Washington Trust Bancorp (WASH) Q2 2026 earnings call transcript

Thank you, Hillary. Good morning and welcome to WASHINGTON TRUST BANCORP INC's conference call for the second quarter of 2026. Joining us this morning are members of WASHINGTON TRUST's executive team, Ned Handy, Chairman and Chief Executive Officer. I will now turn the call over to management. All these materials and other public filings are available at 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 Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon. Good morning, and thank you for joining our second quarter conference call. We appreciate your time and your continued interest in Washington Trust. I will begin with a brief overview of our second 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. We delivered strong results in the second quarter as disciplined execution across the company drove higher profitability and solid loan and deposit growth. Our institutional banking initiative helped drive an increase in our commercial and industrial loan book and overall deposits. Our capital levels remain We are planning to open our 30th branch later this year in Bristol, Rhode Island, providing greater access for consumers and businesses in the East Bay and Southeastern Massachusetts.

We're also finalizing the build of our new Pawtucket branch and are excited to have both locations open soon. We are on target to roll out an enhanced digital banking solution for our small business customers this fall and continue to look for ways to leverage technology to provide greater security, convenience, and choice for our customers. In April, we welcomed Jeff Wilhelm to our board. Jeff has more than 25 years of experience in digital innovation, and we're excited to draw on his expertise in AI and cybersecurity as these areas continue to grow in importance across the financial services industry.

Overall, we are pleased with our second quarter performance in the direction of our business. Strong earnings growth, margin expansion, and balance sheet growth position us well as we continue to invest in our franchise, expand our presence in key markets, and enhance the customer experience.

With that, I will turn the call over to Ron to provide additional detail on our financial results. Ron?

Thanks, Ned, and good morning, everyone. In the second quarter, we reported net income of $16 million, or 83 cents per share, up by $3.4 million, or 17 cents from the preceding quarter. Pre-provision pre-tax net revenue, or PPNR, was up 9% from Q1 and up 23% year-over-year. Net interest income was $41.8 million, up by 3% from Q1 and up by 12% year-over-year. The margin was 273, up by 10 basis points from Q1 and up by 37 basis points year over year. On May 1st, the remaining deferred loss from a terminated hedge was fully amortized, eliminating this expense from the bank's ongoing run rate. The second quarter captured only a two-month benefit from ending this amortization expense as one month of amortization remained in April.

The second quarter benefit to net interest income NIM was 1.4 million and nine basis points. In the third quarter, we will realize the third month of benefit, totaling approximately 700,000 or four basis points compared to Q2.

Non-interest income was up by 1.4 million or 8% compared to Q1 and up by 9% year-over-year. Wealth management revenues were up 554,000 or 5% compared to Q1 and increased by 1.1 million or 11% year-over-year. Q2 included an increase of $265,000 in transaction-based revenues, largely reflecting seasonal tax servicing fee income. Asset-based revenues were up by $289,000 from Q1.

Mortgage banking revenues totaled $3.5 million, up 14% from the first quarter, and also up 14% year-over-year. Our mortgage pipeline at June 30th was $121 million, up by $7 million, or 6% from the end of March. Non-interest income totaled $38.6 million in Q2, up by 2%. Valeries and benefits expense was up $972,000, or 4%, reflecting staffing additions in our commercial and retail banking business lines, as well as volume and performance-related compensation changes.

All other categories of non-interest expenses decreased by a net $140,000 in the second quarter. Our effective tax rate was 21.2%, and we expect our full year 2026 rate to be approximately 21.5%.

Turning to the balance sheet, total loans were up 2% from March 31st. Total commercial loans increased by $63 million, driven by growth in the commercial and industrial loan portfolio, mainly from our institutional banking team. Commercial real estate had solid production in Q2 but this was more than offset by payoffs The commercial pipeline is approximately million Residential loans increased by million and consumer loans were up by million Deposits were up 4% from the end of Q1 and up by 6% year-over-year. Wholesale funding was down $120 million, or 21% from the end of March, and our loan-to-deposit ratio improved from 96.9%. The WASHINGTON TRUST BANCORP INC, the WASHINGTON TRUST BANCORP INC, the WASHINGTON TRUST BANCORP INC, THE WASHINGTON TRUST BANCORP INC. TURNING TO ASSET QUALITY, OVERALL, OUR Q2 ASSET AND CREDIT QUALITY METRICS WERE STABLE.

AT JUNE 30TH, NON-APPRING LOANS WERE 78 BASIS POINTS AGAINST TOTAL LOANS, DECREASING FROM 81 BASIS POINTS AT THE END OF Q1. Past due loans were 81 basis points, up from 33 basis points at the end of Q1. The increase was attributable to a single commercial real estate office loan that had already been placed on non-accruing status in the preceding quarter and did not reflect further deterioration in portfolio credit quality during the quarter.

In the second quarter, we recognized a $1.6 million provision for credit losses. The allowance totaled 42.6 million, or 83 basis points, against total loans. And at this time, I will turn the call back to Ned.

Ron, thanks very much. At this point, we'll open it up to questions, Hillary.

Morning, Justin.

Yeah, thanks, Justin. The group had a great quarter. And we expect, and commercial loans in general were up to 2.4%. So we expect that kind of rate to continue in the coming quarters. You know, the institutional banking group is growing its pipeline. I think from quarter to quarter there will be a balance between the institutional banking group and CREE. The third quarter generally is a little slow in the not-for-profit space, so we may see a little bit more of that growth come out of the Cree Group than out of institutional banking, but I think there's a good balance there. And, yeah, we're sticking with the mid-single-digit overall loan growth for the year, and I think, as we said in the prior quarter, that'll be led by institutional banking group and CNI in general.

