Washington Trust Bancorp, Inc. Aktie

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. [Operator Instructions] 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 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 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's 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 2 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?

Yes. 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-provision pretax 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 2.84%, 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 2 basis points.

Noninterest income was up by $1.6 million or 9% compared to Q2 and by -- up by 15% year-over-year. Wealth 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 bank-owned life insurance was up largely due to the recognition of a gain of $954,000 in the third quarter.

Noninterest expense totaled $38.8 million in the third quarter, up by $200,000 or 0.5%. 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 CRE 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, nonaccruing 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 by -- 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 nonaccrual 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 answers.

[Operator Instructions] Your first question comes from the line of Justin Crowley from Piper Sandler. 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 DelMonte from KBW.

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.

Yes. So, Damon, it's probably a little early to be talking about 2027, but our -- we've revised our guidance for Q4. We're going to guide to a range of 2.85% to 2.90%.

Okay, great. When we think about...

So, yes, 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 1 to 2 basis points on the run rate.

2 basis points on the run rate. Okay, great. And then kind of along those lines, the noninterest-bearing deposit growth has been really strong in the last couple of quarters. Just any color on what's driving that?

Yes. I think a good part of it is the institutional banking team onboarding operating accounts related to 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 taking in deposits across both retail and commercial at this point. So, yes, 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, a good quarter this quarter, pretty much flat. Just curious on your outlook for the fourth quarter and kind of any puts and takes around that.

Yes. Yes. So, listen, on the last call, we guided to a $1 million increase in the quarter, and we came in below that. I would say a lot of that is timing related. So, we're going to see a shift to some of that previously expected expense growth shifting into the fourth quarter.

So, 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, kind of that $1.5 million is kind of evenly distributed across that.

That -- none of that includes our annual $750,000 contribution to our charitable foundation. So, that would be incremental to the $1.5 million.

Your next question comes from the line of Justin Crowley from Piper Sandler.

Hopefully, you can hear me now.

We can, Justin.

Perfect. Ron, just going back to the margin. If I remember correctly, I believe you were going to get another 4 basis points benefit from the terminated swap this quarter. So, I just wanted 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?

Yes. So, we've got, call it, about $2.1 billion of SOFR and prime-based loans. So, each -- 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 -- like the fixed to floating or any of the like 5-year CRE paper, do you get any benefit there, just kind of given some of the growth you put on back in 2022?

I'm sorry, say that again, Justin.

Just for the 5-year fixed to floating type commercial real estate paper. If I just kind of like look back to growth you put on 5 years ago, I would think there's some benefit there as we get into next year, although perhaps not.

Yes. I would say -- Justin, it's Ned. 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 is very competitive and spreads are getting a little thinner.

Yes. So, Justin, I can add to that. Really, there's more of a tangible benefit, I think, on the residential side. We've got a $2 billion residential book. So, as that's amortizing and we're reinvesting those cash flows, that's giving us a tailwind of about 1 to 2 basis points a quarter.

Okay. Got it. That's helpful. And then just on loan growth, 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.

Yes. Yes. 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 I think our loan growth in the second quarter and in the third quarter 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 as a follow-up to that a little. Just any thoughts on the mix as we go forward? You saw CRE 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?

Yes, that's a good question. And I think as we guided, the growth in Q3 would be sort of real estate heavy given the seasonality of the institutional, especially in the education space, the institutional business. But the pipeline going forward, I mean, we've got about a $230 million pipeline as of 9/30, which is weighted towards C&I, with about $40 million of that today in the institutional group.

We did do a $10 million 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 pipeline is pretty strong and again, weighted towards commercial.

Your next question comes from the line of Laurie Hunsicker, who is a private investor.

Laurie Hunsicker from Seaport. 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 $750,000?

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. Laurie, I don't have the exact timing, but right around the end of the quarter. There is some ramp-up spending that occurs. We have to hire the people. We've got some real estate costs. So, some of that expense is -- you can see it in our -- you will see it in our run rate even before the branch is opened. But the ongoing run rate for a branch is around $750,000 to $800,000 a year.

Okay. So, just in terms of 1-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 a branch or maybe 300 additional -- $300,000 additional of expense into the first quarter of '27.

I think that's fair. Yes.

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 in coming quarters, we probably have something to talk about there.

Okay. Okay. Great. Yes, loved seeing your deposit growth and just very. You held the line almost across the board on raising rates there. So, your loan-to-deposit ratio now sitting below 95%, which is great. Can you help us think about what that target looks like into 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?

Yes. So, yes, we're very pleased with our loan-to-deposit ratio, which is at a level a low level that we've rarely been at in the past. And as you know, Laurie, we've been quite a bit higher than that previously. We're committed to maintaining our deposit growth in the neighborhood of where our loan growth is. Our loan growth will be higher in the coming couple of years than it has been in the previous couple of years.

So, 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 -- we've got internal policy limits and things of that nature. But I don't have a target loan-to-deposit ratio to share with you. I will say that we would rely on wholesale funding to some degree to fund 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?

Yes. I mean, call it 2.85% for September.

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

Laurie, this is Bill Wray. 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. So, 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 nonperformer. 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 I 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 of 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 don't -- 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?

Yes. 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 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. Laurie, I mean, listen, our regulatory capital ratios look fine. Our GAAP capital ratios remain on the lighter side of the peer group. We recognize that. We've recognized 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.

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.

Good morning, and welcome to Washington Trust Bancorp, Inc.'s Conference Call. My name is Hilary, and I'll be your operator today. [Operator Instructions] As a reminder, today's call is being recorded.

And now I'll turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Sharon, please go ahead.

Thank you, Hilary. Good morning, and welcome to Washington Trust Bancorp, Inc.'s Conference Call for the second 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 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 these materials and other public filings are available at our Investor Relations website at ir.washtrust.com. Washington Trust trades on NASDAQ under the symbol WASH. I'm now pleased to introduce today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon. Good morning, and thank you for joining our second quarter conference call. We appreciate your time and your continued interest in Washington Trust. I'll begin with a brief overview of our second quarter results, and then Ron will provide more detail on our financial performance for the quarter.

Following our remarks, Mary and Bill will join us for the question-and-answer session. We delivered strong results in the second quarter as disciplined execution across the company drove higher profitability and solid loan and deposit growth. Our institutional banking initiative helped drive an increase in our commercial and industrial loan book and overall deposits. Our capital levels remain strong and supportive of additional expected loan growth.

We are planning to open our 30th branch later this year in Bristol, Rhode Island, providing greater access for consumers and businesses in the East Bay and Southeastern Massachusetts. We're also finalizing the build of our new Pentucket branch and are excited to have both locations open soon.

We are on target to roll out an enhanced digital banking solution for our small business customers this fall and continue to look for ways to leverage technology to provide greater security, convenience and choice for our customers.

In April, we welcomed Jeff Wilhelm to our Board. Jeff has more than 25 years of experience in digital innovation, and we're excited to draw on his expertise in AI and cybersecurity as these areas continue to grow in importance across the financial services industry.

Overall, we are pleased with our second quarter performance and the direction of our business. Strong earnings growth, margin expansion and balance sheet growth position us well as we continue to invest in our franchise, expand our presence in key markets and enhance the customer experience. With that, I'll turn the call over to Ron to provide additional detail on our financial results. Ron?

Thanks, Ned, and good morning, everyone. In the second quarter, we reported net income of $16 million or $0.83 per share, up by $3.4 million or $0.17 from the preceding quarter. Pre-provision pretax net revenue or PPNR, was up 9% from Q1 and up 23% year-over-year.

