What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-04 compared with 2020-08-06 · 688 added, 405 removed, 1234 unchanged (47% of the section changed)

4 unchanged sentences

(Dollars in thousands, except par value)

September 30,

2020 December 31,

Cash and due from banks $ 204,113 $ 132,193

1 unchanged sentence

Mortgage loans held for sale, at fair value

68,095 27,833

Available for sale debt securities, at fair value (amortized cost $ 899,839 ;

net of allowance for credit losses on securities of $0 at June 30, 2020)

net of allowance for credit losses on securities of $ 0 at September 30, 2020)

913,850 899,490

Federal Home Loan Bank stock, at cost 37,469 50,853

4,282,047 3,892,999

allowance for credit losses on loans

42,645 27,014

4,239,402 3,865,985

Premises and equipment, net 27,711 28,700

1 unchanged sentence

Investment in bank-owned life insurance 83,623 82,490

Goodwill 63,909 63,909

Identifiable intangible assets, net 6,530 7,218

Other assets 167,327 100,934

$ 5,849,792 $ 5,292,659

Noninterest-bearing deposits

$ 840,444 $ 609,924

Interest-bearing deposits

3,445,249 2,888,958

Total deposits

4,285,693 3,498,882

Federal Home Loan Bank advances 713,868 1,141,464

4 unchanged sentences

Total liabilities

5,322,099 4,789,167

Commitments and contingencies (Note 18)

2 unchanged sentences

authorized 60,000,000 shares;

17,363,457 shares issued and 17,260,217 shares outstanding at June 30, 2020 and 17,363,455 shares issued and outstanding at December 31, 2019

17,363,457 shares issued and 17,260,219 shares outstanding at September 30, 2020 and 17,363,455 shares issued and outstanding at December 31, 2019

Paid-in capital 124,768 123,281

2 unchanged sentences

Treasury stock, at cost;

103,240 shares at June 30, 2020

103,238 shares at September 30, 2020

Total shareholders’ equity

527,693 503,492

Total liabilities and shareholders’ equity

$ 5,849,792 $ 5,292,659

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3 unchanged sentences

(Dollars and shares in thousands, except per share amounts)

Periods ended June 30,

Three Months Nine Months

Periods ended September 30, 2020 2019 2020 2019

Interest income:

Interest and fees on loans

$ 34,925 $ 41,558 $ 110,938 $ 125,440

Interest on mortgage loans held for sale

468 410 1,193 878

Taxable interest on debt securities

4,870 6,318 16,181 20,550

Nontaxable interest on debt securities

Dividends on Federal Home Loan Bank stock

532 747 1,826 2,162

Other interest income

39 493 424 1,232

Total interest and dividend income

40,834 49,527 130,562 150,280

Interest expense:

5,532 9,792 21,180 27,957

Federal Home Loan Bank advances

3,354 6,512 13,501 20,153

Junior subordinated debentures

135 245 519 750

Other interest expense

Total interest expense

9,180 16,549 35,361 48,860

Net interest income 31,654 32,978 95,201 101,420

3 unchanged sentences

Wealth management revenues

8,954 9,153 26,248 27,954

Mortgage banking revenues

12,353 4,840 33,300 11,126

Card interchange fees

1,161 1,099 3,139 3,114

Service charges on deposit accounts

598 939 1,975 2,743

Loan related derivative income

1,264 1,407 3,818 2,877

Income from bank-owned life insurance

567 569 1,922 1,784

Net realized losses on securities

571 335 1,313 944

Total noninterest income

25,468 18,342 71,715 50,462

Noninterest expense:

