron. Good morning. Laurie Hunsicker from Seaport.

Ned Handy: Hi, Laurie.

Laurie Hunsicker: Hi. I just wanted to circle back here on expenses. I just want to make sure that I'm getting this right. So round numbers, you're going to be about $41 million or so for the fourth quarter, including the charitable foundation of $750?

Ron Ohsberg: Yes.

Laurie Hunsicker: Okay. That is including the branch spend, the Bristol and the Pawtucket. Can you update us on exactly when those are opening? Just help us think about is that fourth quarter then a fully baked run rate? How should we be thinking about that?

Ron Ohsberg: No. Laurie, I don't have the exact timing, but right around the end of the quarter. There is some ramp-up spending that occurs. We have to hire the people. We've got some real estate costs. Some of that expense is you will see it in our run rate even before the branch is opened. But the ongoing run rate for a branch is around $750,000-$800,000 a year.

Laurie Hunsicker: Okay. Just in terms of one quarter expense modeling, just thinking about maybe another $400,000 add for those branches to be fully phased. Or maybe it's a little less, maybe it's 150 branch or maybe $300,000 additional of expense into the first quarter of 2027.

Ron Ohsberg: I think that's fair.

Laurie Hunsicker: Okay. Do you have any branches planned now for 2027?

Ron Ohsberg: We have nothing planned, although I would say that we are still interested in expanding the branch footprint. Nothing to talk about yet, but in coming quarters, we'll probably have something to talk about there.

Laurie Hunsicker: Okay. Great. Yeah, loved seeing your deposit growth and just very. You held the line almost across the board on raising rates there. So your loan-to-deposit ratio now sitting below 95%, which is great. Can you help us think about what that target looks like into next year? And then maybe, Ned, just very high level, can you talk about the competitive pressures you're seeing on deposit costs in order to grow those buckets?

Ron Ohsberg: Yeah. So yeah, we're very pleased with our loan-to-deposit ratio, which is at a low level that we've rarely been at in the past. As you know, Laurie, we've been quite a bit higher than that previously. We're committed to maintaining our deposit growth in the neighborhood of where our loan growth is. Our loan growth will be higher in the coming couple of years than it has been in the previous couple of years. So, we will have our work cut out for us to keep that deposit growth going and making sure that we can fund those loans.

We've got internal policy limits and things of that nature, but I don't have a target loan-to-deposit ratio to share with you. I will say that we would rely on wholesale funding to some degree to fund appropriate loan growth when we get to that point. I don't know. That's about the best I can tell you.

Laurie Hunsicker: Okay. Do you have a spot margin?

Ron Ohsberg: Yeah. Call it 285 for September.

Laurie Hunsicker: Okay, great. I just had a couple questions on credit. Loved, obviously, seeing the $22 million resolution. The $6 million Class A that was new into non-performers. I guess, what is that loan? What's the occupancy? What's maybe your thoughts on timing of resolution there?

Bill Wray: Hey, Laurie, this is Bill Wray.

Laurie Hunsicker: Hey, Bill.

Bill Wray: That's been there for a while. Committed sponsors. Never missed a payment. We just felt it was the appropriate time to look at potential valuation risk. The property doesn't mature until 2031. So occupancy has been level, but it's not at stabilized levels. We felt that was just the right step to take at this point.

Laurie Hunsicker: Okay. Last quarter it was performing, and then you moved it to non-performer. I'm just wondering what triggered that?

Bill Wray: Just thinking about valuation risk, I think.

Laurie Hunsicker: Okay.

Bill Wray: We felt it was the right time. Again, there's been no change in commitment from the sponsors, no change in occupancy up or down. As you said, they've never missed a payment.

Laurie Hunsicker: Okay, great. Just wondered on the $6.6 million lab space. Any update on that? I know that was in sort of initial lease-up phase, I think last time we were chatting. Any color to add there?

Bill Wray: We are working with the sponsors on that and moving towards an exit scenario. We are in the middle of those discussions.

Laurie Hunsicker: Okay. Last one for me. The $28 million lab space that is unclassified. I think there was a thought that potentially could be returning here. That it could certainly be migrating out of special mention here in the next couple of quarters. I have in my notes that property-

Bill Wray: Sure

Laurie Hunsicker: was fully leased. Can you just update us on when we might see movement in that?

Bill Wray: It's fully leased at 95%. We've been waiting for the tenants to burn off free rent and show performance. All trends have been positive, so we're feeling reasonably good about a near-term move out of special mention. But until we have all the quarter-end information in terms of rent payments, we can't commit to that yet. But that's where it's headed, we think.

Laurie Hunsicker: Okay, great. One very last question, Ned, for you. Obviously, your capital ratios are very, very strong here. Can you just refresh us on revisiting the buyback and how you're thinking about that? Thanks.

Ned Handy: Yeah. We don't have any plans to buy stock back at this point. The price is high. We've got the capital. We've got other things to invest in. We want to make sure we have ample capital to support the growth we're looking forward to on the loan side. So I think we'll kind of keep our position of holding off on repurchases at the moment. Ron, I don't know if you have other-

Ron Ohsberg: No, that's it. We've got plans to grow the balance sheet, so we're going to hold onto that capital right now. Laurie, listen, our regulatory capital ratios look fine. Our GAAP capital ratios remain on the lighter side of the peer group. We recognize that. We've recognized that for a while. So I think the prudent thing for us to do right now is to deploy that capital into the growth of the business.

Laurie Hunsicker: Great. Thanks for taking my question.

Ned Handy: Thanks, Laurie.

Operator: There are no further questions at this time. I will now turn the call back to Ned Handy, Chairman and CEO, for closing remarks.

Ned Handy: Well, thank you, everybody. Again, we appreciate your time and your interest in Washington Trust, and very much look forward to speaking with you again next quarter. Have a great day, everybody.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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