Net interest income was $41.8 million, up by 3% from Q1 and up by 12% year-over-year. The margin was 2.73%, up by 10 basis points from Q1 and up by 37 basis points year-over-year. On May 1, the remaining deferred loss from a terminated hedge was fully amortized, eliminating this expense from the bank's ongoing run rate.

The second quarter captured only a 2-month benefit from ending this amortization expense as 1 month of amortization remained in April. The second quarter benefit to net interest income and NIM was $1.4 million and 9 basis points.

In the third quarter, we will realize the third month of benefit totaling approximately $700,000 or 4 basis points compared to Q2. Noninterest income was up by $1.4 million or 8% compared to Q1 and up by 9% year-over-year.

Wealth management revenues were up $554,000 or 5% compared to Q1 and increased by $1.1 million or 11% year-over-year. Q2 included an increase of $265,000 in transaction-based revenues, largely reflecting seasonal tax servicing fee income.

Asset-based revenues were up by $289,000 from Q1. Mortgage banking revenues totaled $3.5 million, up 14% from the first quarter and also up 14% year-over-year. Our mortgage pipeline at June 30 was $121 million, up by $7 million or 6% from the end of March.

Noninterest income totaled $38.6 million in Q2, up by 2%. Salaries and benefits expense was up $972,000 or 4%, reflecting staffing additions in our commercial and retail banking business lines as well as volume and performance-related compensation changes.

All other categories of noninterest expenses decreased by a net $140,000 in the second quarter. Our effective tax rate was 21.2%, and we expect our full year 2026 rate to be approximately 21.5%. Turning to the balance sheet. Total loans were up 2% from March 31. Total commercial loans increased by $63 million, driven by growth in the commercial and industrial loan portfolio, mainly from our institutional banking team.

Commercial real estate had solid production in Q2, but this was more than offset by payoffs. The commercial pipeline is approximately $143 million. Residential loans increased by $13 million and consumer loans were up by $12 million. Deposits were up 4% from the end of Q1 and up by 6% year-over-year.

Wholesale funding was down $120 million or 21% from the end of March, and our loan-to-deposit ratio improved from 96.9% to 95.1% at June 30. Total equity amounted to $554 million, up by $7 million from the end of Q1. The dividend remained at $0.56 per share. Turning to asset quality. Overall, our Q2 asset and credit quality metrics were stable.

At June 30, nonaccruing loans were 78 basis points against total loans, decreasing from 81 basis points at the end of Q1. Past due loans were 81 basis points, up from 33 basis points at the end of Q1. The increase was attributable to a single commercial real estate office loan that had already been placed on nonaccruing status in the preceding quarter and did not reflect further deterioration in portfolio credit quality during the quarter.

In the second quarter, we recognized a $1.6 million provision for credit losses. The allowance totaled $42.6 million or 83 basis points against total loans. And at this time, I will turn the call back to Ned.

Ron, thanks very much. At this point, we'll open it up to questions, Hilary.

[Operator Instructions] Your first question comes from the line of Justin Crowley from Piper Sandler.

Just wanted to start out on loan growth. Certainly, a really nice result here that you called out. And you talked about the contribution out of C&I and the institutional team. So just curious if you could talk a bit more about that group, what the runway there looks like and just how sustainable you think the result we saw this quarter could end up being?

Yes. Thanks, Justin. The group had a great quarter. And we expect -- and commercial loans in general were up 2.4%. So we expect that kind of rate to continue in the coming quarters.

The Institutional Banking group is growing its pipeline. I think from quarter-to-quarter, there will be a balance between the Institutional Banking Group and CRE. Third quarter generally is a little slow in the not-for-profit space. So we may see a little bit more of that growth come out of the CRE group than out of Institutional Banking.

But I think there's a good balance there. And yes, we're sticking with the mid-single-digit overall loan growth for the year. And I think as we said in the prior quarter, that will be led by Institutional Banking Group and C&I in general.

And so is it really -- when you look at that Institutional Banking group and specifically, I guess, this quarter, is it really the contribution coming from the not-for-profit space? Or how diversified is that beyond that arena?

Yes, it really is. And in the quarter, it was largely educational in nature, and we expect that to be the kind of the leader in that group. Again, good loan growth, good deposit growth.

Average assets, some of that loan growth happened towards the end of the quarter. So that obviously had an effect on net interest income, but nice to have those loans on the book. And we expect for the third quarter that, that nonprofit activity to be the driver for the institutional group. But as I said, third quarter generally tends to be a little bit slower in that space. And so we'll see the overall growth led in the quarter probably by commercial real estate.

Okay. And then I guess on that, on commercial real estate, you called it out as well, but payoffs again sort of a headwind this quarter. Is there kind of a line of sight that, that should slow? What kind of gives you confidence that will be able to kind of take the torch from maybe a softer quarter on the C&I side?

Yes. The pipeline is good. And yes, there were -- the credit formation in the quarter was about -- between construction and new loans was about $100 million.

Payoffs were a little bit above that and led by CRE at $112 million. We think with a little bit of upward pressure in rates, cap rates probably move -- outright sales probably slow a little bit. We expect that payoff rate to slow a little bit, but the pipeline is good.

And so we expect that we'll have net growth in the third quarter, certainly in the real estate space. Overall, formation was about $214 million in the quarter. So we're really happy with the level of activity and payoffs and paydowns were about $150 million.

So it's a little bit of slowdown in the payoff and continued pace on the new originations and a little -- our construction book is down a little bit, but we still see some construction advances in the quarter. So I'm confident that we'll hit that same kind of 2.5-ish percent C&I commercial growth overall in the quarter.

And then obviously, the lead time on the not-for-profit space can be a little longer. So we're while there may not be fundings at the same level in Q3, the pipeline is certainly being built.

Okay. Got you. That's helpful. And then, Ron, maybe just one on the margin. You'll get the full benefit of the swap termination in the third quarter. Just wondering if you could comment just on expectations for the NIM trajectory through the balance of the year just beyond that benefit.

Yes. We're looking at, say, 2.75% for Q3 and 2.80% for Q4.

Okay. Great. That is super helpful. And then maybe just one last one. Just on wealth. You saw the nice lift in AUM levels. And so I guess with the move in the market that we saw last quarter, can you provide a little detail on what net flows look like and just how you're thinking about the trajectory looking ahead there?

Yes. We actually set a record in the quarter on wealth assets under management. And you can see that we do disclose our overall assets. We're not really breaking out the flows, but I would say that we're pretty pleased with the overall performance of the business.

Your next question comes from the line of Damon DelMonte from KBW.

Ron, just a quick follow-up on the margin. I appreciate the guidance for the next couple of quarters. But I know part of the benefit here in the third quarter is from the interest rate swap component of it.

But could you just give a little perspective on kind of how you're feeling about like deposit pricing trends this quarter and kind of going forward? Are you seeing competition picking up? You had a little bit of a decline this quarter. Is that sustainable? Just a little bit more color around some of the dynamics that give you the confidence for further margin expansion.

Yes. So on the liability side, I would say most of our CDs and FHLB have kind of repriced, there's repriced down. There's probably a little bit left to go.

I think on the deposit side, we're really focused on trying to improve our mix. I think that the institutional banking team is expecting to self-fund about 35% of their production that should help our mix going forward and give us some help on that side. So that's kind of how we're thinking about it, Damon. Does that answer the question?

Yes, that's helpful. And then on the asset side, was the increase this quarter, was that attributable to some of the back book repricing? Or kind of what were some of the dynamics in the increase there? Or is that all tied to the interest rate swap?