Salaries and employee benefits

21,892 18,332 60,824 54,387

Outsourced services

3,160 2,722 8,944 7,846

Net occupancy

2,012 1,933 5,940 5,835

934 1,046 2,806 3,085

Legal, audit and professional fees

1,252 645 2,733 1,843

FDIC deposit insurance costs

392 ( 460 ) 1,488 509

Advertising and promotion

384 368 829 1,132

Amortization of intangibles

228 236 688 714

Other expenses

2,090 2,048 7,023 6,634

Total noninterest expense

32,344 26,870 91,275 81,985

Income before income taxes 23,453 24,050 65,080 68,322

Income tax expense 5,131 5,236 13,817 14,740

$ 18,322 $ 18,814 $ 51,263 $ 53,582

Net income available to common shareholders $ 18,285 $ 18,778 $ 51,154 $ 53,477

9 unchanged sentences

(Dollars in thousands)

Periods ended June 30,

Three Months Nine Months

Periods ended September 30, 2020 2019 2020 2019

Net income $ 18,322 $ 18,814 $ 51,263 $ 53,582

Other comprehensive income (loss), net of tax:

Net change in fair value of available for sale debt securities

( 3,505 ) 2,886 7,493 19,940

Net change in fair value of cash flow hedges

154 ( 171 ) ( 888 ) ( 1,235 )

Net change in defined benefit plan obligations

410 227 1,229 680

Total other comprehensive (loss) income, net of tax

( 2,941 ) 2,942 7,834 19,385

Total comprehensive income $ 15,381 $ 21,756 $ 59,097 $ 72,967

4 unchanged sentences

(Dollars and shares in thousands)

For the three months ended June 30, 2020

Shares Outstanding

For the three months ended September 30, 2020 Common

Shares Outstanding Common

Stock Paid-in

Capital Retained

Earnings Accumulated

Comprehensive

Income (Loss)

Treasury Stock

Balance at March 31, 2020

Loss Treasury Stock Total

Balance at June 30, 2020 17,260 $ 1,085 $ 123,684 $ 399,386 ($ 462 ) ($ 3,530 ) $ 520,163

— — — 18,322 — — 18,322

Total other comprehensive loss

— — — — ( 2,941 ) — ( 2,941 )

Cash dividends declared ($ 0.51 per share)

— — — ( 8,935 ) — — ( 8,935 )

Share-based compensation — — 1,083 — — — 1,083

Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered

Balance at June 30, 2020

For the six months ended June 30, 2020

Shares Outstanding

— — 1 — — — 1

Balance at September 30, 2020 17,260 $ 1,085 $ 124,768 $ 408,773 ($ 3,403 ) ($ 3,530 ) $ 527,693

For the nine months ended September 30, 2020 Common

Shares Outstanding Common

Stock Paid-in

Capital Retained

Earnings Accumulated

Comprehensive

(Loss) Income

Treasury Stock

(Loss) Income Treasury Stock Total

Balance at December 31, 2019 17,363 $ 1,085 $ 123,281 $ 390,363 ($ 11,237 ) $ — $ 503,492

Cumulative effect of change in accounting principle - Topic 326 — — — ( 6,108 ) — — ( 6,108 )

— — — 51,263 — — 51,263

Total other comprehensive income

— — — — 7,834 — 7,834

Cash dividends declared ($ 1.53 per share)

— — — ( 26,745 ) — — ( 26,745 )

Share-based compensation — — 2,696 — — — 2,696

Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered

22 — ( 1,209 ) — — 792 ( 417 )

Treasury stock purchased under 2019 Stock Repurchase Program ( 125 ) — — — — ( 4,322 ) ( 4,322 )

Balance at June 30, 2020

Balance at September 30, 2020 17,260 $ 1,085 $ 124,768 $ 408,773 ($ 3,403 ) ($ 3,530 ) $ 527,693

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3 unchanged sentences

(Dollars and shares in thousands)

For the three months ended June 30, 2019

Shares Outstanding

For the three months ended September 30, 2019 Common

Shares Outstanding Common

Stock Paid-in

Capital Retained

Earnings Accumulated

Comprehensive

(Loss) Income

Treasury Stock

Balance at March 31, 2019

(Loss) Income Treasury Stock Total

Balance at June 30, 2019 17,336 $ 1,083 $ 121,115 $ 373,873 ($ 11,866 ) $ — $ 484,205

