Washington Trust Bancorp Inc 2026 Q3 Earnings Call

Good morning and welcome to Washington Trust Bancorp Inc.'s 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 Noons, President and Chief Operating Officer, Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, and Bill Wray, 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 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.

Ned? 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 on our financial performance. Following our remarks, Mary and Bill will join us for the question and answer session. We delivered another strong quarter marked by growth and earnings and net 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. 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 $1.01 per share, up by $3.4 million or $0.18 from the preceding quarter. Pre-provision pre-tax net revenue or PPNR was up 20% from Q2 and up by 26% year-over-year. Net 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 NIM by about two basis points. Non-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, a seasonal decline in tax servicing fee income. Mortgage banking revenues totaled $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-owned life insurance was up largely due to the recognition of a gain of $954,000 in the third quarter. Non-interest expense totaled $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 CRE 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. 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 $0.56 per share. Turning to asset and credit quality. Overall, our asset and credit quality metrics improved.

At September 30, non-accrual 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 that was placed on non-accrual in the first quarter. During the third quarter, this loan was restructured, resulting in $18.5 million being returned to accrual and $3.8 million being charged off. In the third quarter, we recognized $1.8 million provision for credit losses. At this time, I will turn the call back over to Ned.

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