Most of it was the swap. There is an undercurred back book. We have the big mortgage book that we're still trying to amortize down.

So that is giving us some benefit going forward. I think if the yield curve continues to steepen up a little bit, that should help as our new production comes in. And the mortgage amortization is a little bit of a slow grind, but it's there, and it's helping us as it goes off.

Coming into the year, we were somewhat hopeful that maybe rates would come down and we'd see a pickup in refi activity and maybe some prepayments on that.

But that hasn't happened yet. But the amortization is real, and that should give us a little bit of a tailwind.

Got it. Okay. Great. And then on the expense side, can you give a little perspective on the back half of the year? I think you called out that comp and benefits were up a little bit higher from some hiring and ongoing operational costs.

So I guess can you keep it under the $39 million level kind of in the back half of the year per quarter? Or what's the outlook there?

Yes. I would say we're expecting our third quarter expenses to be up about another $1 million. Some of that is mortgage volume related. We've got the branches coming online that we talked about later this year. So that will add a couple of hundred thousand in the third quarter and then another couple of hundred thousand in the fourth quarter as those start to roll in. Some open positions we still have that we intend to fill and maybe some timing on the advertising expense.

So right now, I would say we're looking at like $1 million increase in Q3, which would put us just under $39 million.

Your next question comes from the line of Laurie Hunsicker from Seaport Research.

I just wanted to go back to loans here. So the C&I growth, and I just want to make sure I understand this so and I appreciate the breakdown here you have on Page 13.

But it looks like education loans going from $54 million to $135 million. Can you just take us through exactly what those loans are to? Are they small private colleges? I mean how should we be thinking about that?

They are schools. They are not colleges. They're more high school oriented. They're obviously not-for-profit, very well heeled with strong deposit relationship included and very strong operations from the schools.

Okay. And then of that $135 million, how much is college? Is it any amount of that? Or is that a focus?

I'm sorry, did you say it's college?

Right. Of the $135 million, so the growth was [indiscernible], but I'm just wondering, the $135 million, is there any colleges in that bucket? And is that a focus?

No, it is a focus, but none of the existing volume is to colleges. It is a focus, though we have a few in the pipeline that we're exploring.

But the group has looked at just order of magnitude, something in the neighborhood of $700 million of opportunities. And we either don't compete on rate or for other reasons, credit related or otherwise, we pass.

So they're seeing a lot of opportunities as we expected, and we're being fairly careful. We have looked at a couple of colleges, Laurie, and have not won a couple of them, have passed on a couple of them.

So it's in the mix. These guys have been at it for a long time. They have access to the opportunities, but they also have a really good sense of where the market is and where our best opportunities lie.

Okay. Got it. And then just sort of extrapolating, so most of the jump that you had in the noninterest-bearing demand deposit category was tied to that growth. Is that the right way to think about that?

Yes, I think that's fair, Laurie.

Okay. Okay. And then just as we look further out, the C&I is 13% of your loan book, up from 11% last quarter. Where does that percentage go if we look out a year or 2 years, how do you think about that?

Yes. So Laurie, we expect over the next, call it, 18 months that C&I is going to grow at a faster pace than everything else in our loan book.

So I think CRE is going to return to kind of normal kind of growth rates that we saw several years back.

And then -- but C&I, I think, is the main growth engine. They're both going to grow. And I would say that the C&I will grow at a somewhat faster pace than the CRE.

Okay. I mean just to quantify that, obviously, just linked quarter, you were up 17%, almost 70% annualized. I mean what should -- and obviously, you had an exceptional quarter here. But how should we think about that growth? I mean, can you help us think a little bit about what that looks like this year, next year or however you want to quantify that?

Well, yes. So I think we're where we -- the position we're trying to put ourselves in is to have sustainable growth comparable to what we just posted in Q2. And we believe that we are on that path to do that, Laurie.

And remember, on the C&I side, the existing C&I book is relatively small and the Institutional Banking group has no risk of payoffs. So that's pure net growth. So the percentage growth is a little misleading. It's going to be the leader. It's going to help on the deposit growth side.

But we expect both CRE and C&I overall, including Institutional Banking Group to kind of lead the charge.

Okay. Okay. And a quick question on office. Obviously, things are looking good there. I know you've got that Class B $3.8 million special mention coming due this next quarter. Do you have any kind of update on that? Or has that been pushed out that maturity? How should we think about that?

We're in discussion with the sponsor, well known to us, long-standing relationship with the bank. It's got some long-term state leases in it. So we feel comfortable about where this is and where it's going to go. We're obviously in active discussions right now.

[Operator Instructions] There are no further questions at this time. I will now hand the call back to Ned Handy, Chairman and CEO, for closing remarks.

Thank you, Hilary, and thank you all for your questions and for joining us this morning. As we look ahead, we remain focused on disciplined growth, prudent risk management, delivering exceptional service to our customers and communities and creating long-term value for our shareholders.

We appreciate your continued interest in Washington Trust and your support of our company. We look forward to speaking with you again next quarter. Have a great day, everyone.

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

Good morning, and welcome to Washington Trust Bancorp, Inc's Conference Call. My name is Elliot, and I'll be your operator today. [Operator Instructions] As a reminder, today's call is being recorded. And now I'll turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Please go ahead.

Thank you, Elliot. Good morning, and welcome to Washington Trust Bancorp, Inc.'s Conference Call for the First 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 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 at ir.washtrust.com.

Washington Trust trades on NASDAQ under the symbol WASH. I'm now pleased to introduce today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon. Good morning, and thank you for joining our first quarter conference call. We appreciate your time and your continued interest in Washington Trust. I'll begin with a brief overview of our first quarter results, and then Ron will provide more detail on our financial performance for the quarter. Following our remarks, Mary and Bill will join us for the question-and-answer session.

Building on the momentum generated throughout 2025, quarterly performance was driven by continued net interest margin expansion, reflecting the underlying strength of our core banking business and continued benefits from our December 2024 balance sheet repositioning transactions.

The Q1 results do, however, include a higher provision related to reserve builds on 2 CRE credits moved to nonaccrual in March, and we'll provide details on those in the Q&A session. Our capital ratios remain strong, providing the flexibility to support continued execution across the business.

In the first quarter, we completed a digital banking conversion for personal accounts that provides enhanced security and technology and a better customer experience, reinforcing our focus on service and relationships. We will continue the conversion of our business accounts in the ensuing quarters.

With recent industry shifts locally, these investments position us well to attract new customers by pairing modern capabilities with the personalized service that defines Washington Trust. We're also leveraging our strength as a community bank that prioritizes local decision-making to attract experienced bankers to our commercial team.

We recently added new talent across C&I, CRE and business banking, all of whom bring deep experience and strong client relationships in the region. The institutional banking team we added in January is showing strong momentum that positions us for loan and deposit growth as the year progresses.

In addition, our planned branch opening later this year in Pawtucket, Rhode Island will further expand our presence in the northern part of the state. Overall, we're encouraged by the progress we are making to position the company for long-term success. With that, I'll turn the call over to Ron to provide additional detail on our financial results. Ron?

Okay. Thank you, Ned, and good morning, everyone. 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. PPNR was down 6% from Q4 and up by 23% year-over-year on an adjusted basis.

Net interest income was $40.5 million, down by 1% from Q4 and up by 11% year-over-year. The margin was 2.63%, up by 7 basis points from Q4 and up by 34 basis points year-over-year. Q1 included $116,000 of loan prepayment fee income, which benefited NIM by 1 basis point compared to $516,000 or 3 basis points last quarter.

