Washington Trust Bancorp (NASDAQ:WASH) reported first-quarter 2026 net income of $12.6 million, or $0.66 per share, down from $16.0 million, or $0.83 per share, in the prior quarter as the company recorded a higher provision tied to two commercial real estate (CRE) office credits moved to non-accrual in March. Management highlighted continued net interest margin expansion and progress on several growth initiatives, including digital banking upgrades, talent additions in commercial banking, and a planned new branch in Rhode Island.
Quarterly results and margin trends
Senior Executive Vice President, Chief Financial Officer and Treasurer Ron Ohsberg said net interest income totaled $40.5 million, down 1% from the fourth quarter but up 11% year-over-year. Net interest margin (NIM) rose to 2.63%, up seven basis points from the prior quarter and up 34 basis points from a year earlier.
Looking ahead, Ohsberg said the company expects a boost from a swap termination, adding “9 basis points in the second quarter and another 4 basis points in the third quarter.” He said Washington Trust is “looking at 265-270 in the second quarter” and expects “275-280” in the fourth quarter.
Non-interest income, expenses, and business line performance
Non-interest income declined $1.2 million, or 6%, from the fourth quarter, while rising 11% year-over-year on an adjusted basis. Ohsberg said the quarterly decline was driven in part by loan-related derivative income, which is “transactional in nature,” falling by $854,000 from the prior quarter.
Wealth management revenue declined $205,000, or 2%, and average assets under administration decreased 1% from the prior quarter while increasing 10% year-over-year. Asked whether the quarterly decline was market-related, Ohsberg said it was “mostly market,” adding, “Yes, we did have some net outflows,” while noting market declines seen during the quarter had “reversed so far in the second quarter” as of April.
Mortgage banking revenue was $3.0 million, down 6% sequentially due to seasonality, but up 32% year-over-year. Ohsberg said the mortgage pipeline at March 31 was $114 million, up $33 million, or 41%, from the end of December.
Non-interest expense totaled $37.8 million, down 1% from the prior quarter. Ohsberg attributed the decline in “other non-interest expenses” largely to a $1.0 million contribution to the company’s charitable foundation recorded in the fourth quarter. Salaries and employee benefits rose $693,000, or 3%, reflecting merit increases and higher payroll taxes typical at the start of the year. The effective tax rate was 21.6%, and Ohsberg said the company expects a full-year 2026 effective tax rate of approximately 21.5%.
On the expense outlook, Ohsberg said the company expects about a $1.0 million increase in the second quarter, driven by advertising, mortgage commissions, and “project implementation expenses.” He also said Washington Trust plans to add a branch that will likely open “towards the end of the third, beginning of the fourth quarter,” with expenses starting in the third quarter and about $500,000 of related expense expected in 2026.
Balance sheet trends and loan growth outlook
Total loans decreased 2% from Dec. 31. Ohsberg said total commercial loans declined by $95 million, “reflecting mainly payoffs in the CRE portfolio,” while residential loans decreased by $21 million due to ongoing amortization. The company’s total commercial pipeline was approximately $156 million.
Deposits also declined during the quarter. Market deposits were down 2% from the end of the fourth quarter but up 3% year-over-year. Wholesale funding decreased $50 million, or 8%, from the end of December. The loan-to-deposit ratio edged down to 96.9% at the end of March.
Chairman and Chief Executive Officer Ned Handy said the first quarter saw “pretty significant pay-downs, payoffs mostly in the CRE space,” without the level of new originations the bank typically sees. Despite that, he said the company is “sticking with our mid-single digit growth for the year projection,” and added it could be “a little higher.”
Handy said Washington Trust expects CRE growth to be modest, describing “low single digit growth for the year” in CRE, and said CRE would be “somewhat intentional” at “flat to 1% growth.” He said the bulk of growth is expected to come from core commercial and industrial (C&I) lending and the institutional banking business. Handy said Washington Trust expects “high single-digit growth” in core C&I, and that most of that growth would come from the “relatively new institutional banking group,” which joined in late January. He said the bank expects “$50+ million in fundings in this quarter,” with a growing pipeline, and highlighted that the group expects to “self-fund at a 30%-40% level,” which he said would support deposit growth alongside loans.
Credit quality, office exposure, and provision build
The quarter’s key credit development was an increase in non-accrual loans. Ohsberg said non-accruing loans were 81 basis points of total loans at March 31, rising $27.5 million from the prior quarter, “largely due to two commercial real estate office loans.” Past due loans were 33 basis points of total loans.
Washington Trust recorded a $4.0 million provision for credit losses in the first quarter. Ohsberg said it was “largely reflecting an increase in specific reserves on the two CRE office loans,” and later confirmed to analysts the provision was “essentially all office.” The allowance for credit losses totaled $41.1 million, or 82 basis points of loans.
During the Q&A, Bill Wray, Senior Executive Vice President and Chief Risk Officer, discussed the two credits moved to non-accrual. He said both loans had been current, but in March “there were sort of triggering events that led to us deciding…to put them on non-accrual.” Wray described both as having “strong, sophisticated sponsors,” and said the bank is engaged with the sponsors on next steps. He added management took reserves it believed were appropriate “to reflect any potential loss down the road,” while expressing hope that within the next few quarters the loans “will either exit or they will emerge back into performing status.”
Wray also discussed the broader office portfolio, saying Washington Trust’s office exposure peaked at $300 million a couple years ago and is now down to $230 million. He said the bank expects to continue reducing office exposure over time and remains “cautious on office.” At the same time, he said “all of our other office properties are performing,” and that the scale of office-related issues is “well within our capabilities to handle from an earnings standpoint and a reserving standpoint.”
In response to analyst questions, Wray said the two non-accrual credits were participations: Washington Trust is the lead on one Class A office space loan as a “2/3 participant in the lead,” and is a minority participant on a lab space deal.
When asked about future provisioning, Ohsberg said the company is “kind of thinking somewhere in the range of $1 million-$2 million per quarter,” which he said would cover loan growth and could allow for some additional reserve build depending on origination timing.
Strategic initiatives and capital actions
Handy pointed to progress on several operational and growth initiatives, including a digital banking conversion for personal accounts completed in the quarter. He said the conversion provides “enhanced security and technology and a better customer experience,” with business account conversions planned for subsequent quarters.
He also said the bank has added experienced bankers across C&I, CRE, and business banking, and that the institutional banking team added in January is showing “strong momentum” supporting expected loan and deposit growth later in the year. Washington Trust also plans to open a new branch in Pawtucket, Rhode Island, later in 2026.
On capital deployment, Ohsberg said the company maintains a buyback program but is “not at this point intending to be buying back shares,” citing a relatively high dividend and payout ratio while noting management considers repurchases regularly.
About Washington Trust Bancorp (NASDAQ:WASH)
Washington Trust Bancorp, Inc is the bank holding company for The Washington Trust Company, a community bank headquartered in Westerly, Rhode Island. Through its subsidiary, the company operates a network of branch offices across Rhode Island and southeastern Connecticut, serving individuals, small businesses and municipalities with a full suite of financial services.
The company’s core business activities encompass retail and commercial banking, including checking and savings accounts, consumer and commercial loans, mortgage financing, and cash management solutions.
