8-K: Washington Trust Q3 Earnings Hit by Credit Losses

Washington Trust Bancorp reported a decline in third quarter 2025 net income to $10.8 million, or $0.56 per diluted share, primarily due to a significant increase in credit loss provisions.

Summary

• Net income for the third quarter of 2025 was $10.8 million, or $0.56 per diluted share, down from $13.2 million, or $0.68 per diluted share, in the second quarter of 2025.
• The net interest margin expanded to 2.40% in the third quarter, an increase of 4 basis points from the preceding quarter and 55 basis points from the same quarter a year ago.
• A provision for credit losses on loans of $7.0 million was recognized for the third quarter, a substantial increase from $650 thousand in the second quarter.
• Wealth management asset-based revenues increased by 6% from the preceding quarter, with Assets Under Administration (AUA) growing 7% to $7.7 billion, partly due to the acquisition of Lighthouse Financial Management, LLC client accounts.
• Mortgage banking revenues rose by 15% from the preceding quarter and 22% compared to the same quarter a year ago, totaling $3.5 million.
• In-market deposits grew by 4% from June 30, 2025, and 9% from September 30, 2024, reaching $5.2 billion, with no wholesale brokered deposits.
• Total loans remained essentially unchanged at $5.1 billion, while nonaccrual commercial loans decreased significantly to $1.0 million from $14.0 million at June 30, 2025.
• Net charge-offs totaled $11.4 million in the third quarter, primarily due to $11.3 million in charge-offs on two commercial loan relationships, compared to $647 thousand in the preceding quarter.
• Total shareholders' equity increased by $5.5 million, or 1%, to $533.0 million, and the total risk-based capital ratio of 12.90% exceeded regulatory minimums.
• The company repurchased 236,803 shares at an average price of $27.18, totaling $6.4 million, under its stock repurchase program.

Sentiment

Score: 4

Explanation: While the company demonstrated positive operational growth in net interest income, wealth management, and deposits, the significant decline in net income and the sharp increase in credit loss provisions and net charge-offs due to specific commercial loan issues are concerning and outweigh the positives for the quarter. The resolution of the credit exposures is a positive, but the impact on earnings was substantial.

Positives

• Net interest income increased by $1.6 million, or 4%, from the second quarter of 2025, reaching $38.8 million.
• Net interest margin expanded by 4 basis points quarter-over-quarter to 2.40% and by 55 basis points year-over-year.
• Wealth management revenues increased by 3% from the preceding quarter, with asset-based revenues up 6%.
• Assets Under Administration (AUA) grew by 7% to $7.7 billion, including $195 million from the acquisition of Lighthouse Financial Management, LLC client accounts.
• Mortgage banking revenues increased by 15% from the preceding quarter and 22% year-over-year.
• In-market deposits grew by 4% from June 30, 2025, and 9% from September 30, 2024, reaching $5.2 billion.
• Nonaccrual commercial loans decreased significantly to $1.0 million from $14.0 million at June 30, 2025, following the resolution of two credit exposures.
• Past due loans decreased to $8.1 million, or 0.16% of total loans, from $14.0 million, or 0.27%, at June 30, 2025.
• Noninterest expense decreased by $804 thousand, or 2%, from the second quarter of 2025, reflecting lower performance-based compensation and third-party software costs.
• FHLB advances decreased by $210 million, or 21%, to $791 million at September 30, 2025.
• Contingent liquidity amounted to $1.8 billion at September 30, 2025, providing strong financial flexibility.
• Capital levels exceeded regulatory minimums, with a total risk-based capital ratio of 12.90%.

Negatives

• Net income decreased to $10.8 million, or $0.56 per diluted share, from $13.2 million, or $0.68 per diluted share, in the second quarter of 2025.
• Provision for credit losses on loans increased significantly to $7.0 million in the third quarter, compared to $650 thousand in the second quarter.
• Net charge-offs totaled $11.4 million in the third quarter, a substantial increase from $647 thousand in the preceding quarter, driven by two commercial loan relationships.
• A charge-off of $8.3 million was recognized on a participation in a shared national credit to a telecom infrastructure construction contractor that filed for Chapter 11 bankruptcy.
• A charge-off of $3.0 million was recognized on a nonaccrual commercial real estate loan secured by a Class B office property, which was subsequently sold.