Noninterest income was down $1.2 million or 6% compared to Q4 and up by 11% year-over-year on an adjusted basis. Loan-related derivative income, which is transactional in nature, was down by $854,000 compared to Q4. Wealth management revenues were down by $205,000 or 2%. Average AUA for Q1 decreased by 1% and increased by 10% year-over-year.

Mortgage banking revenues were $3 million, seasonally down 6% and were up by 32% year-over-year. Our mortgage pipeline at March 31 was $114 million, up by $33 million or 41% from the end of December. Noninterest expense totaled $37.8 million in Q1, down by 1%. Other noninterest expenses were down by $1.2 million in Q1, largely due to a $1 million contribution made to our charitable foundation in Q4.

In the first quarter, salary and employee benefits expense was up by $693,000 or 3%, reflecting merit increases and higher payroll taxes associated with the start of a new calendar year. Our Q1 effective tax rate was 21.6%, and we expect the full year 2026 effective tax rate to be approximately 21.5%.

Balance sheet total loans were down 2% from December 31. Total commercial loans decreased by $95 million, reflecting mainly payoffs in the CRE portfolio. The commercial pipeline in total is approximately $156 million. Residential loans decreased by $21 million as we continue to amortize that portfolio. End market deposits were down 2% from the end of Q4 and up by 3% year-over-year, and wholesale funding was down by $50 million or 8% from the end of December. Our loan-to-deposit ratio decreased slightly to 96.9% at the end of March.

Turning to asset and credit quality. At March 31, nonaccruing loans were 81 basis points on total loans and increased by $27.5 million from the prior quarter, largely due to 2 commercial real estate office loans. Past due loans were 33 basis points on total loans. In the first quarter, we recognized a $4 million provision for credit losses, largely reflecting an increase in specific reserves on the 2 CRE office loans. The allowance totaled $41.1 million or 82 basis points.

And at this time, I will turn the call back to Ned.

Thanks, Ron. And now we'll take questions.

[Operator Instructions] First question comes from Justin Crowley with Piper Sandler.

I was wondering if you could start off just giving a little more detail on the 2 office loans. Just anything on geography and then maybe some more specifics on what occurred to drive the downgrades and specific reserves. So just things like occupancy levels or perhaps just how close they even were to maturity. I'm not sure if that may be necessitated new appraisals.

Yes. Bill, do you want to take that?

Sure. They're both loans that have been current up until this point. In both cases, in March, there were sort of triggering events that led to us deciding to make the decision for quarter end to put them on nonaccrual. Both of them have strong sophisticated sponsors, and we're engaged with both of them right now on -- one was a maturity. The other doesn't mature until next year.

We're engaged with both of them on the right next steps. So I don't want to get into too much detail on what that means. But we -- like with most of our assets that have been in criticized either special mention or classified, most of them emerge unscathed. And in this case, though, we took the step to put reserves in place that we thought were appropriate to reflect any potential loss down the road.

So again, we think they're both solid properties with solid sponsors, and we expect that we will continue to drive resolution, and we're hoping that within the next few quarters, these will either exit or they will emerge back into performing status.

Okay. Got it. And then were there any general reserves allocated to office? Or was it all specific with regard to these 2 loans? I guess trying to get a sense of how you think about the risk in the rest of the office book at this point and the cycle for that -- for this asset class and the thinking there has changed at all?

Well, I think our office exposure peaked at $300 million a couple of years ago. It's now down to $230 million. And we think we've done that with a fairly small amount of charge-offs along the way relatively. So we expect to continue to reduce our office exposure over time.

Within the CECL methodology, we make sure that we use qualitative factors, especially to address issues in office. And so we have taken some of those steps. And we believe going forward that there's always going to be a handful of properties that are sort of on the bubble that need some attention and focus. But as you can see, these -- all of our other office properties are performing.

There's -- there aren't delinquencies there that we're concerned about. So we just expect that assets will move into lower ratings and then we'll emerge from those. And we certainly spend a lot of time thinking about maturity wall analysis and refinance risk. And so we're constantly juggling those handful of properties that look like they might raise some issues down the road and try to stay ahead of them.

So I guess the best way of saying we're cautious on office, and we'll continue to be cautious on office, but we also think the scale of the problems within it are well within our capabilities to handle from an earnings standpoint and a reserving standpoint.

Okay. And then I guess, somewhat larger sized loans here, it sounds like they were self-originated. Was that the case or were either participations? Just want to confirm that.

I'm not sure which ones you're referring to, but there's only -- there's 5 loans.

The 2 office loans -- the 2 office loans get migrated in the quarter...

Sure. Actually the board's participations. We're the lead on the Class A -- the Class A office space one, we're 2/3 participant in the lead. And then we are the minority participant on the lab space deal.

Okay. Got you. And then I guess pivoting a little just on loan growth with the contraction you saw this quarter, can you refresh us just on how to think about growth from here? I believe we talked about mid-single digit, call it, maybe 5% growth previously. I know a lot has changed since then with some of the geopolitical noise. So just curious for an update there.

Yes, I'll take that one. Thanks for the question. We're -- yes, so the quarter saw pretty significant paydowns, payoffs and mostly in the CRE space and not the kind of commensurate new origination that we're used to. But the path ahead looks very good. We're sticking with our mid-single-digit growth for the year projection. And it's important that we talk about where that's going to come from.

At this point, we're feeling like CRE is probably going to be low single-digit growth for the year. They've got some making up to do based on the first quarter payoffs. And then we're thinking kind of flat to 1% growth in CRE, which is somewhat intentional. Most of the growth is going to come from our core C&I business and our institutional banking business.

We're expecting sort of high single-digit growth out of our core C&I business, which you'll recall has a current outstanding in the kind of $560 million level. So you can do the math there. And then most of the C&I growth is going to come out of our relatively new institutional banking group. We expect $50-plus million in fundings in this quarter, and the pipeline is growing. And I think importantly, alongside that is the strategic growth in deposits that will come from that portion of our C&I business. They're expecting to kind of fund at -- self-fund at a 30% to 40% level, which is much higher than certainly CRE and much higher than our core C&I business. So that's an added benefit.

They joined the group in late January. So it's to be expected, it will take a little while for them to get up and running, but the pipeline is growing as we expected, and we're very encouraged by that. So back to the start, sticking with the mid-single-digit growth, if not a little higher. And again, very encouraged by the types of credit, the quality of credit that they -- that we're seeing in the pipeline build. So more to come on that at the end of next quarter.

Okay. Great. And then just one last one on the margin. I think I might have missed this in the prepared remarks. I know there were some elevated prepayment fees last quarter. Was there any of that in the 2.63% for the first quarter?

Yes, like 1 basis point.

Okay. And then I guess just thoughts on the margin from here. I think you'll get that lift from the swap termination, but could you just remind us the benefit there? And then just also how you're thinking about organic expansion through the year?

Yes. So the swap termination will add 9 basis points in the second quarter and another 4 basis points in the third quarter.

Okay. And then I guess just -- go ahead.

Go ahead, Justin.

I was just going to ask outside of that, just beyond the benefit from the swap, just how you're thinking about just margin lift from here as we get through the year?

Yes. There's modest expansion by quarter. First quarter was probably a little higher, helped by the prepayment helped -- actually helped a little bit by the shorter day count in the quarter actually added about 2 basis points to the NIM. But when we look ahead to the fourth quarter, we're thinking 2.75% to 2.80% in the quarter.

We now turn to Damon DelMonte with KBW.

Ron, could you just repeat the last comment you made on the margin, the 2.75% to 2.80%. Was that for the second quarter? Or is that for where you expect it to be at the year-end? I missed that, sorry.

