Good morning and welcome to Washington Trust Bancorp, Inc.'s Q3 2026 conference call. My name is Hillary and I'll be your operator today. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. As a reminder, today's call is being recorded. I'll now turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Sharon, please go ahead.

Thank you, Hillary. Good morning and welcome to Washington Trust Bancorp, Inc.'s conference call for the third quarter of 2026. Joining us this morning are members of Washington Trust's executive team, Ned Handy, Chairman and Chief Executive Officer, Mary Noons, President and Chief Operating Officer, Ron Osberg, Senior Executive Vice President, Chief Financial Officer and Treasurer, and Bill Ray, 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 at ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol WASH. I'm now pleased to introduce you to today's host, Washington Trust Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon. Good morning, everyone, and thank you for joining our third quarter conference call. We continue to appreciate your time and your interest in Washington Trust. I'll begin with a few comments about the quarter and then Ron will provide more detail on our financial performance. Following our remarks, Mary and Bill will join us for the question and answer session. We delivered another strong quarter marked by growth in earnings and net interest income, continued margin expansion, and improved operating efficiency. Our asset quality metrics improved, reflecting the resolution of a commercial real estate office loan. Our capital position remains strong and supports prudent growth. We're continuing to expand our presence in Rhode Island with two new branches opening in the coming months. These locations will provide the trusted advice, comprehensive solutions, convenience, and personalized service that our customers deserve. We look forward to building long-term financial partnerships with individuals, families, and businesses in these markets. And now I'll turn the call over to Ron to provide additional details on our third quarter financial results. Ron?

Yep. Thanks, Ned, and good morning, everyone. Third quarter net income was $19.4 million or $1.01 per share, up by $3.4 million or $0.18 from the preceding quarter. Pre-provisioned pre-tax net revenue, or PPNR, was up 20% from Q2 and up by 26% year-over-year. Net interest income was $44.7 million, up by 7% from Q2 and up by 15% year-over-year. The margin was 284, up by 11 basis points from Q2, and up by 44 basis points year over year. The third quarter included $283,000 of second quarter interest income from a loan that was returned to accrual during the quarter, and this benefited the NIM by about two basis points. Non-interest income was up by 1.6 million, or 9%, compared to Q2, and up by 15% year over year. while management revenues were down by 1% compared to Q2 and up by 7% year over year. In the third quarter, an increase in asset-based revenues were offset by a decline in tax servicing fee, a seasonal decline in tax servicing fee income. Mortgage banking revenues totaled 3.2 million, down by 9% from the second quarter and down by 10% year over year, reflecting a decrease in the mortgage pipeline as well as rising market interest rates. Loan-related derivative income was up by $924,000, and income from Bancorp and Life Insurance was up largely due to the recognition of a gain of $954,000 in the third quarter. Non-interest expense, total $38.8 million in the third quarter, up by $200,000, or half a percent. Our third quarter effective tax rate was 20.4%, and we expect our full-year 2026 rate to be approximately 21.5%. Turning to the balance sheet, total loans were up by 1% from June 30. Total commercial loans increased by $62 million or 2.3% driven by growth in the CREE portfolio. Deposits were up by $77 million or 1% from the end of the second quarter and up by $213 million or 4% year over year. And wholesale funding was down by $80 million or 18% from the end of June. Total equity amounted to $531 million, down by $23 million from the end of the second quarter. In the third quarter, net income was offset by a decline in the fair value of available for sale debt securities, as well as the quarterly dividend. The dividend remains at $0.56 per share. Turning to asset and credit quality, overall, our asset and credit quality metrics improved. At September 30, non-accruing loans were 48 basis points on total loans, decreasing from 78 basis points, and past due loans were 54 basis points on total loans down from 81 basis points at the end of the second quarter. The improvement was largely driven by the resolution of an office loan of $22.3 million that was placed on non-accrual in the first quarter. During the third quarter, this loan was restructured, resulting in $18.5 million being returned to accrual and $3.8 million being charged off. In the third quarter, we recognized $1.8 million provision for credit losses. And at this time, I will turn the call back over to Ned.