— — — 18,814 — — 18,814

Total other comprehensive income

— — — — 2,942 — 2,942

Cash dividends declared ($ 0.51 per share)

— — — ( 8,922 ) — — ( 8,922 )

Share-based compensation — — 792 — — — 792

Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered

Balance at June 30, 2019

For the six months ended June 30, 2019

Shares Outstanding

2 1 ( 7 ) — — — ( 6 )

Balance at September 30, 2019 17,338 $ 1,084 $ 121,900 $ 383,765 ($ 8,924 ) $ — $ 497,825

For the nine months ended September 30, 2019 Common

Shares Outstanding Common

Stock Paid-in

Capital Retained

Earnings Accumulated

Comprehensive

(Loss) Income

Treasury Stock

(Loss) Income Treasury Stock Total

Balance at December 31, 2018 17,302 $ 1,081 $ 119,888 $ 355,524 ($ 28,309 ) $ — $ 448,184

Cumulative effect of change in accounting principle - Topic 842 — — — 722 — — 722

— — — 53,582 — — 53,582

Total other comprehensive income

— — — — 19,385 — 19,385

Cash dividends declared ($ 1.49 per share)

— — — ( 26,063 ) — — ( 26,063 )

Share-based compensation — — 2,295 — — — 2,295

Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered

Balance at June 30, 2019

36 3 ( 283 ) — — — ( 280 )

Balance at September 30, 2019 17,338 $ 1,084 $ 121,900 $ 383,765 ($ 8,924 ) $ — $ 497,825

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3 unchanged sentences

(Dollars in thousands)

Six months ended June 30,

Nine months ended September 30, 2020 2019

Cash flows from operating activities:

$ 51,263 $ 53,582

Adjustments to reconcile net income to net cash provided by operating activities:

6 unchanged sentences

Income from bank-owned life insurance

( 1,922 ) ( 1,784 )

Net gains on loan sales, including fair value adjustments

( 33,799 ) ( 10,749 )

Net realized losses on securities

Proceeds from sales of loans, net

586,677 365,057

Loans originated for sale

( 599,789 ) ( 380,635 )

(Increase) decrease in operating lease right-of-use assets

( 3,069 ) 1,422

Increase (decrease) in operating lease liabilities

3,151 ( 1,312 )

Increase in other assets

( 67,262 ) ( 41,239 )

Increase in other liabilities

62,634 42,575

Net cash provided by operating activities

18,178 37,374

Cash flows from investing activities:

3 unchanged sentences

Available for sale debt securities:

Other ( 129,000 ) ( 10,507 )

Proceeds from sale of:

4 unchanged sentences

Available for sale debt securities:

Other 140,500 51,135

Net redemption (purchases) of Federal Home Loan Bank stock

Net increase in loans

( 332,850 ) ( 92,135 )

Purchases of loans

( 51,081 ) ( 7,324 )

Proceeds from the sale of property acquired through foreclosure or repossession

Purchases of premises and equipment

( 1,331 ) ( 2,768 )

Proceeds from surrender of bank-owned life insurance

Equity investment in real estate limited partnership

Net cash used in investing activities

( 378,173 ) ( 27,312 )

Cash flows from financing activities:

Net increase (decrease) in deposits

Net increase in deposits 786,811 62,105

Proceeds from Federal Home Loan Bank advances

1,592,500 1,334,000

Repayment of Federal Home Loan Bank advances

( 2,020,096 ) ( 1,327,936 )

Proceeds from Payment Protection Program Lending Facility

Repayment of Payment Protection Program Lending Facility ( 94,882 ) —

Treasury stock purchased

Net proceeds from stock option exercises and issuance of other equity awards, net of awards surrendered

( 417 ) ( 280 )

Cash dividends paid

( 26,667 ) ( 25,322 )

Net cash provided by financing activities

433,555 42,567

Net increase in cash and cash equivalents

73,560 52,629

Cash and cash equivalents at beginning of period

138,455 93,475

Cash and cash equivalents at end of period

$ 212,015 $ 146,104

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3 unchanged sentences

(Dollars in thousands)

Six months ended June 30,

Nine months ended September 30, 2020 2019

Noncash Activities:

Loans charged off

$ 1,072 $ 1,888

Loans transferred to property acquired through foreclosure or repossession

6 unchanged sentences

Interest payments

$ 36,868 $ 47,168

Income tax payments

15,039 14,531

The accompanying notes are an integral part of these unaudited consolidated financial statements.