Risks

• Changes in general business and economic conditions, including the impact of tariffs, inflation, and liquidity concerns, on a national basis and in local markets.
• Interest rate changes or volatility, as well as changes in the balance and mix of loans and deposits.
• Changes in customer behavior due to political, business, and economic conditions.
• Changes in loan demand and collectability.
• The possibility that future credit losses are higher than currently expected due to changes in economic assumptions or adverse economic developments.
• Ongoing volatility in national and international financial markets.
• Reductions in the market value or outflows of wealth management Assets Under Administration (AUA).
• Decreases in the value of securities and other assets.
• Increases in defaults and charge-off rates.
• Changes in the size and nature of competition.
• Changes in, and evolving interpretations of, existing and future laws, rules, and regulations.
• Changes in accounting principles, policies, and guidelines.
• Operational risks including, but not limited to, changes in information technology, cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest, and future pandemics.
• Regulatory, litigation, and reputational risks.
• Changes in the assumptions used in making forward-looking statements.

Future Outlook

The Corporation expects its full-year 2025 effective tax rate to be approximately 22.5%. The remaining carrying value of $1.0 million from a commercial loan relationship with a telecom infrastructure construction contractor is expected to be collected in the fourth quarter of 2025.

Management Comments

• Edward O. Ned Handy III, Chairman and CEO, stated: "In the third quarter we expanded our net interest income and margin, grew our wealth management and mortgage banking revenues, delivered strong in-market deposit growth, and prudently managed expenses."
• Handy also noted: "We made several significant investments to drive future growth, including hiring a new senior executive with an extensive network and proven track record to lead our commercial banking division, and purchasing the client accounts of Lighthouse Financial Management, LLC, which added approximately $195 million of managed assets."
• Regarding credit quality, Handy commented: "In addition, while we resolved two significant credit exposures this quarter, we are confident in our current portfolio quality and that we will continue our long track record of strong credit performance."
• Handy emphasized: "Our long-standing reputation as a trusted financial partner in New England is built on a deep commitment to customer relationships. We take pride in delivering personalized, convenient service – the foundation of relationship banking – through life’s most important financial moments. This approach not only strengthens our community ties but also drives long-term value for our shareholders."

Industry Context

Washington Trust's performance reflects a mixed environment for regional banks. The expansion of net interest income and margin, coupled with robust in-market deposit growth, indicates effective asset-liability management and strong customer relationships in a competitive market. However, the significant increase in credit loss provisions and charge-offs, particularly from commercial loans in specific sectors like telecom infrastructure and Class B office properties, highlights ongoing credit quality pressures that some financial institutions are facing. The strategic investments in wealth management and commercial banking leadership align with broader industry trends of diversifying revenue streams and strengthening core business lines to drive future growth.

Management Changes

Stakeholder Impact

• Shareholders: Experienced a decrease in net income and diluted EPS, but received a consistent quarterly dividend of 56 cents per share. The company also engaged in a stock repurchase program, buying back 236,803 shares.
• Customers: The company emphasized its deep commitment to customer relationships and delivering personalized, convenient service, aiming to strengthen community ties and drive long-term value.
• Employees: Salaries and employee benefits expense decreased, reflecting lower levels of performance-based compensation.
• Creditors: The company maintained strong capital levels, exceeding regulatory minimums, and reduced FHLB advances, indicating a solid financial position.

Next Steps

• Host a conference call on Tuesday, October 21, 2025, at 8:30 a.m. (Eastern Time) to discuss third quarter results, business highlights, and outlook.
• An audio replay of the conference call will be available through November 4, 2025.
• A webcast of the conference call will be posted in the Investor Relations section of Washington Trust's website and will be available through December 31, 2025.
• Expects the remaining $1.0 million carrying value of the telecom loan relationship to be collected in the fourth quarter of 2025.

Key Dates

Recommendation

While Washington Trust demonstrated positive operational trends such as net interest income growth, margin expansion, and strong in-market deposit growth, the significant increase in credit loss provisions and net charge-offs, leading to a notable decline in net income, presents a mixed financial picture. The resolution of two significant credit exposures is positive for future asset quality, but the immediate impact on earnings was substantial. The company's strategic investments and robust capital position provide stability, but investors should monitor credit quality trends closely. Given the balance of operational strengths and credit challenges, a 'hold' recommendation is appropriate as the company navigates these issues.

Keywords

Washington Trust, WASH, Banking, Financial Services, Q3 2025 Earnings, Net Income, Credit Losses, Net Interest Margin, Wealth Management, Mortgage Banking, Deposits, Loans, Commercial Banking, Rhode Island, Connecticut, Massachusetts