Washington Trust Bancorp Fourth Quarter 2025 Earnings Call - Margin Expansion, Deposit Mix and New C&I Team Drive Profitability

Operator: Good morning, and welcome to Washington Trust Bancorp, Inc.’s conference call. My name is Lydia, and I’ll be your operator today. If participants need assistance during the call at any time, please press star zero. Participants interested in asking a question at the end of the call should press star one to get in queue. As a reminder, today’s call is being recorded. Now I’ll turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Please go ahead.

Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications, Washington Trust Bancorp: Thank you, Lydia. Good morning, and welcome to Washington Trust Bancorp Inc’s conference call for the fourth quarter of 2025. Joining us this morning are members of Washington Trust 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, ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol Wash.

I’m now pleased to introduce today’s host, Washington Trust Chairman and Chief Executive Officer, Ned Handy. Ned?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thanks, Sharon. Good morning, and thank you for joining our fourth quarter conference call. We respect and appreciate your time and interest in Washington Trust. I’ll begin with a brief overview of our results, and then Ron will provide more detail on our financial results for the quarter and the year. After our remarks, Mary and Bill will join us for the Q&A session. This quarter’s results reflected continued earnings momentum and improving profitability. The quarter’s performance was driven by margin expansion, continued in-market deposit growth, and increased revenues from wealth management. We closed out the year with a well-positioned balance sheet, a normalized provision for credit losses, and improved asset quality metrics. During 2025, we laid important groundwork for future growth with targeted investments in our wealth management and commercial banking business lines.

This included the wealth asset purchase from Lighthouse Financial Management and the hiring of our new Chief Commercial Banking Officer, Jim Brown, who has an extensive network and proven record in leading high-performing commercial banking teams. In this new year, we are continuing to build upon the positive momentum from these strategic investments. Last week, we brought on a dedicated institutional banking team to serve education, healthcare, and nonprofit providers throughout the Northeast region. This investment in our commercial banking business will help improve our balance sheet with high-quality C&I loans and strong deposit opportunities. We also expect to see wealth management opportunities come about. The ability to scale this high-quality new client base with an efficient staffing model will enhance earnings going forward. We’re very excited about this key addition to Jim’s commercial team and the growth potential that lies ahead.

We’re also looking forward to our de novo branch opening later this year in one of Rhode Island’s fastest-growing communities, the city of Pawtucket, which will increase our presence in the northern part of the state. All these efforts will enhance our value as a full-service community bank and long-term partner to our customers and provide a solid foundation for the year ahead. With that, I’ll turn the call over to Ron for some additional details on the quarter and the year. We’ll then be glad to address any of your questions. Ron?

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Okay. Thank you, Ned, and good morning, everyone. In the fourth quarter, we reported net income of $16 million or $0.83 per share, compared to $10.8 million or $0.56 per share for the preceding quarter. On an adjusted basis, EPS was up 41% compared to last year’s fourth quarter. Net interest income was $40.7 million, up by 5% from Q3 and 24% year over year. The margin was 2.56, up by 16 basis points and up by 61 basis points year over year. A better funding mix with higher in-market deposits and lower wholesale funding, as well as deposit rate management, contributed to this improvement. Q4 included $516,000 of loan prepayment fee income, which benefited the NIM by 3 basis points.

Non-interest income was up 5% compared to Q3 and up by 15% year-over-year on an adjusted basis. Wealth management revenues were up 5% and average AUA for the fourth quarter increased by 4% and 9% year-over-year. Mortgage banking revenues totaled $3.3 million, down seasonally by 7% and up 14% year-over-year. Origination and sales volumes increased by 21% and 25% respectively. Our mortgage pipeline at December 31 was $81 million, down seasonally by 37% from the end of September. Full year mortgage originations totaled $667 million, up by 31% from 2024. Q4 loan-related derivative income was up by $810,000 in the quarter. Non-interest expense totaled $38 million in Q4, up by 6%.

