Washington Trust forecasts 2.75%-2.80% Q4 net interest margin as it works through office loan nonaccruals

Earnings Call Insights: Washington Trust Bancorp, Inc. (WASH) Q1 2026

MANAGEMENT VIEW

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CEO Edward Handy said Q1 performance was “driven by continued net interest margin expansion,” citing “continued benefits from our December 2024 balance sheet repositioning transactions,” while noting results “include a higher provision related to reserve builds on 2 CRE credits moved to nonaccrual in March.”

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CEO Handy highlighted customer-facing and competitive positioning actions, saying the company “completed a digital banking conversion for personal accounts” and will “continue the conversion of our business accounts in the ensuing quarters,” while also pointing to hiring and footprint expansion: “We recently added new talent across C&I, CRE and business banking,” and “our planned branch opening later this year in Pawtucket, Rhode Island will further expand our presence.”

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CFO Ronald Ohsberg reported: “Net income in the first quarter was $12.6 million or $0.66 per share compared to $16 million or $0.83 per share last quarter.”

OUTLOOK

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CEO Handy reaffirmed the company’s loan growth posture despite Q1 payoffs: “We’re sticking with our mid-single-digit growth for the year projection,” adding that CRE is expected to be “low single-digit growth for the year” and that “most of the growth is going to come from our core C&I business and our institutional banking business,” including an expectation of “$50-plus million in fundings in this quarter.”

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CFO Ohsberg provided quarterly net interest margin expectations tied to swap termination and organic trends: “The swap termination will add 9 basis points in the second quarter and another 4 basis points in the third quarter,” and “when we look ahead to the fourth quarter, we’re thinking 2.75% to 2.80% in the quarter,” while also stating, “we’re looking at 2.65% to 2.70% in the second quarter.”

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CFO Ohsberg set a baseline for provision absent additional deterioration: “We’re kind of thinking somewhere in the range of $1 million to $2 million per quarter.”

FINANCIAL RESULTS

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CFO Ohsberg said net interest income was $40.5 million, and “the margin was 2.63%, up by 7 basis points from Q4,” while noting Q1 included “$116,000 of loan prepayment fee income,” and later confirming the fee impact as “like 1 basis point.”

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CFO Ohsberg described fee lines and pipelines, including: “Mortgage banking revenues were $3 million,” and “our mortgage pipeline at March 31 was $114 million, up by $33 million or 41% from the end of December.”

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CFO Ohsberg said “noninterest expense totaled $37.8 million,” and outlined drivers including “salary and employee benefits expense was up by $693,000 or 3%,” while “other noninterest expenses were down by $1.2 million… largely due to a $1 million contribution made to our charitable foundation in Q4.”

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On credit, CFO Ohsberg reported: “At March 31, nonaccruing loans were 81 basis points on total loans… largely due to 2 commercial real estate office loans,” and “we recognized a $4 million provision for credit losses, largely reflecting an increase in specific reserves on the 2 CRE office loans,” with “the allowance totaled $41.1 million or 82 basis points.”

Q&A

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Justin Crowley, Piper Sandler: Asked for details on the two office loans and what triggered downgrades/reserves; Senior EVP & Chief Risk Officer William Wray said “in March, there were sort of triggering events” and the bank chose “to put them on nonaccrual,” adding, “we think they’re both solid properties with solid sponsors… and we’re hoping that within the next few quarters, these will either exit or they will emerge back into performing status.”

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Crowley, Piper Sandler: Asked whether reserves were general to office or specific; Wray said office exposure “peaked at $300 million… it’s now down to $230 million,” adding, “we’re cautious on office,” while stating, “all of our other office properties are performing.”

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Crowley, Piper Sandler: Asked about growth expectations after loan contraction; CEO Handy said “the path ahead looks very good,” reiterated “mid-single-digit growth,” and said the institutional group expects to “self-fund at a 30% to 40% level.”

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Crowley, Piper Sandler: Asked margin trajectory beyond swap benefits; CFO Ohsberg said the bank expects “modest expansion by quarter,” and later added, “the shorter day count… added about 2 basis points to the NIM.”