21 unchanged sentences

The COVID-19 pandemic has caused an unprecedented disruption to the economy and the communities we serve.

In response, we are committed to working with and supporting our customers experiencing financial difficulty due to the COVID-19 pandemic, including loan payment deferrals and participation in the Small Business Administration's (“SBA’s”) Paycheck Protection Program (“PPP”).

government and regulatory agencies have taken several actions to provide support to the U.S.

Most notably, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), a $2 trillion stimulus bill, was signed into law on March 27, 2020.

The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.

The CARES Act also includes extensive emergency funding for hospitals and providers.

In addition to the general impact of the COVID-19 pandemic, certain provisions of the CARES Act, as well as other recent legislative and regulatory relief efforts, are expected to have a material impact on the Corporation’s operations.

The goal of the CARES Act was to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.

The CARES Act also included extensive emergency funding for hospitals and providers.

In addition to the general impact of the COVID-19 pandemic, certain provisions of the CARES Act, as well as other recent legislative and regulatory relief efforts, could have a material impact on the Corporation’s operations.

Also, the actions of the Board of Governors of the Federal Reserve System (the “FRB”) to combat the economic contraction caused by the COVID-19 pandemic, including the reduction of the target federal funds rate and quantitative easing programs, could, if prolonged, adversely affect the Corporation’s net interest income and margins, and profitability.

While it is not possible to know the full extent of these impacts as of the date of this filing, detailed below are potentially material items of which we are aware.

As noted above, net interest income could be reduced.

In accordance with regulatory guidance, Washington Trust is actively working with borrowers impacted by the COVID-19 pandemic to defer payments.

While interest will continue to be recognized in accordance with GAAP, should eventual credit losses on these deferments emerge, interest income would be negatively impacted.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The provision for credit losses could increase.

Continued uncertainty regarding the severity and duration of the COVID-19 pandemic and related economic effects will continue to affect the accounting for credit losses.

It also is possible that asset quality could worsen, expenses associated with collection efforts could increase and loan charge-offs could increase.

Washington Trust is actively participating in the SBA’s PPP, providing loans to small businesses negatively impacted by the COVID-19 pandemic.

Washington Trust is participating in the Small Business Administration's (“SBA’s”) Paycheck Protection Program (“PPP”), providing loans to small businesses negatively impacted by the COVID-19 pandemic.

PPP loans are fully guaranteed by the U.S.

government, if that should change, Washington Trust could be required to increase its allowance for credit losses through an additional provision for credit losses charged to earnings.

PPP loans amounted to $ 212.2 million as of June 30, 2020 .

Valuation and fair value measurement challenges may occur.

As of June 30, 2020, the Corporation had $ 63.9 million in goodwill, of which $ 41.3 million was allocated to the Wealth Management Service s reporting unit and $ 22.6 million was allocated to the Commercial Banking reporting unit.

Goodwill represents the excess of the purchase price over the net fair value of the acquired businesses.

In the first quarter of 2020, management performed an interim impairment assessment on goodwill as a result of changes in the macroeconomic environment resulting from the COVID-19 pandemic.

The results of that interim impairment assessment indicated that the remaining fair value significantly exceeded the carrying value for both reporting units.

Management has also taken into consideration events and circumstances that arose since the interim assessment and has concluded that it is more-likely-than-not that the fair value of both reporting units continue to exceed their carrying value.

The COVID-19 pandemic could cause a further or sustained decline in the Corporation’s stock price or the occurrence of additional valuation triggering events that could result in an impairment charge to earnings.