On a full-year adjusted basis, non-interest expense was up by 7%. In the fourth quarter, salaries and benefits expense was up by $973,000 or 4%, reflecting higher levels of performance and volume-based compensation, as well as increased staffing. Other non-interest expenses were up by $1.3 million in Q4, largely due to a $1 million contribution made to our charitable foundation. Our full-year effective tax rate was 22.5%. We expect our full-year 2026 rate to be approximately 22%. Turning to the balance sheet, total loans were stable, increasing modestly by $12 million from September 30. In-market deposits were up by 1% from the end of Q3 and 9% year-over-year... and wholesale funding was down $165 million or 21% from the end of September.

Total equity amounted to $544 million, up by $11 million from the end of Q3. The dividend remained at $0.56 per share. Turning to credit. In the fourth quarter, the provision for credit losses normalized and our asset quality metrics improved. At December 31, non-accruing loans were 25 basis points on total loans. Non-accruing commercial loans were zero. Past due loans were 22 basis points on total loans. There was one CRE loan past due at December 31, and that was brought current in January, and we had net recoveries for the quarter of $160,000. At this point, I’ll turn the call back to Ned.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thank you, Ron, and we’ll now take any questions you might have.

Operator: Thank you. Please press Star, followed by the number one if you’d like to ask a question and ensure your devices are muted locally when it’s your turn to speak. If you change your mind or your question’s already been answered, you can withdraw from the queue by pressing Star followed by the number two. Our first question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon, Analyst, Piper Sandler: Hey, guys. Good morning. Nice quarter.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thank you, Mark. Good morning.

Mark Fitzgibbon, Analyst, Piper Sandler: You bet. I guess first question, Ron. I’m curious how you’re thinking about the margin. Do you feel like that sort of 2 mid 2.50 level is kind of sustainable as we move into the early part of 2026?

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: I do, Mark. You know, I can give you kind of the full year outlook on the NIM. I think you’re all aware of the swap termination that will happen at the end of April. So I’ll talk about that first. So in the second quarter, we expect the margin to increase 9 basis points related to that item, and another 4 basis points in the third quarter. So that’s a run rate benefit of 13 basis points that’ll be fully baked in the third quarter. You know, outside of that, if we talk about organic expansion, we’re projecting 3-4 basis points per quarter. That is assuming no changes in the Fed funds rate.

That would bring our Q4 estimate to $2.78-$2.82.

Mark Fitzgibbon, Analyst, Piper Sandler: Okay, great. Secondly, I guess—I know credit is really good here, but optically, the reserve looks a little light relative to your peers. How do you guys think about that, and is there a conscious plan to sort of nudge that up over time with maybe qualitative factors?

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Yeah. Bill, do you want to jump in on that?

Bill Wray, Senior Executive Vice President and Chief Risk Officer, Washington Trust Bancorp: Sure. Mark, we as you know, you know, follow the CECL guidelines, which essentially say this is our lifetime loss estimate, and we are on the lower side of the spectrum with our peers, although not unduly so. We run the numbers, we look at our history, and we’re very comfortable that it’s adequate for our portfolio. And so I think you can expect, you know, it may tick up a few bps, tick down a few bps here or there, but we’re comfortable in that, you know, mid-seventy coverage range just based on our portfolio and the loss estimates for it. But as obviously is something we spend a lot of time on, and, you know, we’ll be more conservative on the call side when it’s merited.

Mark Fitzgibbon, Analyst, Piper Sandler: Okay. And then-

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Yeah.

Mark Fitzgibbon, Analyst, Piper Sandler: You mentioned in your-

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: And, Mark-

Mark Fitzgibbon, Analyst, Piper Sandler: I’m sorry.

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: I’m sorry, Mark. I would just make one other point. I mean, we still have a relatively large residential portfolio, and so the reserve allocation on that is less than commercial, right? And, you know, we’d like to see our residentials come down, to be honest, but that does have an impact on the weighted average reserve coverage.

Mark Fitzgibbon, Analyst, Piper Sandler: Okay, great. And then, Ned, in your opening comments you made, you made a point that you think there’s going to be some wealth management opportunities. Should we take that to mean you’re looking at potential M&A in that, in the wealth side, or is that more sort of organic hiring and that sort of thing?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Actually, Mark, I was referring specifically to the institutional banking team, which serves in large part the not-for-profit sector, higher-end not-for-profit sector. So that was really focused on endowments and retirement funds that might come with that, with growth in that portfolio.

