WASHINGTON TRUST BANCORP INC Q1 FY2026 earnings call

Ned Handy began with a brief overview of first quarter results, noting quarterly performance was driven by net interest margin expansion, included higher provision related to reserve bills on two CREE credits moved to non-accrual in March, and capital ratios remain strong. He also mentioned completed digital banking conversion for personal accounts, planned conversion of business accounts, recruitment of experienced bankers to commercial team, and planned branch opening in Pawtucket, Rhode Island. Ron Osberg provided detailed financial results, including net income, net interest income, PPNR, non-interest income, and asset quality details. Mary and Bill joined for Q&A, addressing questions on loans, growth, margin, expenses, etc.

Net income in the first quarter was $12.6 million, or 66 cents per share, compared to $16 million, or 83 cents 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 seven 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 one basis point compared to 516,000 or three 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 we're up by 32% year over year. Our mortgage pipeline at March 31st 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. On the balance sheet, total loans were down 2% from December 31st, TAB, Mark McIntyre, Total commercial loans decreased by 95 million reflecting mainly payoffs in the creep portfolio, the commercial pipeline in total is approximately 156 million residential loans decreased by 21 million as we continue to amortize that portfolio. TAB, Mark McIntyre, In market deposits were down 2% from the end of Q4 and up by 3% year over year in 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 31st, 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.

Expect full year 2026 effective tax rate to be approximately 21.5%. Net interest margin expected to be 275 - 280 basis points in fourth quarter. Swap termination will add 9 basis points in second quarter and 4 basis points in third quarter. Q2 expenses expected to increase by about $1 million, including advertising, mortgage commissions, and project implementation expenses. 2026 expenses related to new branch expected to be about $500,000. Stick with mid-single-digit loan growth for the year, with core CNI business expecting high single-digit growth, institutional banking group expecting over $50 million in fundings this quarter. Provision expected to be in range of $1 - $2 million per quarter.

Higher provision related to two commercial real estate office loans moved to non-accrual in March. Potential credit risks associated with office asset class, including loan maturities, tenant leasing issues, and market environment. Uncertainty in net interest margin due to factors like swap termination. Potential for expenses to increase more than expected. Risk of loan growth falling short of expectations.

Q: Justin Crowley asked about the two office loans, including geography, downgrades, reserves, and loan growth.

A: Bill Ray responded that the two loans have strong sponsors, one matured, the other matures next year, engaged with them on next steps, office exposure has decreased, and they're cautious on office but can handle issues.

Q: Justin Crowley asked about loan growth update.

A: Ron Osberg said sticking with mid-single-digit growth, Cree likely low single-digit growth, core CNI and institutional banking expected high single-digit and over $50 million fundings.

Q: Damon Del Monte asked about margin and expenses.

A: Ron Osberg said swap termination adds basis points, Q2 expenses expected to increase, branch opening expenses to hit in Q3.

Q: Laurie Hunsicker asked about loan loss provision and office loan details.

A: Ron Osberg said $4 million provision was all office, Bill Ray provided details on office loan maturities, occupancy, and resolution.

Q: Laurie Hunsicker asked about buybacks.

A: Ned Handy said consider buybacks but not intending to buy back shares at this time.