Washington Trust Bancorp (WASH) Q3 2026 earnings call transcript

Thank you Hilary. Good morning and welcome to Washington Trust Bancorp Inks 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 Nune, 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 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.

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 in our bill will join us for the question and answer session. We delivered another strong quarter marked by growth and earnings and that 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.

And now I'll turn the call over to Ron to provide additional details on our third quarter financial results. Ron.

Yeah, thanks Ned and good morning everyone. Third quarter net income was 19.4 million or a dollar one per share. Up by 3.4 million or 18 cents from the preceding quarter. Pre-provision pre-tax net revenue or PPNR was up 20% from Q2 and up by 26% year over year. That 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 the net by about two basis points.

Nine 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 seasonal the seasonal decline in tax servicing fee income.

Mortgage banking revenues total 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 on life insurance was up largely due to the recognition of a gain of 954,000 in the third quarter.

Nine interest expense total 38.8 million in the third quarter up by 200,000 or half a percent. 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 creep 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 and 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 56 cents per share.

Turning to asset and credit quality, overall our asset and credit quality metrics improved. At September 30, non-occurring 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 dollars that was placed on non-approval in the first quarter. During the third quarter, this loan was restructured resulting in 18.5 million being returned to a cruel and 3.8 million being charged off. In the third quarter, we recognized 1.8 million dollar provision for credit losses. And at this time, I will turn the quote back over to net.

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

Yeah. So Dan, it's probably a little early to be talk about 2027, but we've revised our guidance for Q4. We're going to guide to a range of 285 to 290.

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. It's probably the biggest driver. But I think we have kind of an across-the-board approach to picking in deposits across both retail and commercial at this point. So yeah, we had pretty good growth in the quarter and we'll see if we can maintain that.

Yeah, yeah. So listen, on the last call, we guided to a million dollar increase in the quarter. And you know, we came in below that. I would say a lot of that is timing related. So we're going to see a shift to some of that, you know, previously expected expense growth shifting into the fourth quarter. So, you know, for the fourth quarter, we're 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, you know, kind of that 1.5 is kind of evenly distributed across that. That none of that includes our annual $750,000 contribution to our charitable foundation.

So that would be incremental to the 1.5.

Thanks, Damon.

We can, Justin. Good morning.

Yes, it is.

Yeah. So we've got, you know, call it about 2.1 billion of sulfur and prime-based loans. So each, you know, those sulfur loans are resetting monthly. So that's kind of the re-pricing that we see immediately every time the Fed makes a change.

I'm sorry, I said it again, Justin.

Yeah, I would say, Justin, I would say that that cray 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, 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 sort of high quality assets. So we're seeing spreads, you know, 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 mean, 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.

So, Justin, I can add to that. Really, there's more of a tangible benefit, I think, on the residential side. You know, we've got a $2 billion residential book. So as that's the urbanizing and we're reinvesting those cash flows, that's giving us the tailwind of about one to two basis points a quarter.

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

Yeah, that's a good question. And 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, institutional business. But the pipeline going forward, I mean, we got about a $230 million pipeline as of 930, which is weighted towards CNI 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 is pretty strong.

And again, weighted towards commercial.

Thanks very much, Justin.

Hi, Laurie.

Yes.

No. No. They're coming on. 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. So, so some of that expenses, you can see it. And we will see it in our run rate even before the branch is opened. But the ongoing run rate for branches around $7.50 to $800,000 a year.

I think that's fair. Yes.

We have nothing planned, although I would say that we are still interested in expanding that the branch footprint. So, nothing to talk about yet, but, you know, in coming quarters, we probably have something to talk about there.

Yeah. So, yeah, we're very pleased with our loan to deposit ratio, which is at a, you know, at a level, a low level that we've rarely been in the past. And 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, you know, in the coming couple of years than it has been in the previous couple of years. So, you know, 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 don't have, you know, we've got internal policy limits and things of that nature. But, you know, I don't have a target loan to deposit ratio to share with you. I will say that, you know, 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.

Do you have a spot margin? Yeah. I mean, call it 285 for September.

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

I think, and we published the right time. Again, there's been no change in commitment from the sponsors. No change in occupancy up or down. And as you said, they've never missed a payment.

We are working with the sponsors on that and moving towards an exit scenario. And so, in the middle of those discussions.

It's fully leased, 95%. We've been waiting for the tenants to burn off free rent and show performance. All trends have been positive. And 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 don't, we can't commit to that yet. But that's where it's headed, we think.

Yeah, I mean, we don't have any plans to buy stock back at this point, the price is high. I mean, we've got the capital, we've got other things to invest in. And then 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...

No, that's it. I mean, we've got plans to grow the balance sheet. So we're going to hold on to that capital right now. I mean, listen, our regulatory capital ratios look fine. Our gap 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 just to deploy that capital into the growth of the business.

Thanks, Lori.

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