Mark Fitzgibbon, Analyst, Piper Sandler: Gotcha. Thank you.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yep. Thanks, Mark.

Operator: Thank you. Our next question comes from Damon Delmonte with KBW. Please go ahead.

Damon Delmonte, Analyst, KBW: Hey, good morning, guys. Hope you’re all doing well today. Just wanted-

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Morning, Damon.

Damon Delmonte, Analyst, KBW: To start off with kind of, Morning. I just wanted to kind of start off with the outlook on expenses. You know, kind of good control, going in here to year-end, you know, kind of run. Just wondering what your thoughts are on, on kind of the full year outlook and maybe any variability from a quarter to quarter perspective.

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Yeah. So, so, Damon, I guess I’ll, I’ll break it, salaries and benefits versus, you know, all other. In Q1, you know, we’re looking at a 6% increase in expenses, which factors in, you know, annual merit raises, which, you know, come into play at the beginning of the year, FICA resets and those types of things. But we’ve also, you know, made this investment in the institutional team that’s coming on board. We also have, you know, I think as everyone probably has, increased medical insurance, those types of things. So we’re, that’s what we’re kind of seeing for Q1, on the salaries and benefits line. All other, expenses, we’re looking at year-over-year, like 5% increase.

you know, and we also have the branch coming online, so, you know, that’s going to add to our both our salary run rate as well as our expense run rate. You know, call it a total of $600,000 over the course of the year, you know, starting in late summer, early fall.

Damon Delmonte, Analyst, KBW: Got it. Okay. Okay, great. And then kind of, you know, can you just give a little update on kind of your outlook with loan growth? You know, are you optimistic that we can start to get back to that low, mid-single digit range, kind of given what you’re seeing and as well as, you know, the recent hires to the commercial lending team? I guess, yeah, just some color on the outlook for loan growth would be great. Thank you.

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Yeah. Yeah. Listen, net loan growth wasn’t where we wanted it to be, you know, kind of closing out the year. But we, you know, we’re expecting, you know, 4%-5% growth in CRE, which would be kind of standard. The C&I team, we think will grow at a rate faster than that. So I’m not going to put a target on that. They’re just getting situated. And then, you know, we expect residential to be a net runoff like it was this year. So I would say all in, you know, we’re looking at, you know, I would say a very solid 5% year-over-year, which is an improvement over where we’ve been in 2025. And we’ll leave it at that.

But you know, we do have, you know, we do have a lot of confidence in this team that we’ve just brought in, and but we’ll set the target there for now.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yeah, and Damon, I would just add a little more color.

Damon Delmonte, Analyst, KBW: Got it.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: I mean, we had $180 million of credit formation in the quarter. We just had a lot of payoffs. And the payoffs were some expected, some earlier than expected. And you saw that we got a pretty sizable prepayment penalty on one of them. But, you know, we don’t expect that level of early prepayment to continue. But, you know, the new team has been with us for nine days. So we don’t, we haven’t seen pipeline growth yet. I think we’ll be much better positioned next quarter to share our expectations. We have great expectations.

They’re a very seasoned team that’s been in the market for a long time. They look at a lot of potential deal flow as they have for years and years. And so we have high hopes and great expectations all in the C&I space, which, you know, we’ve been talking about for a while. Figuring out strategically how to kind of change the balance sheet around and grow the C&I side a little faster.

The growth that Ron talked about on the CRE side is a little bit due to the continued concentration level, and so we’re being careful on that front, and really want to focus on helping this team be successful on the C&I front.

Damon Delmonte, Analyst, KBW: Got it. Great. I appreciate you taking my question. Thank you.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thanks, Damon.

Operator: Thank you. Our next question today comes from Laurie Hunziker with Seaport Research Partners. Your line’s open. Please go ahead.

Laurie Hunziker, Analyst, Seaport Research Partners: Yeah. Hi, good morning.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Good morning, Laurie.