Thanks, Ron. And we'll move to question and answer.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. And if you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Justin Crowley from Piper Sandler. Your line is open. Please go ahead. A reminder to unmute yourself locally if you would like to ask the question on your device. I will move to the next question. Please rejoin the queue if you are looking to ask a question. Your next call comes from the line of Damon Del Monte from KBW. Your line is open. Please go ahead.

Hey, good morning, guys. Hope everybody's doing well today, and thanks for taking my questions. Just wanted to start on the outlook for the margin. You've had a string of consecutive quarters of Nice margin expansion and just kind of curious, Ron, to get your thoughts on how you see it kind of playing out over the back half of this year and as we go into 27, especially with the rate hike that we had in September and the prospects of additional hikes over the coming quarters as well.

Yeah, so Dan, it's probably a little early to be talking about 2027, but we've revised our guidance for Q4. We're going to guide to a range of 285 to 290. Okay, great. So, yeah, I would say that we remain modestly asset sensitive, so that guidance includes just the September rate hike at this point, and we think that each 25 basis point hike probably gives us, you know, one to two basis points on the run rate. Two basis points on the run rate, okay.

Great. And then kind of along those lines, you know, the the not just bearing deposit growth has been really strong the last couple of quarters. Just any any color on what's driving driving that?

Yeah, you know, I think I think a good part of it is the institutional banking team onboarding, you know, operating accounts related to the the relationships that they're bringing in is probably the biggest driver. But I think we have kind of an across the board approach to, you know, are taking in deposits across both retail and commercial at this point. So yeah, we had pretty good growth in the quarter, and we'll see if we can maintain that.

Got it. Okay. And then just one more for me. On the expense outlook, the good quarter this quarter, pretty much flat. Just curious on your outlook for the fourth quarter and any puts and takes around that. Thanks.

Yeah, yeah. So listen, on the last call, we guided to a million dollar increase in the quarter. And you know, we came in, you know, below that, I would say a lot of that is timing related. So we're going to see a shift to some of that, you know, previously expected expense growth, shifting into the fourth quarter. So, you know, for the fourth quarter, we're looking at an increase of about 1.5 million. We are making some targeted investments in a few areas, including some new branches that are coming online, some marketing spend, some technology spend, some personnel spend, you know, kind of that 1.5 is kind of evenly distributed across that. None of that includes our annual $750,000 contribution to our charitable foundation. So that would be incremental to the 1.5.

Got it. Okay, great. Okay, that's all that I had for now. I'll step back. Thank you. Thanks, Damon.

Your next question comes from the line of Justin Crowley from Piper Sandler. Your line is open. Please go ahead.

Hey, good morning. Hopefully you can hear me now. We can, Justin.

Good morning.

Perfect. Thank you. Ron, just going back to the margin, if I remember correctly, I believe you were going to get another four basis points benefit from the terminated swap this quarter. So I just want to confirm that that was the case.

Yes, it is.

Okay. And then I guess just looking out a little further, do you have detail on what loan repricings look like if we go out to the end of 2027? What that looks like from a volume and then just rate pickup standpoint?

Yeah, so we've got, you know, call it about 2.1 billion of SOFR and prime-based loans. So each, you know, those SOFR loans are resetting monthly. So that's kind of the repricing that we see immediately every time the Fed makes a change.

Okay, and then But for the, you know, like the fix to floating or, you know, any of the like five year Cree paper, do you get any benefit there just kind of given some of the growth you put on back in, you know, 2022?

I'm sorry, say that again, Justin?

Just for the, you know, the five-year fixed floating type commercial real estate paper, if I just kind of like look back to, you know, growth you put on five years ago, I would think there's some benefit there as we get into next year, although perhaps not.