Yeah, it really is. And in the quarter, it was largely educational in nature, and we expect that to be kind of the leader in that group. Again, good loan growth, good deposit growth. Average assets, some of that loan growth happened towards the end of the quarter, so that obviously had an effect on net interest income, but nice to have those loans on the book. We expect for the third quarter that nonprofit activity to be the driver for the institutional group, but as I said, third quarter generally tends to be a little bit slower in that space. We'll see the overall growth led in the quarter probably by commercial real estate.

Yeah, the pipeline is good, and yes, the credit formation in the quarter was about, between construction and new loans, was about $100 million. Payoffs were a little bit above that, led by Cree at $112 million. We think with a little bit of upward pressure in rates, cap rates probably move. Outright sales probably slow a little bit. We expect that payoff rate to slow a little bit, but the pipeline is good, and so we expect that we'll have net growth in the third quarter, certainly in the real estate space. We're overall formation was about $214 million in the quarter, so we're really happy with the level of activity and payoffs and paydowns. We're at about $150.

So, you know, it's a little bit of slowdown in the payoff and continued pace on the new originations. Our construction book is down a little bit but we still see some construction advances in the quarter I confident that we hit that same kind of 2 percent C and I got commercial growth overall in the quarter And then obviously the lead time on the not space can be a little longer So while there may not be fundings at the same level in Q3 the pipeline is certainly being built Okay, got you.

Yeah, we're looking at, say, 275 for Q3 and 280 for Q4.

Yeah, yeah. You know, we actually set up, you know, a record in the quarter on wealth assets under management. You know, and you can see that we do disclose our overall assets. We're not really breaking out the flows, but I would say that we're, you know, we're pretty pleased with the overall performance of the business.

Yeah, so on the liability side, I would say most of our CDs and FHLB have kind of repriced down. There's probably a little bit left to go. I think on the deposit side, we're really focused on trying to improve our mix. I think that the institutional banking team is expecting to self-fund about 35% of their production. That should help our mix going forward and give us some help on that side. So that's kind of how we're thinking about it, Damon. Does that answer the question?

You know, most of it was the swap. There is an undercard of that book. You know, we have the big mortgage book that we're still trying to amortize down. So that is giving us some benefit going forward. I think if the yield curve continues to steepen up a little bit, that should help as our new production comes in. And, you know, the mortgage amortization is a little bit of a slow grind, but it's there, and it's helping us as it goes off. You know, coming into the year, we were, you know, somewhat hopeful that maybe rates would come down, and we'd see a pickup and refi activity and maybe some prepayments on that. But, you know, that hasn't happened yet.

But the amortization is real, and that should give us, you know, give us a little bit of a tailwind.

Yeah, you know, I would say we're expecting our third quarter expenses to be up about another million. You know, some of that is mortgage volume related. We've got the branches coming online that we talked about later this year. So that, you know, that'll add, you know, a couple hundred thousand in the third quarter and then another couple hundred thousand in the fourth quarter as those start to roll in. And some open positions we still have that we intend to fill and maybe some timing on the advertising expense. So right now, I would say we're looking at like a million-dollar increase in Q3, which would put us just under $39 million.

Thanks, David.

Hi, Lori.

I'm sorry, did you say it's college?

No, it is a focus, but none of the existing volume is to colleges. It is a focus, though. We have a few in the pipeline that we're exploring, but the group has looked at, just order of magnitude, something in the neighborhood of $700 million of opportunities. And, you know, we either don't compete on rate or for other reasons credit-related or otherwise we pass. So they're seeing a lot of opportunities as we expected, and we're being fairly careful. We have looked at a couple of colleges, Lori, and have not won a couple of them, have passed on a couple of them. So it's in the mix. These guys have been at it for a long time.

They have access to the opportunities, but they also have a really good sense of where the market is and where our best opportunities lie.

Yeah, I think that's fair, Lori.

Yeah, so Lori, we expect, you know, over the next, you know, call it 18 months that CNI is going to grow at a faster pace than everything else in our loan book. So I think Cree is going to return to kind of normal kind of growth rates that we saw, you know, several years back. But CNI, I think, is the main growth engine. They're both going to grow, and I would say that the CNI will grow at a somewhat faster pace than the CRE.

Well, yeah. So I think the position we're trying to put ourselves in is to have sustainable growth comparable to what we just posted in Q2. And we believe that we are on that path to do that, Laurie. And remember, on the CNI side, the existing CNI book is relatively small, and the institutional banking group has no risk of payoff. So that's pure net growth. So the percentage growth is a little misleading. It's going to be the leader. It's going to help on the deposit growth side. But we expect both CRI and CNI overall, including institutional banking group, to kind of lead the charge.

We're in discussion with the sponsor, well known to us, longstanding relationship with the bank. It's got some long-term state leases in it, so we feel comfortable about where this is and where it's going to go. We're obviously in active discussions right now.

Thank you, Laurie.

Thank you, Hillary, and thank you all for your questions and for joining us this morning. As we look ahead, we remain focused on disciplined growth, prudent risk management, delivering exceptional service to our customers and communities, and creating long-term value for our shareholders. We appreciate your continued interest in WASHINGTON TRUST and your support of our company. We look forward to speaking with you again next quarter. Have a great day, everyone.