Sorry, Damon. Yes, just to be clear, fourth quarter.

Fourth quarter. Okay.

Yes, we're looking at 2.65% to 2.70% in the second quarter.

Got it. Okay. That jives with what you were describing from the benefit. Okay. Great. And then I guess, -- maybe a little bit on expenses and kind of how you're thinking about the outlook from there. You've made some hires. I'm assuming that's all kind of baked into the numbers. Your -- I think the expenses were around, what, $37.8 million. So just kind of modest growth off of this? Or do you think you could actually keep it kind of flat?

Yes. We're actually seeing about $1 million increase in Q2. And some of that is -- really, there's 3 areas we're looking at advertising, mortgage commissions, and then we've got some project implementation expenses that will be coming through in the quarter.

Got it. Okay. Great..

And then further to that, we're adding a branch which will probably open in the -- towards the end of the third, beginning of the fourth quarter. Those expenses will start to hit in Q3. And so we're probably looking at about $500,000 in 2026 related to the branches.

Got it. Okay. Great. And then on Wealth Management, AUM were down a little bit this quarter. Is that just fluctuation of the market? Or was there some outflow of clients?

Yes. It was mostly market. And by mostly, that means not all. So yes, we did have some net outflows. You can see markets have rebounded so far in April. So no one knows what the future holds, but at least a lot of the declines that we saw in the quarter have reversed so far in the second quarter.

Got it. Okay. And then just lastly, given the outlook for the loan growth going forward, how do we think about provision and kind of the reserve level? I mean, obviously, you built the reserve this quarter for those loans that went to nonaccrual status. But if we assume that there's no other credit deterioration, do you kind of have the provision such that it keeps the reserve flat given the loan growth?

Yes. We're kind of thinking somewhere in the range of $1 million to $2 million per quarter. And that covers loan growth and maybe that gives us a little bit -- depending on what we book and when we book it, it could give us a little bit of a reserve build going forward.

We now turn to Laurie Hunsicker with Seaport Research.

Just to stay with where Damon was loan loss provision. So the $4 million loan loss provision, I know you said, obviously, that was heavy with the office. What exactly was the dollar amount there associated with office of the $4 million?

Laurie, it was essentially all the office.

All of it. Got it. Okay. Perfect. And then I just wanted to dive a little bit deeper here in office. So just I have a series of questions here. So thanks for staying with me on this. So you've got 59% maturing in the next 2 years, $136 million. Is any of that currently in special mention classified nonaccrual? And if so, when is that actually maturing?

Well, of the 5 deals that are in the office space and special mention are classified, one of them matured, and that was one of the deals that we moved to nonaccrual -- there's another one, the Class B special mention that's actually maturing in the third quarter of this year.

And one reason we moved it to special mention was just kind of as a marker as we work with the sponsor who's a well-known and committed sponsor on a refinance approach. And then the other deal that went to nonaccrual doesn't mature until the third quarter of next year. So we -- as we disclosed, we look at all of our maturing office loans very carefully. And when we know enough to with an emphasis on caution, we will take steps to make it special mention.

The deals that we talked about here, both were put on special mention one at the -- in the fourth quarter of '24, the other in the third quarter of last year. So -- and you'll also see that we've had some positive migration out of special mention in classified. The large lab loan, for example, is special mention now.

And as free rent burns off, we believe if contractual rates pay as agreed that, that will be coming out of special mention before too long. So we think our migration track record is pretty solid, and we feel the same about the deals that are in there now. And again, there's 5 that make up that disclosure.

Yes. Great. Okay. So just for my clarification purposes, you had 2 move into nonaccrual, which -- was it the $22 million that matured that triggered that? Or was it -- okay. So that one matured.

No, the $22 million did not -- the $22 million was not the one that matured. The one that matured was the $6.5 million in that space.

It is [ $6.6 million ]. Okay. So that matures. Okay. Got it. Okay. So the other one -- so the $22 million, that matures in the third quarter of '27, you said?

Yes.

Okay. And then what is the occupancy running on that one, that Class A?

It's solid. I mean it's north of 50%. And there's actually been a fair amount of leasing momentum. The move made here was more triggered by a notification of a potential lease termination for next year, but that tenant is renegotiating. So this generates a pretty material NOI, and we feel it's a solid property with a solid sponsor in a solid market. But like most sponsors, they're looking ahead and thinking about what their capital requirements are going to be. And so we're having discussions at this point on that topic.

Okay. Okay. And then just the Class B that you mentioned, just that $3.8 million that's on special mention that was new to special mention. What is the occupancy on that? And how are you thinking about a resolution there?

It's in the high-60s. It's got some solid tenants. It's a well-known sponsor to us. By the way, all of these are in our core markets in the tri-state area. And so our expectation is that we'll work something out with the sponsor and keep it on special mention as long as we need to, to make sure it's payment season and then potentially do an upgrade. So again, special mention here is sort of more just a prudential judgment to put a marker on something and watch it through its refinance process.

Okay. And then obviously, with the...

It's a fully performing loan at this point, and we expect it to continue that way, but we are being cautious as we face the maturity issue in the third quarter.

Got you. Okay. And then the last pace. So I had thought there were -- that $33 million, $34 million, I thought that was all related and then it looks like just one piece moved over. Are those 2 completely separate loans?

Two completely separate loans.

Got you. Okay. So the 6.6%, that was triggered by the maturity. What -- and that was covered here is 0. So occupancy here is 0. Am I thinking about that the right way? Or what is the occupancy.

Yes, occupancy, that building is still in its initial lease-up phase. So it doesn't -- it's 0. The other building is effectively fully leased, and it's just a matter of -- as you know, that's a very competitive market. As free rent burns off and its payments season, we expect that to come back to fully performing and pass rated.

We're just watching as tenants come out of free rent and make their payments. So there's very strong positive momentum on that one. On the other one, again, we're in a situation where it matured and we're talking to the sponsors about what's going to happen next.

Got you. Okay. And so the one that's fully leased, the $27.5 million, in other words, positive momentum happens this year, happens next year? And I guess when does that...

I'm sorry, you cut out a little bit. But if you're asking when that comes back out, again, we think it's probably within the next few quarters, we want to make sure the tenants are making their payments as agreed and that we're going to let it season a little bit and judge that. But we are feeling very solid about the leasing status and the performance status to date.

Okay. And then one last question on this loan. When does this $27.5 million mature?

That is 2029.

Okay. Okay. Great. Okay. And then -- yes, I think that answers all my questions on that. I really appreciate the details that you guys put on Page 11. And actually -- oh, I'm sorry, one more question. So you had $2.2 million of Class C that was in special mention last quarter, and now it's gone, which is great. How was that resolved? Was that sold? Or what happened there?

No, it ended up being fully leased, and it was performing all along. They were paying as agreed. But now that it's fully leased and we've gone through that process, we moved it back in the pass rated.

Perfect. Perfect. Okay. Great. Okay. So just 2 more questions. Not for you, Bill, I guess this goes back to you, Ron. Do you have the spot margin for March?

Yes, 2.59%.

2.59%. Great. Okay. And then Ned, for you, this is my last question. Buybacks, your capital levels are very, very strong and your credit, obviously, ex-office is very, very strong. You're one of the few banks in New England not repurchasing shares. Can you just help us think a little bit about your approach to buybacks and how you're thinking about it here?

Yes, Laurie, I'll take it. I mean we consider that all the time. And I think we've talked about it on previous calls. So I can make some arguments in favor of and also against doing the buybacks. Our dividend is still relatively high. The payout ratio is still relatively high. And so at this point, we maintain a buyback program, but we really are not at this point intending to be buying back shares at this point in time.

