Washington Trust Bancorp ((WASH)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Washington Trust Bancorp’s latest earnings call struck a cautious but constructive tone as management balanced clear signs of operational progress with tangible near‑term headwinds. Margin expansion, mortgage strength, digital upgrades, and solid capital were offset by higher credit costs from two troubled office loans, softer loan balances, and pressure on fee income and earnings.
Net Interest Margin Expansion
Net interest margin improved to 2.63%, rising 7 basis points from the prior quarter and 34 basis points from a year ago. Management attributed the gains to core banking performance and prior balance sheet repositioning, signaling that margin repair remains a central driver of earnings resilience.
Net Interest Income and PPNR Momentum
Net interest income came in at $40.5 million, slipping 1% sequentially but rising 11% year over year as higher yields and margin gains flowed through. Pre‑provision pre‑tax net revenue fell 6% from Q4 yet advanced a robust 23% on an adjusted basis versus last year, underscoring healthier underlying earnings power.
Mortgage Banking Strength and Growing Pipeline
Mortgage banking stayed a bright spot, with revenue of $3.0 million down just 6% from Q4 but up a strong 32% versus last year despite seasonal softness. The mortgage pipeline climbed to $114 million, a 41% jump since December, positioning this business to contribute more meaningfully if volumes hold.
Digital Conversion and Talent Build‑Out
The bank completed its digital conversion for personal accounts, enhancing security and customer experience, while business account migration is underway. At the same time, Washington Trust has hired seasoned commercial bankers and launched an institutional banking team, which is already showing momentum in attracting new loans and deposits.
Capital Strength and Expense Discipline
Management highlighted strong capital ratios and a credit allowance of $41.1 million, equal to 82 basis points of loans, providing a cushion against emerging risks. Noninterest expense came in at $37.8 million, down 1% quarter over quarter, reflecting an effort to control costs even as the bank invests in growth initiatives.
Office Exposure Actively Reduced
The bank has been steadily trimming its exposure to office real estate, a sector under heightened scrutiny given shifting work patterns. Office balances have fallen from around $300 million at their peak to about $230 million, signaling active portfolio de‑risking and rebalancing toward areas viewed as more resilient.
NIM Tailwinds from Swap Actions
Management pointed to specific tailwinds that should further support net interest margin over the coming quarters as rate dynamics evolve. Swap terminations are expected to add roughly 9 basis points to NIM in the second quarter and about 4 basis points in the third, helping extend the recent margin expansion trend.
Loan Growth Outlook and Mix Shift
The company reiterated a target of mid‑single‑digit loan growth for 2026, with core commercial and industrial balances expected to grow at a high‑single‑digit pace. A key contributor is the new institutional banking unit, which is anticipated to deliver more than $50 million of fundings in the near term, helping offset slower commercial real estate growth.
Quarterly Net Income Under Pressure
Headline earnings reflected the near‑term challenges, as net income fell to $12.6 million, or $0.66 per share, from $16.0 million, or $0.83, in the prior quarter. The roughly 21% sequential decline underscores how credit costs and softer revenues can still weigh on results even as core metrics improve.
Credit Deterioration in Two Office Loans
Credit quality issues surfaced in the commercial real estate office book when two loans were moved to nonaccrual status in March. Nonaccruing loans rose by $27.5 million to 81 basis points of total loans, prompting a $4.0 million provision for credit losses largely tied to specific reserves, though management stressed the exposures are contained and being actively managed.
Commercial Loan Payoffs and Balance Declines
Total loans declined 2% from year‑end as payoffs and softer demand weighed on growth, especially in commercial real estate. Commercial balances dropped by $95 million and residential loans by $21 million, creating a short‑term drag that the bank aims to counter through targeted C&I and institutional banking expansion.
Noninterest Income Headwinds
Noninterest income fell by $1.2 million, or 6%, from the prior quarter even though it rose 11% year over year on an adjusted basis. Loan‑related derivative income dropped by $854,000 and wealth management revenues slipped 2%, with average assets under administration down 1% sequentially but still up 10% versus last year.
Near‑Term Expense Uptick
Operating costs showed the early impact of investment and seasonality, as salaries and benefits increased $693,000, or 3%, on merit raises and payroll taxes. Management also flagged around $1 million of additional expenses in the second quarter tied to advertising, mortgage commissions, and projects, plus roughly $500,000 of branch‑related costs expected in 2026.
Deposit Trends and Funding Mix
Customer deposit balances declined 2% from the fourth quarter but remained 3% above year‑ago levels as competitive pressures persisted. Wholesale funding shrank by $50 million, or 8%, and the loan‑to‑deposit ratio eased modestly to 96.9%, giving the bank slightly more breathing room on liquidity and funding costs.
Capital Return: No Share Buybacks
Despite emphasizing a strong capital position, management signaled no near‑term appetite for share repurchases, even though an authorization remains in place. The stance preserves flexibility for growth and risk management but may disappoint investors hoping for buyback‑driven capital returns as earnings normalize.
Forward‑Looking Guidance and Outlook
Looking ahead, Washington Trust is guiding to modest net interest margin expansion aided by swap terminations and a NIM that already sits at 2.63%. Management targets mid‑single‑digit loan growth in 2026, high‑single‑digit C&I gains, $50 million‑plus of institutional fundings with a 30%–40% self‑funding rate, provision expenses of about $1–2 million per quarter, and a tax rate near 21.5%.
Washington Trust’s call painted the picture of a bank navigating credit and revenue bumps while quietly rebuilding its earnings engine. Margin repair, mortgage momentum, and strategic hires offer upside, but investors will watch closely how quickly loan growth re‑accelerates and how contained office‑related credit issues remain in the quarters ahead.