Washington Trust Bancorp Reports Q1 2026 Results: Full Ear...

On Tuesday, Washington Trust Bancorp (NASDAQ:WASH) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Access the full call at https://events.q4inc.com/attendee/805451042

Summary

Washington Trust Bancorp Inc reported a quarterly net income of $12.6 million or $0.66 per share, a decrease from the prior quarter's $16 million or $0.83 per share.

Net interest income for the first quarter was $40.5 million, down by 1% from the previous quarter, but up 11% year-over-year, while the net interest margin expanded to 2.63%.

The company completed a digital banking conversion for personal accounts and plans to continue with business accounts, aiming to enhance customer experience and attract new clients.

Two commercial real estate loans were moved to non-accrual status, leading to a $4 million provision for credit losses, impacting the overall financial performance.

Washington Trust Bancorp Inc expects mid-single-digit loan growth for the year, primarily driven by CNI and institutional banking, despite a contraction in loans during the first quarter.

Non-interest income decreased by 6% from Q4 but increased by 11% year-over-year on an adjusted basis, with mortgage banking revenues showing significant year-over-year growth.

The company is opening a new branch in Pawtucket, Rhode Island, later this year, expanding its presence in the northern part of the state.

Management expressed cautious optimism about the future, particularly regarding the credit quality and strategic growth in deposits and loans.

Full Transcript

OPERATOR

Good morning and welcome to Washington Trust Bancorp Inc's conference call. My name is Elliot and I'll be your operator today. If you would like to register a question during today's event, please press star 1 on your telephone keypad. As a reminder, today's call is being recorded. And now I'll turn the call over to Sharon Walsh, Senior Vice President Director of Marketing and Corporate Communications. Please go ahead.

Sharon Walsh (Senior Vice President Director of Marketing and Corporate Communications)

Thank you, Elliot Good morning and welcome to Washington Trust Bancorp Inc's conference call for the first quarter of 2026. Joining us this morning are members of Washington Trust's executive team, Ned Handy, Chairman and Chief Executive Officer Mary Nunes, President and Chief Operating Officer Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer and Bill Ray, 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 websiteat ir.washtrust.com Washington Trust trades on NASDAQ under the symbol WASH. I'm now pleased to introduce today's host, Washington Trust Chairman and Chief Executive Officer Ned Handy.

Ned Handy (Chairman and Chief Executive Officer)

Ned, thank you Sharon, Good morning and thank you for joining our first quarter conference call. We appreciate your time and your continued interest in Washington Trust. I'll begin with a brief overview of our first quarter results and then Ron will provide more detail on our financial performance for the quarter. Following our remarks, Mary and Bill will join us for the question and answer session. Building on the Momentum generated throughout 2025, quarterly performance was driven by continued net interest margin expansion, reflecting the underlying strength of our core banking business and continued benefits from our December 2024 balance sheet repositioning transactions. The Q1 results do however, include a higher provision related to reserve builds on two CRE credits moved to non accrual in March and we'll provide details on those in the Q and A session. Our capital ratios remain strong, providing the flexibility to support continued execution across the business. In the first quarter, we completed a digital banking conversion for personal accounts that provides enhanced security and technology and a better customer experience, reinforcing our focus on service and relationships. We will continue the conversion of our business accounts in the ensuing quarters with recent industry shifts. Locally, these investments position us well to attract new customers by pairing modern capabilities with the personalized service that defines Washington Trust. We're also leveraging our strength as a community bank that prioritizes local decision making. To attract experienced bankers to our commercial team, we recently added new talent across CNI, CRE and Business Banking, all of whom bring deep experience and strong client relationships. And in the region, the institutional banking team we added in January is showing strong momentum that positions us for loan and deposit growth as the year progresses. In addition, our planned branch opening later this year in Pawtucket, Rhode Island will further expand our presence in the northern part of the state. Overall, we're encouraged by the progress we are making to position the company for long term success. With that, I'll turn the call over to Ron to provide additional detail on our financial results.

