Washington Trust's Institutional Banking Pivot Drives Margin Expansion and Loan Growth
New team fuels C&I growth and deposit mix; margin guided to 2.80% by Q4 as hedge benefit expires.
WASH · Earnings Call · 2026-07-21
Washington Trust Bancorp reported a strong second quarter, with net income of $16 million, up from $12.6 million in the prior quarter. But the real story is a strategic pivot: the bank is successfully transitioning its loan book away from a heavy CRE concentration toward commercial and industrial growth, led by the Institutional Banking team hired late last year. Institutional Banking has become the #1 keyword in this quarter's transcript, and for good reason — the team delivered a 17% linked-quarter surge in C&I loans, driving total commercial loan growth of 2.4%. As CEO Ned Handy put it: “Yes. The group had a great quarter. And we expect -- and commercial loans in general were up 2.4%.” — Edward Handy, Chairman and Chief Executive Officer · 2026-07-21
The pivot is deliberate and well-telegraphed. In the Q1 call, management had said: “Most of the growth is going to come from our core C&I business and our institutional banking business... 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.” — Edward Handy, Chairman and Chief Executive Officer · 2026-04-21 That pipeline is now converting. In Q2, the group's focus on not-for-profit education institutions — largely private high schools with strong deposit relationships — contributed to both loan and deposit growth. As CEO Ned Handy explained: “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.” — Edward Handy, Chairman and Chief Executive Officer · 2026-07-21
This shift matters because it changes the bank's risk and funding profile. The institutional lending self-funds at a 35% deposit rate, improving the liability mix and reducing reliance on wholesale funding. Loan-to-deposit improved from 96.9% to 95.1% during the quarter. Deposit growth was up 4% linked quarter and 6% year-over-year, a notable achievement in a competitive market.
Margin Tailwinds
The margin expansion is equally notable. NIM rose 10 basis points to 2.73%, and management guided further to 2.75% in Q3 and 2.80% in Q4. A key driver is the full amortization of a terminated hedge, which added 9 bps in Q2 and will add another 4 bps in Q3. CFO Ron Ohsberg was concise: “Yes. We're looking at, say, 2.75% for Q3 and 2.80% for Q4.” — Ronald Ohsberg, Chief Financial Officer · 2026-07-21 This is a meaningful upgrade from the prior quarter, when the swap benefit was already telegraphed: “Yes. So the swap termination will add 9 basis points in the second quarter and another 4 basis points in the third quarter.” — Ronald Ohsberg, Chief Financial Officer · 2026-04-21 The bank's mortgage book is also slowly grinding down, providing a small tailwind as higher-yielding loans amortize. The deposit mix improvement from the institutional team is expected to continue, further supporting margins.Net interest income of $41.8 million in Q2 is a continuation of a long-term uptrend; the fundamentals series shows it rising from $27M in 2016 to $41M in 2026Q1, with the latest quarter adding another $0.8M.The margin was 2.73%, up by 10 basis points from Q1 and up by 37 basis points year-over-year.