Laurie Hunziker, Analyst, Seaport Research Partners: Just to circle back to the C&I group, can you share with us how many people are there and how much they did last year collectively?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Uh-

Laurie Hunziker, Analyst, Seaport Research Partners: Maybe where they came-

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: I don’t have details on what they did last year collectively, but there are 4 people in the team that came over. There is, we will add a treasury management specialist to that team because of their tendency to deliver deposits. They are, you know, they’ve had the leader of the group has 30+ years in this space in the Northeast region. Very, very well known and, you know, they’ve been highly successful at prior institutions. So, yeah, we are very confident, Laurie. And well, again, I think they’ve been here 9 days.

Let’s take a little time to build the pipeline up, but we’ll report in detail. I think probably as soon as next quarter.

Laurie Hunziker, Analyst, Seaport Research Partners: Okay. Where did they come from?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: They were most recently at Brookline.

Laurie Hunziker, Analyst, Seaport Research Partners: Gotcha. Okay. Gotcha. So, then is that focused basically in the, in the greater Boston MSA?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yeah. I’m sorry, Laurie. Ask that one more time.

Laurie Hunziker, Analyst, Seaport Research Partners: Yeah. So the loan focus, is that going to be in the, in the greater Boston MSA?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Northeast region.

Laurie Hunziker, Analyst, Seaport Research Partners: Okay. Okay.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: So, broader than just the Boston MSA.

Laurie Hunziker, Analyst, Seaport Research Partners: Gotcha. Okay. And then, going to expenses, Ron, the one quarter increase... Sorry, the 6% increase for one quarter off four quarter, that’s obviously netting out the Washington Trust Charitable Foundation charge. Is that correct? Or are you thinking about-

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Yeah

Laurie Hunziker, Analyst, Seaport Research Partners: ... from the-

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Yes

Laurie Hunziker, Analyst, Seaport Research Partners: ... $38 million base? Okay. Okay. And then how should we think about the Washington Trust Charitable Foundation charge in 2026? I think you previously guided to $500,000, but,

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Yeah

Laurie Hunziker, Analyst, Seaport Research Partners: ... should we be thinking that again?

Ron Ohsberg, Senior Executive Vice President, Chief Financial Officer, and Treasurer, Washington Trust Bancorp: Yeah. We penciled in $750 for the end of the year.

Laurie Hunziker, Analyst, Seaport Research Partners: ... Okay, great. And then, I guess, branching, obviously, we’ve got Pawtucket coming. Is there anything else you’re thinking about, or should we be thinking about kind of maybe one branch in 2027 as well? How do you think about that?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yeah, so for 2026, Pawtucket’s it. But Michelle Kile, our head of retail banking, has developed a plan that we’re reviewing as part of our strategic outlook that it may not be full-service branches. It might be alternative delivery, you know, ATMs, and the like, that she’s developing a sort of full sketch on. So nothing else on the docket in 2026, but I think it’s safe to say that we will continue to invest in our retail footprint in the outer years. You know, Laurie, we’ve done one or two branches a year for the last five years. I don’t—I think that order of magnitude is probably reasonable going forward. The form of it might be a little different.

Laurie Hunziker, Analyst, Seaport Research Partners: Okay. Okay, that’s great. And obviously, credit, you’re probably one of the few banks in the entire country with zero CRE nonperformers, zero C&I nonperformers, and, and booking recoveries. But just a very quick question, the $6 million of office classified, any color on that, and when does that mature?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yeah. Yeah, Bill, you want to take that one? Sure. Sure. That matures in 2031, so plenty of running room there. Extremely strong, dedicated sponsors. Occupancy right now is in the mid-40%, but growing, so the building’s getting close to break even. I think it’s just gonna be a long, slow nursing process, but the sponsors are fully committed, and they are building it up slowly. So we feel comfortable about it. That’s why it’s accruing, and by the way, it’s completely current. So we think we’re gonna nurse our way through on this one.