We have no further questions. I'll hand back to Ned Handy for any final comments.

Well, thank you all for joining. As we move through 2026, we remain focused on what has defined us for 226 years, pairing personalized service and local decision-making with a comprehensive suite of financial products and services. We very much look forward to the quarters ahead and sharing the news about those quarters with you as we progress. So thank you for your time today. We certainly appreciate your interest and support, and we look forward to speaking with you again soon. Have a great day, everybody.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Good morning, and welcome to Washington Trust Bancorp Inc.'s conference call. My name is Lydia, and I will be your operator today. [Operator Instructions]As a reminder, today's call is being recorded. And now I'll turn the call over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications. Please go ahead.

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's 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's Chairman and Chief Executive Officer, Ned Handy. Ned?

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 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, health care 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 1 of our islands fastest-growing communities the city of Pataka, 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?

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. Noninterest 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. Noninterest expense totaled $38 million in Q4, up by 6%. On a full year adjusted basis, noninterest 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 noninterest 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. End 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 improve. At December 31, nonaccruing loans were 25 basis points on total loans. Non-accruing commercial loans were 0. Past due loans were 22 basis points on total loans. It was 1 CRE loan passed due at December 31, and that was broke current in January. And we had net recoveries for the quarter of $160,000. And at this point, I'll turn the call back to Ned.

Thank you, Ron, and we'll now take any questions you might have.

[Operator Instructions] Our first question today comes from Mark Fitzgibbon with Piper Sandler.

I guess, first question, Ron, I'm curious how you're thinking about the margin? Do you feel like that sort of mid-250 level is kind of sustainable as we move into the early part of 2026?

I do, Mark. And 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 we fully baked in, in the third quarter.

Outside of that, if we talk about organic expansion, we're projecting 3 to 4 basis points per quarter, that is assuming no changes in the Fed funds rate. So that would bring our Q4 estimate to $278 million to $282 million.

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?

Yes. Bill, do you want to jump in on that?

Sure. Mark, we -- as you know, follow the SEC 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 it may tick up a few bps -- ticked down a few bps here or there, but we're comfortable in that mid-70% coverage range just based on our portfolio and the loss estimates for it. But it obviously is something we spend a lot of time on, and we'll be more conservative on the qual side when it's merited.

Okay. And then -- I'm sorry.

I'm sorry, Mark, I would just make 1 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 we'd like to see our residentials come down, to be honest, but that does have an impact on the weighted average reserve coverage.

Okay. Great. And then Ned, in your opening comments, 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?

Actually, Mark, I was referring specifically to the institutional banking team, which is -- 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.

SP1 Our next question comes from Damon Damonte with KBW.

I hope you're all doing well today. Just wanted to start off with kind of just kind of start off with the outlook on expenses, kind of good control going in here to year-end, kind of just wondering what your thoughts are on kind of the full year outlook and maybe any variability from a quarter-to-quarter perspective?

Yes. So Damon, I guess I'll break it salaries and benefits versus all other. In Q1, we're looking at a 6% increase in expenses, which factors in annual merit raises, which come into play at the beginning of the year, FICA resets and those types of things. But we've also made this investment in the institutional team that's coming on board. We also have, I think -- like 5% increase. And we also have the branch coming online. So that's going to add to our -- both our salary run rate as well as our expense run rate, call it, a total of $600,000 over the course of the year, starting in late summer, early fall.

Got it. Okay. Okay. Great. And then kind of can you just a little update on kind of your outlook with loan growth? Are you optimistic that we can start to get back to that low mid-single-digit range kind of given what you're seeing as well as the recent hires to the commercial lending team? I guess, yes, just some color on the outlook for loan growth would be great.

Yes. Yes. Listen, net loan growth wasn't where we wanted it to be kind of closing out the year. But we're expecting 4% to 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 we expect residential to be a net runoff like it was this year. So I would say, all in, we're looking at, 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 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.

Yes. And Damon, I would just add a little more color. 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 1 of them, but we don't expect that level of prepayment to -- early prepayment to continue. But the new team has been with us for 9 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 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.

Our next question today comes from Laurie Hunsicker with Seaport Research Partners.

Just to circle to the C&I group. Can you share with us how many people are there and how much they did last year collectively? Maybe where they...

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 -- they've had a -- the leader of the group has 30-plus years in this space in the Northeast region, very well known, and they've been highly successful at prior institutions. So yes, we're 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 this next quarter.

Okay. And where do they come from?

They were most recently at Brookline.

Got you. Okay. Got you. So then is that focused basically in the Greater Boston MSA?

I'm sorry, Laurie, ask that 1 more time?

Yes. So the loan focus, is that going to be in the Greater Boston MSA?

Northeast region. So broader than just the Boston MSA.

Got you. Okay. And then going to expenses, Ron, the 1 quarter increase -- sorry, the 6% increase for 1 quarter of fourth quarter. That's obviously netting out the comparable foundation charge. Is that correct? Or are you thinking about...

Yes.

From the $38 million?

Yes.

Okay. Okay. And then how should we think about the terrible foundation charge in '26? I think you previously guided to $500,000, but should we be thinking about...

Yes. We penciled in $750 million for the end of the year.

Okay. Great. And then I guess, branching, obviously, we've got that tucked coming. Is there anything else you're thinking about? Or should we be thinking about kind of maybe 1 branch in '27 as well? How do you think about that?

Yes. So for '26 -- Michelle Kyle, 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, 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. Laurie, we've done 1 or 2 branches a year for the last 5 years. I don't -- I think that order of magnitude is probably reasonable going forward. The form of it might be a little different.

Okay. Okay. That's great. And obviously, credit, you're probably 1 of the few banks in the entire country with -- nonperformers, 0 C&I nonperformers and booking recoveries, but just a very quick question. The $6 million of office classified, any color on that? And when does that mature?

Bill, do 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 is getting close to breakeven. I think it's just going to be a long, slow nursing process, but the sponsors are fully committed and they are building it up slowly. So we feel comfortable with what if that's why it's accruing. And by the way, it's completely current. So we think we're going to nurse our way through on this one.

Great. Great. 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% and I mean, why wouldn't you revisit buybacks here? How do you think about that?

Yes. Laurie, I think it's our kind of our standard answer that we take it under consideration all the time and taking into account 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.

Okay. And just remind me, what's existing in your current authorization?

Don't -- I don't have that information off the top or have to look that up.

And our next question comes from Ross Haberman with RLH Investments.

Could you just talk about your wealth management and what you're doing to [Audio Gap]

Help us with the various things that will come out of that client base, which is generally higher ed, health care and private schools, that sort of thing that tend to have endowments and retirement plans. So we're hopeful there. M&A, 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 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 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 smaller tuck-in transactions that again, that fit with our style of how we go to market and how we run the group. I just say...

Return on assets?

Well on wealth?

On wealth, yes -- sorry, your fee structure -- sorry, your average fees, is it somewhere between 0.5 and 100 basis points?

Yes. I would say all in, on average, it's about, I think, 60 basis points.

Yes.

Got it. Okay. I'm sorry, I cut you guys off that you were going to say something, I apologize.

No, no. You got the 60 basis points, right?

Yes, I did.

Okay. I was just going to say that we've both added some 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're -- we continue to invest in that side of the business.

And Laurie, just to follow up on your question, we had $850 million authorized, and we've got 582,000 shares remaining.

[Operator Instructions].

Thank you, Olivia, 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.

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

Good morning, and welcome to Washington Trust Bancorp, Inc.'s conference call. My name is Lydia, and I'll be your operator today.