Ron Osberg (Senior Executive Vice President, Chief Financial Officer and Treasurer)

Ron okay, thank you Ned and good morning everyone. Net income in the first quarter was 12.6 million or $0.66 per share compared to 16 million or $0.83 per share last quarter. PPNR was down 6% from Q4 and up by 23% year over year on an adjusted basis. Net interest income was 40.5 million, down by 1% from Q4 and up by 11% year over year. The margin was 263, up by 7 basis points from Q4 and up by 34 basis points year over year. Q1 included 116,000 of loan prepayment fee income which benefited NIM by 1 basis point compared to 516,000 or 3 basis points last quarter. Non interest income was down 1.2 million or 6% compared to Q4 and up by 11% Year over year on an adjusted basis. Loan related derivative income, which is transactional in Nature, was down by 854,000 compared to Q4. Wealth management revenues were down by 205,000 or 2%. Average AUA for Q1 decreased by 1% and increased by 10% year over year. Mortgage banking revenues were 3 million, seasonally down 6% and were up by 32% year over year. Our mortgage pipeline at March 31 was 114 million, up by 33 million or 41% from the end of December. Non interest expense totaled 37.8 million in Q1, down by 1%. Other non interest expenses were down by 1.2 million in Q1, largely due to a $1 million contribution made to our charitable foundation in Q4. In the first quarter. Salary and employee benefits expense was up by 693,000 or 3%, reflecting merit increases and higher payroll taxes associated with the start of a new calendar year. Our Q1 effective tax rate was 21.6% and we expect the full year 2026. Effective tax rate to be approximately 21.5%. Turning to the balance sheet, total loans were down 2% from December 31st. Total commercial loans decreased by 95 million, reflecting mainly payoffs in the CRE portfolio. The commercial pipeline in total is approximately 156 million. Residential loans decreased by 21 million as we continue to amortize that portfolio. In market, deposits were down 2% from the end of Q4 and up by 3% year over year. And wholesale funding was down by 50 million or 8% from the end of December. Our loan to deposit ratio decreased slightly to 96.9% at the end of March. Turning to asset and credit quality, at March 31, non accruing loans were 81 basis points on total loans and increased by 27.5 million from the prior quarter largely due to two commercial real estate office loans. Past due loans were 33 basis points on total loans in the first quarter. We recognized a $4 million provision for credit losses, largely reflecting an increase in specific reserves on the two Cree office loans. The allowance total 41.1 million or 82 basis points. And at this time I will turn the call back to Ned.

Ned Handy (Chairman and Chief Executive Officer)

Thanks Ron. And now we'll take questions.

OPERATOR

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, please press star 2. When preparing to ask a question, please ensure your device is unmuted locally. First question comes from Justin Crowley with Piper Sandler. Your line is open. Please go ahead.

Justin Crowley (Equity Analyst at Piper Sandler)

Hey, good morning everyone. I was wondering if you'd start off just giving a little more detail on the two office loans. Just anything on geography and then and maybe some more specifics on, you know, what occurred to drive the downgrades and specific reserves. So just things like occupancy levels or perhaps just how close they even were to maturity. Not sure that maybe necessitated new appraisals.

Ned Handy (Chairman and Chief Executive Officer)

Yeah, Bill, do you want to take that?

Bill Ray (Senior Executive Vice President and Chief Risk Officer)