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Damon Del Monte, KBW: Asked about expense trajectory; CFO Ohsberg said, “We’re actually seeing about $1 million increase in Q2,” and later added branch-related costs: “we’re probably looking at about $500,000 in 2026 related to the branches.”

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Del Monte, KBW: Asked about wealth management AUM decline; CFO Ohsberg said, “It was mostly market,” and added, “we did have some net outflows.”

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Laura Havener Hunsicker, Seaport Research Partners: Pressed on how much of the $4 million provision related to office; CFO Ohsberg replied, “it was essentially all the office.”

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Hunsicker, Seaport Research Partners: Drilled into office maturities/occupancy and criticized/nonaccrual details; Wray said the Class A nonaccrual loan occupancy was “north of 50%,” while the matured property’s “occupancy… is 0,” adding that another office deal is “fully leased” but needs seasoning; he also said, “all of these are in our core markets in the tri-state area.”

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Hunsicker, Seaport Research Partners: Asked for March spot margin; CFO Ohsberg answered, “2.59%.”

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Hunsicker, Seaport Research Partners: Challenged capital deployment and buybacks; CFO Ohsberg said, “we maintain a buyback program, but we really are not at this point intending to be buying back shares at this point in time.”

SENTIMENT ANALYSIS

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Analysts: Slightly negative, with repeated probing on office credit/maturity/occupancy and capital returns, including a “series of questions” on office from Laura Havener Hunsicker and her direct challenge that Washington Trust is “one of the few banks… not repurchasing shares.”

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Management: Neutral to slightly positive in prepared remarks, then cautious in credit discussions; Wray emphasized caution and resolution timing (“we’re cautious on office”) and used hedging language (“we’re hoping that within the next few quarters”), while CFO Ohsberg clarified guidance with “just to be clear” when correcting margin timing.

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Compared with the prior quarter, the current call featured more defensive credit detail (nonaccrual/reserve specifics) versus Q4’s emphasis on “improving profitability” and “improved asset quality metrics,” while the buyback stance remained conservative.

QUARTER-OVER-QUARTER COMPARISON

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Credit posture shifted from Q4’s “nonaccruing loans were 25 basis points on total loans” and “nonaccruing commercial loans were 0” (CFO Ohsberg, prior call) to Q1’s “nonaccruing loans were 81 basis points” tied to “2 commercial real estate office loans” and a $4 million provision described as “essentially all the office.”

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Margin commentary stayed consistent on swap-driven uplift: Q4 outlined a “run rate benefit of 13 basis points… fully baked in, in the third quarter” (CFO Ohsberg, prior call), while Q1 reiterated “9 basis points in the second quarter and another 4 basis points in the third quarter,” and maintained a similar Q4 exit target (2.75% to 2.80% in Q1 vs. 2.78% to 2.82% in Q4).

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Loan growth narrative moved from Q4 expectations of “a very solid 5% year-over-year” (CFO Ohsberg, prior call) to Q1 reaffirmation of “mid-single-digit growth” but with greater emphasis on intentional CRE restraint and C&I/institutional banking as the primary drivers.

RISKS AND CONCERNS

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Management identified office CRE credit migration and refinancing/maturity risk as the key issue; Wray said the two office nonaccruals were triggered by “a maturity” in one case and “a notification of a potential lease termination for next year” in another, and added the bank spends time on “maturity wall analysis and refinance risk.”

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Management’s mitigation actions included reserving and ongoing sponsor engagement; Wray said, “we took the step to put reserves in place that we thought were appropriate,” and “we’re engaged with both of them right now on… the right next steps,” while also describing continued office exposure reduction over time.

FINAL TAKEAWAY

Management emphasized continued net interest margin expansion and reaffirmed mid-single-digit full-year loan growth, with incremental growth expected to come from C&I and the newer institutional banking group (including “$50-plus million in fundings in this quarter”). The quarter’s central investment issue was a step-up in office CRE credit pressure—two office loans moved to nonaccrual and drove a $4 million provision that the CFO said was “essentially all the office”—prompting extensive analyst questioning on occupancy, maturities, and reserve approach. Management maintained a cautious tone on office exposure and reiterated its conservative position on buybacks, while forecasting a Q4 net interest margin of 2.75% to 2.80% supported in part by swap-termination benefits.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/wash/earnings/transcripts]

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