WESTERLY –
Washington Trust Bancorp Inc. executives called two recent commercial loan charge-offs totaling $11.4 million isolated setbacks after reporting a 2% dip in third-quarter profit in
its earnings report.
A year ago, third-quarter charge-offs for the Westerly-based bank – the process of giving up on collecting a debt and officially recording a loss – totaled $59,000.
Such a spike can be an indicator of the flagging financial health of borrowers or a slowing of the wider economy, but Washington Trust CEO Edward O. “Ned” Handy III said Tuesday that the sharp increase in year-over-year charge-offs stemmed from two loans – an $8.3 million loss on a telecom contractor’s bankruptcy and a $3 million charge related to the sale of a long-vacant Class B office property.
“These losses are unusual for us,” Handy said. “If you looked at our gross charge-offs for the last five fiscal years ending in 2024, we averaged about $1 million a year. We don’t have any other loans in our portfolio that look like these.”
One of the charge-offs was related to an office property in Connecticut, which had suffered from longstanding vacancies and no new leasing activity in two years. Handy called it the bank’s “only COVID office casualty.”
“We made a decision to exit the credit through a note sale,” Handy said. “It was a big adjustment, but we chose to get it behind us and move on.”
The second charge-off stemmed from a shared national credit outside the bank’s core lending strategy, which Handy described as an outlier. Washington Trust had the smallest stake in that syndicated deal, he said.
The bank also hiked its credit-loss provision – the amount set aside in anticipation of bad loans – to $2.6 million in the third quarter, up substantially from $200,000 in the year-ago period.
Despite the write-offs, Washington Trust Chief Financial Officer Ron Ohsberg emphasized the bank's strong track record.
“We feel very comfortable with the credit quality in our portfolio heading into the fourth quarter,” Ohsberg said.
On Monday, the bank – Rhode Island's third largest in terms of deposit market share – reported
a third-quarter profit of $10.8 million, down 2%
compared with $11 million in the same period a year ago.
One of the more notable metrics in the third-quarter earnings report was the 55-basis-point year-over-year increase in net interest margin to 2.40%. Ohsberg attributed that improvement in part to the bank’s strategic sale of low-yielding residential mortgages and securities in December 2024. The bank took a $70 million loss in that sale to see better future earnings.
“We expected 38 to 40 basis points of benefit from the restructure,” Ohsberg said. “The rest has been organic margin improvement.”
Washington Trust also saw a boost in mortgage banking revenue, which President and Chief Operating Officer Mary Noons tied to a strategic reset last year.
The bank has shifted from retaining most residential loans in its portfolio to selling a greater share on the secondary market – around 70% currently – a return to its pre-COVID model.
“That reset is paying off, but results are also seasonal,” Noons said. “There’s a delay between origination and sale, so gains in the third quarter were tied to second quarter originations.”
Meanwhile, total deposits reached $5.22 billion in the quarter, up from $5.17 billion the year prior, a 1% increase attributed to strong in-market growth rather than brokered deposits.
Handy credited the gain to renewed marketing efforts, new branch openings and technology improvements.
“We’re seeing solid growth, especially in our newer branches,” Handy said. Washington Trust most recently
opened its 28th branch in the Olneyville section of Providence in September 2024.
Looking ahead, Handy also touted the hiring of James C. Brown as head of the commercial banking division. Brown, a veteran of Boston Private and Berkshire Bank, brings more than 30 years of experience in the Greater Boston market and is expected to bolster the bank’s commercial and industrial lending growth.
Matthew McNulty is a PBN staff writer. He can be reached at McNulty@PBN.com or on X at @MattMcNultyNYC.