Sure, sure. They're both loans that have been current up until this point. Both cases in March there were sort of triggering events that led to us deciding to make the decision for quarter end to put them on non accrual. Both of them have strong sophisticated sponsors and we're engaged with both of them right now on one was a maturity, the other doesn't mature until next year. We're engaged with both of them on on the right next steps. So I don't want to get into too much detail on what that means but we like with most of Our assets that have been in, you know, criticized, either special mention or classified, most of them emerge unscathed. And in this case though, we took the step to put reserves in place that we thought were appropriate reflect any potential loss down the road. So again, we think they're both solid properties with solid sponsors and we expect that we'll continue to drive resolution and we're hoping that, you know, within the next few quarters these will either exit or they will emerge back into performing status. Okay, got it. And then were there any general reserves allocated to office or was it, was it all specific with, with regard to these two loans? I guess trying to get a sense of how you think about the risk of the rest of the office book at this point and the cycle for that for this asset class and you know, know if the thinking there has changed at all. Sure. Well, I think our office exposure peaked at 300 million a couple of years ago. It's now down to 230 and we think we've done that with a fairly small amount of charge offs along the way relatively. So we expect to continue to reduce our office exposure over time within, you know, the Current Expected Credit Loss methodology. We make sure that we use qualitative factors especially to address issues in office. And so we have taken some of those steps and we believe going forward that there's always going to be a handful of properties that are sort of on the bubble that need some attention and focus. But as you can see, these, all of our other office properties are performing. There's, there's, there aren't delinquencies there that we're concerned about. So we just expect that assets will move into lower ratings and then will emerge from those. And we certainly spend a lot of time thinking about maturity wall analysis and refinance risk. And so we're constantly juggling those handful of properties that look like they might raise some issues down the road and try to stay ahead of them. So I guess the best way of saying so we're cautious on Office and we'll continue to be cautious on office, but we also think the scale of the problems within it are well within our capabilities to handle from an earnings standpoint and a reserving standpoint.

Justin Crowley (Equity Analyst at Piper Sandler)

Okay. And then, you know, I guess somewhat larger sized loans here, it sounds like they were self originated. Was that the case or were either participations? Just want to confirm that.

Bill Ray (Senior Executive Vice President and Chief Risk Officer)

I'm not sure which ones you're referring to, but there's only, there's five loans. The two office loan, Office, two office loans just migrated and the two Office loans should migrate. We're the lead on the Class A, the class a office space one. We're 2/3 participant in the lead and then we are the minority participant on the lab space. Deal.

Justin Crowley (Equity Analyst at Piper Sandler)

Okay, gotcha. And then I guess pivoting a little just on loan growth with the contraction you saw this quarter. Can you refresh us just on how to think about growth from here? You know, I believe we talked about mid single digit, call it, you know, maybe 5% growth previously. I know a lot's changed since then with some of the geopolitical noise. So just curious for an update there.

Ned Handy (Chairman and Chief Executive Officer)

Yeah, I'll take that one. Thanks for the question. Yeah, so the quarter saw, you know, pretty significant pay downs, payoffs and mostly in the CRE space and not the kind of commensurate new origination that we're used to. But the path ahead looks very good. We're sticking with our mid single digit growth for the year projection and it's important that we talk about where that's going to come from. At this point we're feeling like CRE is probably going to be low single digit growth for the year. They've got some making up to do based on the first quarter payoffs and then we're thinking kind of flat to 1% growth in Cree, which is somewhat intentional. Most of the growth is going to come from our core CNI business and our institutional banking business. We're expecting sort of high single digit growth out of our core CNI business, which you'll recall has a current outstanding in the kind of $560 million level. So you can do the math there. And then most of the CNI growth is going to come out of our relatively new institutional banking group. We expect 50 plus million in fundings in this quarter and the pipeline is growing and I think importantly alongside that is the strategic growth in deposits that will come from that portion of our CNI business. They're expecting to kind of fund it self fund at a 30 to 40% level which is much higher than certainly CRE and much higher than our core CNI business. So that's an added benefit. They joined the group in late January. So it's to be expected it'll take a little while for them to get up and running. But the pipeline is growing as we expected and we're very encouraged by that. So back to the start, sticking with the mid single digit growth, if not, if not a little higher and again, very encouraged by the types of credit, the quality of credit that we're seeing in the pipeline. more to come on that at the end of next quarter.

Justin Crowley (Equity Analyst at Piper Sandler)

Okay, great. And then just one last one on the margin. I think I might have missed this in the prepared remarks. I know there were some elevated prepayment fees last quarter. Was there any of that in the 263 for the first quarter? Yes. Like one basis point. Okay. And then I guess just thoughts on the margin from here. I think you'll get that lift from the swap termination, but could you just remind us the benefit there and then just also how you're thinking about organic expansion through the year?

Ron Osberg (Senior Executive Vice President, Chief Financial Officer and Treasurer)

Yeah. So the swap termination will add 9 basis points in the second quarter and another 4 basis points in the third quarter. Okay. And then I guess just out. Go ahead. Go ahead, Justin.