Laurie Hunziker, Analyst, Seaport Research Partners: Great. Great. Well, congratulations on credit. Really, really great. Okay, so putting it all together, your earnings power, obviously very, very strong. In 3Q, you had dialed back comments around buybacks, and we’re seeing buybacks ramp up across the board. As we’re looking here, your CET1, almost 12%, your risk-based, 13%. I mean, why, why wouldn’t you revisit buybacks here? How do you think about that?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yeah, well, I think it’s our—kind of our standard answer that we take it under consideration all the time and taking into account, you know, other ways that we think that we need to deploy capital. So, not saying that we’re going to do more and not saying that we won’t, but we’ll just have to take that as it comes.

Laurie Hunziker, Analyst, Seaport Research Partners: Okay. And just remind me, what’s existing in your current authorization?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: I don’t have that information off the top, Laurie.

Laurie Hunziker, Analyst, Seaport Research Partners: Okay.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: I have to look that up.

Laurie Hunziker, Analyst, Seaport Research Partners: Okay, great. Hey, thanks so much. Great job on this quarter.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Okay. Thank you. Thanks, Laurie.

Operator: Thank you. And our next question comes from Ross Haberman with RLH Investments. Please go ahead.

Ross Haberman, Analyst, RLH Investments: Good morning, gentlemen. Most of my questions have been answered. Thank you. Could you just talk about your wealth management and what you’re doing to basically expand that, that a little faster in 2026? Thank you.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thank you, Ross. Good morning. So, yeah, we’ve added some business development officers. We are, you know, we are hopeful, although I think we need a little more than nine days’ time to pass. But we’re hopeful that this team that is focused mostly on the nonprofit sector will help us with you know the various things that will come out of that client base, which is generally higher ed, healthcare, and you know private schools, that sort of thing that tend to have endowments and retirement plans. So we’re hopeful there. M&A, you know, we’re happy with the Lighthouse deal that we did in 2025. That’s a part of the ongoing strategy.

It’s probably not the primary focus and, you know, prices are high and, so we have to be careful about price and culture and fit. And we’re, again, we’re happy with what we bought in 2025. And so we’re, you know, we’re not aggressively looking for opportunities, but we’re opportunistic and we’ll keep our eyes open on the M&A front. And in that case, it would be relatively, you know, smaller tuck-in transactions that again fit with our style of how we go to market and how we run the group. Well, so and-

Ross Haberman, Analyst, RLH Investments: What’s your average with... Sorry.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: I was just going to say we’ve also added-

Ross Haberman, Analyst, RLH Investments: What’s your average return on assets?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: On the wealth. On wealth?

Ross Haberman, Analyst, RLH Investments: On wealth, yeah, yeah. Sorry. Your fee structure, sorry, your average fees, is it somewhere between 50 and 100 basis points?

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Yeah, I would say all in on average, it’s about, I think, 60 basis points. Yeah.

Ross Haberman, Analyst, RLH Investments: Got it. Okay. I’m sorry, I cut you guys off, but you, you were going to say something. I apologize.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: No, no. You got the 60 basis points, right? Yeah.

Ross Haberman, Analyst, RLH Investments: Yes, I did.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Okay. Yeah, I was just gonna say that we’ve also added a person in the financial planning side of things. So we think that’s a great retention tool. We think it’s a great way to appeal to sort of next gen and full families. And so we continue to invest in that side of the business.

Ross Haberman, Analyst, RLH Investments: Thank you very much.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thanks, Ross. And Laurie, just to follow up on your question, we had 850 authorized, and we’ve got 582,000 shares remaining.

Operator: Thank you. And just a final reminder, please press star one if you’d like to ask a question today. We have nothing else on the line, so I’ll pass you back over to Ned for any closing comments.

Ned Handy, Chairman and Chief Executive Officer, Washington Trust Bancorp: Thank you, Lydia, and thank you, all. As we move into the new year, we remain committed to delivering value as a full-service community bank and long-term financial partner to our customers, with a disciplined focus on long-term performance. So really appreciate your time today, and your interest and support, and we look forward to speaking to you all again soon. Have a great day, everybody.

Operator: This concludes our call today. Thank you very much for joining. You may now disconnect your lines.