Yeah, I would say, just in this net, I would say that CRE loans that are maturing that were underwritten at much lower rates are obviously, to the extent that they do extend and don't pay off, we still see a fair amount of those Paying off even before maturity. But I'd say we get a little bit of a lift, obviously, from the lows. I will tell you, though, that what we're seeing in the market in general is spreads are tightening. As rates rise, they tend to, especially in sort of high-quality assets. So we're seeing spreads in the I don't know, 170s, 180s for high quality assets. So that bites into that benefit a little bit. And obviously there's a lot of competition for quality assets. So it's a mix. I mean, I think we're getting a little bit of a lift off of the lows, but I think in general the market's very competitive and spreads are are getting a little thinner.

Yeah, so Justin, I can add to that. Really, there's more of a tangible benefit, I think, on the residential side. You know, we've got a $2 billion residential book. So as that's advertising and we're reinvesting those cash flows, that's giving us the tailwind of about one to two basis points a quarter.

Okay, got it. That's helpful. And then just on loan growth, you know, I think you guys have talked about mid-single digits. previously. It seems like that might be tough to get to just barring a really strong fourth quarter. So just kind of curious how you're thinking about that trend line from here.

Yeah, yeah. So listen, I would say when we think about mid-single digits, we're really talking about run rate versus calendar year. So we had strong payoffs in the first and second quarter. So we're not going to make that up inside of 2026. But In the second quarter and in the third quarter, it was pretty strong. And we're looking at annualized total portfolio growth of 5%. And we're looking at within the commercial book, about 10%. So this quarter, the commercial book delivered 2.3%. That's kind of within our target range of 2% to 3% quarterly commercial growth, which over the year, we're looking at that averaging out to about 10% annualized growth.

Okay, got it. And then maybe just one last one to follow up to that a little. Just any thoughts on the mix as we go forward? You know, you saw Cree come back after the slower first half with some of the payoffs you alluded to and then the softer period on the C&I or institutional group. So just kind of curious how you're thinking about both of those areas.

Yeah, that's a good question. And I think it's as we guided the growth in Q3 would be sort of real estate Thank you for joining us today. New England School Deal in the third quarter. So there was a little bit of institutional, but I think it kind of followed as we predicted, that it would slow down a little bit in Q3 and pick up Q4 and into Q1. But the pipeline is pretty strong and, again, weighted towards commercial.

Perfect. I will leave it there. Thanks so much.

Thanks very much, Justin.

Your next question comes from the line of Laurie Hunsicker, who's a private investor. Your line is open. Please go ahead. Yeah. Hi, Ned and Ron. Good morning. Laurie Hunsicker from Seaport.

Hi, Laurie. Hi. I just wanted to circle back here on expenses. I just want to make sure that I'm getting this right. So round numbers, you're going to be about $41 million or so for the fourth quarter, including the Charitable Foundation of $750 million.

Yes.

Okay. And then obviously that is including the branch spend, the Bristol and the Pawtucket. Can you update us on exactly when those are opening? And then just help us think about, is that fourth quarter then a fully baked run rate? Or how should we be thinking about that?

No, they're coming on, you know, where I don't have the exact timing, but, you know, right around the end of the quarter, there is some, you know, ramp up spending that occurs. You know, we have to hire the people. We've got some real estate costs. So some of that expenses is, you can see it in our, you will see it in our run rate even before the branch is opened. But the, you know, the ongoing run rate for a branch is around $750,000 to $800,000 a year.

Okay, so just in terms of one-quarter expense modeling, just thinking about maybe another $400,000 add for those branches to be fully phased, or maybe it's a little less, maybe it's 150 branch, maybe 300 additional, 300,000 additional of expense into the first quarter of 2027.

I think that's fair, yeah.

Okay, okay. And do you have any branches planned now for 2027?

We have nothing planned, although I would say that we are still interested in expanding the branch footprint. So nothing to talk about yet, but, you know, in coming quarters, we probably have something to talk about there.