Justin Crowley (Equity Analyst at Piper Sandler)

I was just going to ask outside of that, you know, just beyond the benefit from the swap, just how you're thinking about, you know, just margin left from here as we get through the year.

Ron Osberg (Senior Executive Vice President, Chief Financial Officer and Treasurer)

Yeah, there's modest expansion by quarter. First quarter was probably a little higher, helped by the prepayment. Helped actually helped a little bit by the shorter day count in the quarter. Actually added about 2 basis points to the NIM. But when we look ahead to the fourth quarter, we're thinking 275 to 280 in the quarter.

Justin Crowley (Equity Analyst at Piper Sandler)

Okay, great. I appreciate it. Thank you so much. Thanks, Justin.

OPERATOR

We now turn to Damon Del Monte with kbw. Your line is open. Please go ahead.

Damon Del Monte (Equity Analyst at KBW)

Hey, good morning, guys. Thanks for taking my questions.

Ron Osberg (Senior Executive Vice President, Chief Financial Officer and Treasurer)

Ron, could you just repeat the last comment you made on the margin, the 275, the 280, was that for the second quarter or was that for where you expect it to be at year end? I missed that. Sorry, sorry, Damon. Yeah, just to be clear, fourth quarter, fourth quarter.

Damon Del Monte (Equity Analyst at KBW)

Okay. Yeah, we're looking at 265 to 270 in the second quarter. Got it. Okay. Yep. That jives with what you were describing from the benefit. Okay, great. And then I guess

Ron Osberg (Senior Executive Vice President, Chief Financial Officer and Treasurer)

maybe a little bit on expenses and kind of how you're thinking about the outlook from there. You know, you've made some hires. I'm assuming that's all kind of baked into the numbers. You know, you're. I think the expenses were around what, 37.8 million? So just kind of modest growth off of this or do you think you could actually keep it kind of flat? Yeah, yeah. We're actually seeing about a million dollar increase in Q2. And some of that is, you know, really there's, there's three areas we're looking at advertising, mortgage commissions and Then we've got some project implementation expenses that will be coming through in the quarter. Got it. Okay, great. And then further to that, you know, we're adding a branch which will probably open in the, you know, towards the end of the third, beginning of the fourth quarter, those expenses will start to hit in Q3. And so we're probably looking at about 500,000 in 2026 related to the branch. Okay, got it.

Damon Del Monte (Equity Analyst at KBW)

Okay, great. And then on wealth management, you know, AUM were down a little bit this quarter. Is that just fluctuation of the market or was there some outflow of clients?

Ron Osberg (Senior Executive Vice President, Chief Financial Officer and Treasurer)

Yeah, it was mostly market and by mostly that means that not all. So yes, we did have some net outflows. Got it. Okay. Markets, you can see markets have rebounded so far in April, so no one knows what the future holds, but it could at least, you know, a lot of the, you know, a lot of the declines that we saw in the quarter have reversed so far in the second quarter.

Damon Del Monte (Equity Analyst at KBW)

Got it. Okay. And then just lastly, you know, given the outlook for the loan growth going forward, how do we think about provision and kind of the reserve level? I mean obviously you built the reserve this quarter for those, for those loans that went to non accrual status. But you know, if we assume that there's no other credit deterioration, you kind of, you know, have the provision such that it keeps the reserve flat given the loan growth.

Ron Osberg (Senior Executive Vice President, Chief Financial Officer and Treasurer)

Yeah, I, we're kind of thinking somewhere in the range of 1 to 2 million per quarter and that that covers loan growth and you know, maybe that gives us a little bit, you know, depending on what we book and when we book it could give us a little bit of a loan bill, a reserve build going forward.

Damon Del Monte (Equity Analyst at KBW)

Got it. Okay. Okay, great. Well, that's all that I had. Thanks so much.

Ron Osberg (Senior Executive Vice President, Chief Financial Officer and Treasurer)

Thanks, Tim. You're welcome.

OPERATOR

As another reminder, if you'd like to ask a question, please press star one on your telephone keypad now. We now turn to Laurie Hunsicker with Seaport Research. Your line is open. Please go ahead.