Washington Trust Bancorp (NASDAQ:WASH) reported stronger second-quarter 2026 earnings as higher net interest income, margin expansion and growth in commercial lending helped lift profitability from the prior quarter.
The Westerly, Rhode Island-based bank posted net income of $16 million, or $0.83 per share, for the quarter, up $3.4 million, or $0.17 per share, from the first quarter, Chief Financial Officer Ron Ohsberg said on the company’s earnings call. Pre-provision pretax net revenue rose 9% from the prior quarter and 23% from a year earlier.
Net Interest Income and Margin Improve
Net interest income totaled $41.8 million in the second quarter, up 3% from the first quarter and 12% from the year-earlier period, Ohsberg said. The net interest margin was 2.73%, up 10 basis points from the prior quarter and 37 basis points year over year.
Ohsberg said the quarter benefited from the end of amortization tied to a deferred loss from a terminated hedge. The remaining deferred loss was fully amortized on May 1, eliminating that expense from the bank’s ongoing run rate. The second quarter included a two-month benefit of $1.4 million to net interest income, equal to nine basis points of margin. The third quarter is expected to capture an additional month of benefit, totaling about $700,000, or four basis points, compared with the second quarter.
In response to analyst questions, Ohsberg said the company expects the margin to be about 2.75% in the third quarter and 2.80% in the fourth quarter. He said most certificates of deposit and Federal Home Loan Bank funding have repriced lower, though “there’s probably a little bit left to go.” He also said the institutional banking team is expected to self-fund about 35% of its production, which should help the deposit mix.
Loan and Deposit Growth Led by Commercial Banking
Total loans increased 2% from March 31, with total commercial loans up $63 million. Ohsberg said the increase was driven by growth in the commercial and industrial portfolio, mainly from the institutional banking team. Residential loans rose $13 million, while consumer loans increased $12 million.
Commercial real estate had solid production in the quarter, but that was more than offset by payoffs, Ohsberg said. The commercial pipeline stood at approximately $143 million at quarter-end.
Handy said commercial loans overall were up 2.4% and said the company expects that type of pace to continue in coming quarters. He reiterated that Washington Trust is targeting mid-single-digit overall loan growth for the year, led by the institutional banking group and C&I lending.
During the question-and-answer session, Handy said the institutional banking growth in the quarter was largely education-related, focused on schools rather than colleges. He said the existing loans were to “very well-heeled” not-for-profit schools with strong deposit relationships and operations. While colleges are a focus and some are in the pipeline, Handy said none of the current volume in that category is to colleges.
Deposits increased 4% from the end of the first quarter and 6% year over year. Wholesale funding declined $120 million, or 21%, from March 31. The loan-to-deposit ratio improved to 95.1% at June 30 from 96.9% at the end of the first quarter.
Fee Income, Wealth and Mortgage Banking
Non-interest income rose $1.4 million, or 8%, from the first quarter and was up 9% year over year. Wealth management revenue increased $554,000, or 5%, from the prior quarter and $1.1 million, or 11%, from a year earlier. Ohsberg said the quarter included a $265,000 increase in transaction-based revenue, largely reflecting seasonal tax servicing fee income, while asset-based revenue increased $289,000 from the first quarter.
Mortgage banking revenue totaled $3.5 million, up 14% from both the first quarter and the year-earlier quarter. The mortgage pipeline was $121 million at June 30, up $7 million, or 6%, from March 31.
Asked about wealth management trends, Ohsberg said the company set a record in the quarter for wealth assets under management, though he said Washington Trust was not breaking out net flows.
Expenses and Capital
Salaries and benefits expense increased $972,000, or 4%, reflecting staffing additions in commercial and retail banking, as well as volume- and performance-related compensation changes. Other categories of non-interest expense decreased by a net $140,000 in the second quarter, Ohsberg said.
Ohsberg told analysts the company expects third-quarter expenses to increase by about $1 million, citing mortgage volume, branch openings, open positions expected to be filled and timing of advertising expense. He said that would put third-quarter expenses just under $39 million. New branches are expected to add about $200,000 of expense in the third quarter and another $200,000 in the fourth quarter.
Total equity was $554 million at quarter-end, up $7 million from the end of the first quarter. The company’s dividend remained $0.56 per share. Ohsberg said the effective tax rate was 21.2% in the second quarter and that the company expects its full-year 2026 rate to be approximately 21.5%.
Credit Quality Stable; Branch and Digital Investments Continue
Ohsberg described asset and credit quality metrics as stable. Non-accruing loans were 78 basis points of total loans at June 30, down from 81 basis points at the end of the first quarter. Past-due loans rose to 81 basis points from 33 basis points, which Ohsberg attributed to a single commercial real estate office loan that had already been placed on non-accrual status in the prior quarter. He said the increase did not reflect further deterioration in portfolio credit quality during the quarter.
The company recorded a $1.6 million provision for credit losses in the second quarter. The allowance for credit losses totaled $42.6 million, or 83 basis points of total loans.
Handy also highlighted planned investments in the franchise. Washington Trust plans to open its 30th branch later this year in Bristol, Rhode Island, and is finalizing its new Pawtucket branch. The company is also targeting a fall rollout of an enhanced digital banking solution for small business customers.
Handy said Washington Trust remains focused on disciplined growth, prudent risk management, customer service and long-term shareholder value.
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.