Okay. Okay. Great. Yeah, love seeing your deposit growth and, you know, just very, you know, you held the line across the board on raising rates there. So your loan-to-deposit ratio now is sitting below 95%, which is great. Can you help us think about what that target looks like in the next year? And then maybe, Ned, just very high level, can you talk about the competitive pressures you're seeing on deposit costs in order to grow those buckets?

Yeah, so we're very pleased with our loan-to-deposit ratio, which is at a low level that we've We're committed to maintaining our deposit growth in the neighborhood of where our loan growth is. Our loan growth will be higher, you know, in the coming couple of years than it has been in the previous couple of years. So, you know, we will have our work cut out for us to keep that deposit growth going and making sure that we can fund those loans. We don't have, you know, we've got internal policy limits and things of that nature. But, you know, I don't have a target loan to deposit ratio to share with you. I will say that, you know, we would rely on wholesale funding to some degree to find appropriate loan growth when we get to that point. I don't know. That's about the best I can tell you.

Okay, okay. And do you have a spot margin?

Yeah, I mean, call it 285 for September.

Okay, great. And then I just had a couple questions on credit. Loved, obviously, seeing the 22 million resolution. The 6 million Class A that was new into non-performers, I guess, what is that loan? What's the occupancy? What's What's maybe your thoughts on timing of resolution there?

Hey, Lori, this is Bill Ray. That's been there for a while. Committed sponsors never missed a payment, but we just felt it was the appropriate time to look at potential valuation risk. But the property doesn't mature until 2031. So occupancy has been level, but it's not at stabilized levels. We felt that was just the right step to take at this point.

Okay, but so last quarter it was performing and then you moved it to non-performer. I'm just wondering what triggered that?

I'm just thinking about valuation risk, I think, and we felt it was the right time. Again, there's been no change in commitment from the sponsors, no change in occupancy up or down. And as you said, they've never missed a payment.

Okay. Okay, great. And then just wondered, on the 6.6 million lab space, any update on that? I know that was in sort of initial lease-up phase, I think, last time we were chatting. Any color to add there?

We are working with the sponsors on that and moving towards an exit scenario. And so we're in the middle of those discussions.

Okay. Okay, and then last one for me, the 28 million lab space that's unclassified, I think there was a thought that that potentially could be returning here to, that it could certainly be migrating out of special mention here in the next couple quarters. I have in my notes that property was fully leased. Can you just update us on when we might see movement in that?

It's fully leased, 95%. We've been waiting for the tenants to burn off free rent and show performance. All trends have been positive, and so we're feeling reasonably good about a near-term move out of special mention. But until we have all the quarter-end information in terms of rent payments, we can't commit to that yet, but that's where it's headed, we think.

Okay, great. And then one very last question, Ned, for you. Obviously, your capital ratios are very, very strong here. Can you just refresh us on revisiting the buyback and how you're thinking about that? Thanks.

Yeah, I mean, we don't have any plans to buy stock back at this point. The price is high. I mean, we've got the capital. We've got other things to invest in. And we want to make sure we have ample capital to support the growth we're We're looking forward to on the loan side. So I think we'll kind of keep our position of holding off on repurchases at the moment. Ron, I don't know if you have other... No, that's it.

I mean, we've got plans to grow the balance sheet, so we're going to hold on to that capital right now. I mean, listen, our regulatory capital ratios look fine. Our gap capital ratios remain on the lighter side of the peer group. We recognize that. We've recognize that for a while. So I think the prudent thing for us to do right now is to deploy that capital into the growth of the business.

Great. Thanks for taking my question.

Thanks, Lori.

There are no further questions at this time. I will now turn the call back to Ned Handy, chairman and CEO, for closing remarks.

Well, thank you everybody again. We appreciate your time and your interest in Washington Trust and very much look forward to speaking with you again next quarter. Have a great day, everybody.

This concludes today's call. Thank you for attending. You may now disconnect.