WASHINGTON TRUST BANCORP INC Q2 FY2026 earnings call

• Core Financial Performance: Management reported strong Q2 2026 results driven by disciplined company-wide execution, with higher profitability, solid loan and deposit growth, and stable overall credit quality. Capital levels remain strong and sufficient to support expected future loan growth.
• Branch Expansion: The firm plans to open its 30th branch in Bristol, Rhode Island later in 2026, and is finalizing construction of a new Pawtucket branch, expanding access to customers in the East Bay and Southeastern Massachusetts regions.
• Digital Banking Initiative: An enhanced digital banking solution for small business customers is on track to launch in fall 2026, part of ongoing efforts to leverage technology to improve customer security, convenience, and service options.
• Board Update: Jeff Wilhelm joined the board of directors in April 2026, bringing over 25 years of experience in digital innovation. The firm will leverage his expertise in AI and cybersecurity, two increasingly critical areas for the financial services industry.
• Balance Sheet Improvement: The loan-to-deposit ratio improved from 96.9% at the end of Q1 to 95.1% at the end of Q2, driven by strong deposit growth and a reduction in wholesale funding.

1. Commercial Banking: Total commercial loans increased by $63 million (2% quarter-over-quarter), driven by growth in the commercial and industrial (C&I) loan portfolio from the institutional banking team. Commercial real estate originations offset payoffs in the quarter, with a current commercial loan pipeline of $143 million. C&I currently represents 13% of the total loan book, up from 11% last quarter. 2. Residential Lending: Residential loans increased by $13 million quarter-over-quarter. Mortgage banking revenues totaled $3.5 million, up 14% quarter-over-quarter and 14% year-over-year. The mortgage pipeline at June 30 was $121 million, up 6% quarter-over-quarter. 3. Consumer Lending: Consumer loans increased by $12 million quarter-over-quarter. 4. Wealth Management: Wealth management revenues were $554,000 (5%) higher quarter-over-quarter and $1.1 million (11%) higher year-over-year. The segment set a new record for assets under management in Q2. 5. Overall Corporate Financial Performance: Net income was $16 million, or $0.83 per share, up $3.4 million from Q1. Net interest income was $41.8 million, up 3% quarter-over-quarter and 12% year-over-year. Net interest margin was 273 basis points, up 10 bps quarter-over-quarter and 37 bps year-over-year. Non-interest income totaled $18.6 million, up 8% quarter-over-quarter and 9% year-over-year. Total deposits were up 4% quarter-over-quarter and 6% year-over-year, while wholesale funding decreased 21% quarter-over-quarter to $120 million.

• Overall loan growth: Management reaffirms guidance for mid-single-digit overall loan growth for full year 2026, with C&I led by the institutional banking group as the primary growth engine. C&I is expected to grow at a faster pace than other segments over the next 18 months, and the firm targets sustainable C&I growth comparable to the strong Q2 2026 result.
• Net interest margin guidance: Management projects NIM will reach 275 basis points in Q3 2026 and 280 basis points in Q4 2026, including the full benefit of the terminated hedge amortization.
• Effective tax rate: Full year 2026 effective tax rate is expected to be approximately 21.5%.
• Non-interest expense: Q3 2026 non-interest expenses are expected to increase by approximately $1.5 million, coming in just under the $39 million quarterly level. The increase is driven by mortgage volume-related costs, branch opening expenses, and planned staffing additions.

• The 33 basis point quarter-over-quarter increase in non-accruing loans to 81 basis points is attributable to a single commercial real estate office loan that was already placed on non-accrual status in the prior quarter, with no further general deterioration in overall portfolio credit quality. No additional broad credit deterioration was reported.
• Expected slower third quarter activity in the not-for-profit C&I lending segment could lead to lower C&I growth in Q3 relative to Q2.
• Lower-than-expected refinance activity has slowed the amortization of the firm's legacy mortgage book, though gradual amortization continues to provide a small ongoing tailwind.
• Management maintains selective underwriting standards for C&I opportunities, passing on deals that do not meet rate or credit requirements.

Q: Analyst Justin Crowley asked for more detail on the institutional banking group’s strong Q2 C&I growth, how sustainable this growth is, and how diversified the group’s lending is beyond the not-for-profit space. / A: Management said Q2 growth was strong, and mid-single-digit full year loan growth remains on track, led by the institutional banking group. Most of Q2 C&I growth came from not-for-profit K-12 educational institutions, and the not-for-profit space will remain the group’s core focus. Activity in this segment typically slows in Q3, so overall loan growth in Q3 will likely be led by commercial real estate rather than institutional banking.

Q: Crowley asked for Ron Osberg’s outlook for net interest margin trajectory after the full benefit of the terminated swap amortization is realized in Q3. / A: Osberg confirmed that management expects NIM to reach 275 basis points in Q3 and 280 basis points in Q4 2026, which includes the full impact of the removed amortization expense and ongoing incremental benefits from other portfolio dynamics.

Q: Analyst Damon Del Monte asked about deposit pricing trends and competition, and what drivers support management’s projected margin expansion beyond the swap benefit. / A: Osberg noted most CDs and wholesale funding have already repriced downward. The institutional banking group is expected to self-fund ~35% of its loan production, which will improve deposit mix and support margin stability. Gradual amortization of the legacy higher-cost mortgage book also provides an ongoing tailwind to margin.

Q: Analyst Lori Hunsicker asked for details on the large jump in education-focused C&I loans, and how large C&I can grow as a share of the total loan book over the next 1-2 years. / A: Management confirmed the growth was entirely from not-for-profit private K-12 high schools, which have strong credit profiles and accompanying low-cost deposit relationships. Higher education lending is a future focus, but no college loans have closed yet. Management expects C&I to grow faster than all other segments over the next 18 months, remaining the primary driver of overall loan and deposit growth for the firm.