[Operator Instructions] Today's call is being recorded.

And now I'll turn you over to Sharon Walsh, Senior Vice President, Director of Marketing and Corporate Communications to begin. Please go ahead.

Thank you, Lydia. Good morning, and welcome to Washington Trust Bancorp, Inc.'s Conference Call for the Third 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 the 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 today's host, Washington Trust's Chairman and Chief Executive Officer, Ned Handy. Ned?

Thank you, Sharon. Good morning, and thank you for joining our third quarter conference call. We respect and appreciate your time and your interest in Washington Trust. I'll briefly comment on our financial results, and then Ron will provide more details on the quarter. After our remarks, Mary and Bill will join us for the Q&A session.

This quarter, we realized net income of $10.8 million. We resolved 2 credit exposures that resulted in an elevated provision for credit losses this quarter as we detailed in an 8-K filed earlier this month. That said, we are confident in our current portfolio quality and that we will continue our long track record of strong credit performance.

This quarter, we saw strong performance across our core business lines with increases in margin, wealth revenues and mortgage revenue. We also saw in-market deposit levels increase and AUM growth. This performance underscores our continued commitment to long-term value creation. Additionally, this quarter, we made several key investments to drive growth.

We completed an asset purchase from Lighthouse Financial Management, which added AUM of approximately $195 million. This transaction also added 4 advisory and tax planning team members to our Wealth Management division. We also hired Jim Brown as Senior Executive Vice President and Chief Commercial Banking Officer. Jim has more than 38 years of experience in the financial services industry, an extensive network and a proven track record in leading high-performing commercial banking teams. He's focused on building and deepening our commercial relationships and will be working closely with our wealth division on continuing to integrate these services.

We're pleased with the direction we are headed in and excited about our investments in future growth. We look forward to continuing to build long-term relationships with our customers and support their financial service needs throughout their lives, whether they are buying a home, starting a business or investing in their future.

I'll now turn the call over to Ron for some additional details on the quarter. We'll then be glad to address any of your questions. Ron?

Okay. Thanks, Ned, and good morning, everyone. For the third quarter, we reported net income of $10.8 million or $0.56 per share compared to $13.2 million or $0.68 per share for the preceding quarter. Pre-provision pretax revenue, or PPNR, was up 17% from Q2 and 48% compared to the third quarter of last year. As previously disclosed, we resolved 2 significant credit exposures this quarter, which resulted in an elevated provision for credit losses.

Net interest income in Q3 amounted to $38.8 million, up by $1.6 million or 4% on a linked-quarter basis and by $6.6 million or 20% year-over-year. The margin was 2.40%, up by 4 basis points and up by 55 basis points compared to last year. Noninterest income comprised 31% of revenue in Q3, up 3% compared to Q2 and up 8% year-over-year. Wealth management revenues were up 3%. This includes a 6% increase in asset-based revenues in Q3, reflecting market appreciation and the purchase of $195 million of managed assets from Lighthouse Financial Management. End-of-period AUA totaled $7.7 billion, up $501 million or 7%.

Mortgage banking revenues totaled $3.5 million, up 15% for the quarter and 22% year-over-year. Noninterest expense totaled $35.7 million in Q3, down by $804,000 or 2%. Salaries and employee benefits expense was down by $351,000 or 2%, reflecting lower levels of performance-based compensation. Outsourced services declined by $284,000 or 6% due to lower third-party software costs and volume-related changes. Our full year effective tax rate is expected to be 22.5%.

Turning to the balance sheet. Total loans were down by $18 million. In-market deposits were up $179 million or 4% from the end of Q2 and up by $431 million or 9% year-over-year. Wholesale funding was down 21% compared to June and 53% compared to last September, and our loan-to-deposit ratio decreased 3.8 percentage points to 98% as of September 30.

Total equity amounted to $533 million, up by $6 million from the end of Q2. The dividend remained at $0.56 per share. In Q3, we repurchased 237,000 shares at an average price of $27.18 per share at a total cost of $6.4 million. We repurchased an additional 21,000 shares in October at $26.98 per share to complete our $7 million internal allocation to this program. The dividend yield on these repurchases was 8.26%, which will reduce dividend payouts by about $600,000 annually.

As I mentioned earlier, we resolved 2 significant credit exposures this quarter. We recorded charge-offs of $11.3 million on these loans and provided additional details in a Form 8-K filed on October 8. We have a well-established process to monitor credits and asset quality and do not believe that this quarter's results are indicative of any adverse credit trend. At September 30, nonaccruing loans were 27 basis points on total loans and were concentrated in collateralized residential and consumer loans. Nonaccruing commercial loan balances amounted to $1 million. Past due loans were 16 basis points of total loans and were essentially all collateralized residential and consumer.

Nonaccruing loans and past due loans are down 55% and 60% compared to last September. The allowance totaled $36.6 million or 71 basis points of total loans and provided NPL coverage of 261%.

And at this time, I will turn the call back to Ned.

Thank you, Ron. We'll now take any questions you might have about the quarter. Thanks, Lydia.

[Operator Instructions] Our first question today comes from Mark Fitzgibbon with Piper Sandler.

Ned, I wonder if you could share with us how much you have in remaining shared national credits, how big that book is?

Yes. I'm going to turn to Bill on that, but it's a pretty limited portfolio.

It is. It's about $173 million, and it's split between C&I and commercial real estate.

Okay. And then secondly, Bill, while I've got you, I think last quarter in response to another analyst question, you said we have appropriate specific reserves on that one credit. I think you had $2.3 million against it. What changed from then until now that caused you to have to take another $6 million charge-off on that loan?

Sure. A lot of the other bank groups were in the exact same situation. We were operating off the information we had from our agent bank and the advisers in the context of a Chapter 11. There were 2 primary means of recovery in Chapter 11, both of which were significantly reduced following the end of the quarter in terms of the outcome. So they came in at about maybe 20% or so of what was -- what the expectations have been. We had done our reserving at the end of the second quarter based on what at the time was a fairly conservative view of what the recovery might be. It turns out that was certainly erroneous. And we, along with all the other banks, ended up taking a very significant loss.

Okay. And then I guess kind of a similar question on the office building sale, it looked like the reduction in value versus -- the charge-off necessitated essentially a 70% reduction in the value of the property versus where you were carrying it last quarter. I guess I'm curious, how could you be off by that much if you had recent appraisals and valuations done on it when it went nonaccrual.

Well, as required by accounting, we had this marked to its most current appraised value less selling costs. And that happened to be about 1/3 of what this property was originally estimated to be. So we had it marked down to what the appraiser suggested was the appropriate time, even accounting for difficult market. We ended up liquidating it because we weren't seeing any positive momentum. And as you understand, it's very difficult for appraisals of office properties in this market, especially when there's not consistent demand to get the numbers right. So ultimately, we decided that instead of a series of descending appraisals based on limited information, we take an actual note sale offer and dispose of it that way. So that's why that final mark was made.

Well, then I guess I'm curious, how do you have any confidence in any of the appraisals that you have on those other office portfolios? How do you -- what makes you feel comfortable that those are good numbers?

I feel comfortable those are good numbers because there are different properties in different markets. And so when there's some leasing momentum underway, appraisal estimates tend to have more validity. The actual submarket in which the final charge-off occurred was a town in Connecticut, where there had literally been no office deals done, no office leases in the last 2 years. So that's when we decided, especially because opportunities for alternative redevelopments weren't happening, we decided to take the loss and move on.

Now I do want to also point out that, for example, we had another property in Connecticut that was also nonaccrual, happened to be related to the same borrower where we saw some momentum and we ended up recovering 90% of that with a short sale. So that's why I'm saying it's really -- it really comes down to the property and the market that it's in. And so I feel very comfortable that we're taking a conservative approach with our other office properties as well.

We've got a very active watched asset process that -- where we're going over this as a senior team intensively once every -- at least once every quarter. And so we feel comfortable with our numbers.

Okay. But in fairness, Bill, you felt comfortable last quarter with the $2.3 million reserve on that loan as well.

We did along with about $200 million worth of other bank lenders.

He was talking about the size of deal.

Got you. Okay. Just changing gears, Ron, I wondered if you could share with us what client flows were in the Wealth Management business this quarter.

Yes. No, we're not doing client flows anymore.

Okay. You're just unwilling to share that anymore with us?

Yes. We brought our disclosures in line with our peers.

Okay. Lastly, I wonder if you could share with us any thoughts on the margin.

Yes. We're looking at margin expansion in the fourth quarter of, we'll call it, 5 basis points, plus or minus.

Our next question comes from Damon DelMonte with KBW.

So first question, I just want to talk a little bit about loan growth and kind of how you're looking at your pipelines going into year-end and kind of where you think that would be tracking after kind of a flattish third quarter here?

Yes. I think, Damon, we'll stick with the sort of the low single-digit growth for the year. We did have a couple of paydowns right at the end of the quarter. The pipeline is still kind of in the $180 million range. So pretty healthy from where it started at the beginning of the year. Really excited that we brought Jim Brown on board. He's got to bring a brand-new Rolodex of opportunities, COIs and the like to the bank, and he's already busy sort of strengthening the existing team and building bridges across our various businesses. And so I'm really excited about the prospects that he brings.

But pipeline is healthy other than the formation in the quarter, actually, we had $115 million of new formation. We just had $103 million of payoffs. Some of them rather large right at the end of the quarter. So I'm going to stick with that sort of low single-digit growth, and we'll keep the pedal to the metal in the fourth quarter.

Got it. Okay. That's helpful. And then maybe one for Ron on the expense side here. With the addition of Lighthouse and then some hires that you guys have made and you kind of look at where expenses are kind of here in this last quarter, I mean, do you kind of expect things to kind of go back up towards like around a $36 million, maybe a little bit higher per quarter level once you kind of readjust for accruals and whatnot?

Yes. Yes. Yes. So Damon, I would say that the guidance that we provided in January was about $37 million per quarter, and we've been running below that pretty consistently for the first 3 quarters. We do have some timing issues. We're going to have higher levels of marketing in the fourth quarter. We're going to have a $500,000 contribution to our foundation in the fourth quarter. So I would say $37 million, which is kind of what we originally guided in January is close to where we'll be in the fourth quarter.

Got you. Okay. That's helpful. And then I guess just lastly, I hear the commentary on the buyback that you -- what you bought during the quarter plus what you bought in October got you to your $7 million internal limit. So should we not expect any more buybacks for the remainder of the year? Is that fair?

Yes. Damon, we'll always look at it. I can tell you that we did what we said we -- internally, what we said we were going to do, and we're going to take a pause right now. And we'll continue to reevaluate whether it makes sense to do more and balancing that off against redeploying our capital back into growth. So at this point in time, we have no plans to do additional share repurchases.

[Operator Instructions] We'll move to our next question from Laurie Hunticker with Seaport Research.

Sticking where Damon was on the buyback and pausing -- I mean it was so great to see you all repurchasing shares and you're still so far below your spot. And obviously, with your commercial nonperformers down to $1 million and outside of the lumps this quarter, I mean, help us think about why not buyback it's so accretive to earnings on a per share basis. What am I missing here?

Yes. Well, listen, Laurie, we are on the lower end of the range on capital ratios. We're aware of that. And we do have hiring Jim Brown coming in. It's too early to give guidance on 2026. However, we are expecting to ramp up our commercial lending. So we want to make sure that we've got appropriate capital levels to support growth. And I guess I will say, I'm not ruling out whether or not we do some more. I'm just saying at this point in time, we're going to take a pause and see what's happening.

But yes, from a credit standpoint, we actually feel pretty good having dealt with these 2 problems this quarter. Yes, Laurie, that's the best I can tell you. I mean there's arguments either way to do more or to sit tight. And for the time being, we're going to sit tight.

Got you. Okay. And then just going back to credit, the $173 million in [ SNC, ] what is the breakdown, I guess, Ron or Bill, between what's CRE and what's C&I?

There's $90 million of CRE and $84 million of C&I.

Okay. And just double checking here, NDFI exposure close to 0. How are we thinking...

No.

What is your NDFI exposure?

We don't have any NDFI exposure.

Perfect. Okay. Perfect. Okay. And then office, just switching back over. So just comparing linked quarter within that Class A bucket, and by the way, your disclosures are great, really, really appreciate it. But it looks like you had within Class A $22 million pop into special mention. And obviously, I understand what you cured, et cetera. You gave a lot of detail earlier in the month and obviously here. So it's -- but just the $22 million is not part of anything. So can you help us think about, I guess, what is that and how to think about it? What's the maturity?

Sure. That's a office building, a Class A office building, actually 2 of them in a strong suburb of Hartford. Occupancy has been at 60%. However, this was downgraded to special mention because 2 tenants are vacating. They've actually replaced those tenants, and so they will be getting back up to occupancy of 60%. They also have an LOI out, which -- for which the lease is imminent that we should get them up to a point at which it's got positive debt service coverage. Very strong sponsor.

And in addition to the discussion we had earlier about appraised values in office, it's important to understand that the sponsorship support for any given property also gives us a lot of confidence in terms of where we're valuing things. So we think this is one that like many office properties is kind of on the simmer. We don't think this is going to boil over because where it is, they're seeing a fair amount of leasing volume but we did take the downgrade as a precaution given that we knew there were some upcoming vacancies coming up.

Got you. And when -- sorry, when does this loan mature?

I'm looking at my write-up, and I can't tell you. So I'll have to let you know that offline.

Okay. That's helpful.

Not here...

Okay. That's helpful. And then just switching gears, just going back to the income statement, just 2 questions here. The first is other income within the noninterest income bucket, the $619,000, it seems like there might have been some onetime gains in that number. Am I thinking about that right? Or if so, can you?

Yes. There's a miscellaneous item of about $250,000 in there. That's correct.

Okay. Perfect. Okay. And then obviously, you worked down the wholesale, which is great. Your advances came down also. But it looks like just based on the averages, your FHLB advances came down really kind of at the end of the quarter, if I'm backing into that right. Maybe just help us think about where that's going.

Yes. So we've had strong deposit growth in the quarter. Of course, the FHLB gets paid off at maturity. So we've got staggered maturities. Most of that's pretty short term. I think you've got another $350 million maturing in the fourth quarter. So we've got kind of elevated levels of cash on deposit related to those deposit inflows. So we will just pay down the FHLB as it comes due.

Okay. Great.

The maturity on that deal we discussed, the 7-rated is October of '27. So we've got a couple of years to run on that.

Okay. And sorry, one more, just on margin, do you have the spot margin, Ron, for September?

Yes. I'll call it 243.

Thank you. We have no further questions. So I'll pass you back over to Ned Handy for any closing comments.

Thanks, Lydia. Well, this quarter, we celebrated Washington Trust's 225th birthday, which really is a milestone that reflects our enduring commitment to customers and communities. We appreciate your continued support, and thank you for your time today and look forward to speaking to you all again soon.

Thanks, everybody. Have a great day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.