PPP loans amounted to $ 216.8 million as of September 30, 2020.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The extent to which the COVID-19 pandemic will continue to impact the Corporation’s business, results of operations, and financial condition, as well as regulatory capital and liquidity ratios, will depend on future developments, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions the Corporation may take as may be required by government authorities or that the Corporation determines is in the best interests of its employees and customers.

2 unchanged sentences

Accounting Standards Adopted in 2020

Financial Instruments - Credit Losses - Topic 326

Accounting Standards Update No.

7 unchanged sentences

This ASU was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019.

The Corporation adopted ASU 2016-13, including the subsequent ASUs issued to clarify Topic 326 (“Topic 326”), on January 1, 2020.

The Corporation adopted ASU 2016-13, including the subsequent ASUs issued to clarify Topic 326, on January 1, 2020.

The Corporation assembled a cross-functional project team that met regularly to address the additional data requirements, to determine the approach for implementation and to identify new internal controls over enhanced accounting processes for estimating the allowance for credit losses (“ACL”).

4 unchanged sentences

The increases in the ACL on loans and unfunded commitments upon adoption resulted in a one-time cumulative-effect adjustment that decreased retained earnings by $ 6.1 million, net of deferred tax balances of $ 1.9 million.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The Corporation has elected the five-year phase-in option, provided by regulatory guidance issued by the Federal Deposit Insurance Corporation (“FDIC”) in March 2020, which delays the estimated impact of Topic 326 on regulatory capital for the first two years and then phases it in over a three-year period beginning in 2022.

The Corporation elected the five-year phase-in option, provided by regulatory guidance issued by the Federal Deposit Insurance Corporation (“FDIC”) in March 2020, which delays the estimated impact of Topic 326 on regulatory capital for the first two years and then phases it in over a three-year period beginning in 2022.

See Note 8 for additional disclosure on regulatory capital.

5 unchanged sentences

The Corporation adopted the provisions of ASU 2018-13 effective January 1, 2020 and the adoption did not have a material impact on the Corporation’s consolidated financial statements.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Intangibles - Goodwill and Other - Internal-Use Software - Topic 350

27 unchanged sentences

ASU 2020-04 also provides numerous optional expedients for hedge accounting.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The Corporation has assembled a cross-functional project team that meets periodically to discuss the approach for implementing ASU 2020-04.

The Corporation has assembled a cross-functional project team that meets periodically to discuss the implementation of ASU 2020-04.

The Corporation has completed an inventory of contracts that reference LIBOR and is currently reviewing underlying documents and contracts, as well as assessing the risks with the transition to a new reference rate.

1 unchanged sentence

Once elected, the amendments must be applied prospectively for all eligible contract modifications.

The Corporation is currently evaluating the effect that this ASU will have on the Corporation’s consolidated financial statements.

The Corporation has not yet adopted ASU 2020-04 and is currently evaluating the effect that this ASU will have on the Corporation’s consolidated financial statements.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Receivables - Topic 310

Accounting Standards Update No.

2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs” (“ASU 2020-08”), was issued in October 2020 to provide further clarification and update the previously issued guidance in ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20:

Premium Amortization on Purchased Callable Debt Securities” (“ASU 2017-08”).

ASU 2017-08 shortened the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date.

The Corporation early adopted the provisions of ASU 2017-08, effective January 1, 2017.

ASU 2020-08 requires that at each reporting period, to the extent that the amortized cost of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess premium shall be amortized to the next call date.

ASU 2020-08 is effective for fiscal years ending after December 15, 2020 and early adoption is not permitted.

The provisions under ASU 2020-08 are required to be applied prospectively.

The adoption of ASU 2020-08 is not expected to have a material impact on the Corporation’s consolidated financial statements.

Note 3 - Cash and Due from Banks

3 unchanged sentences

At December 31, 2019, the reserve balance was $ 27.9 million and was included in cash and due from banks in the Unaudited Consolidated Balance Sheets.

As of June 30, 2020 and December 31, 2019 , cash and due from banks includes interest-bearing deposits in other banks of $ 161.7 million and $ 83.4 million , respectively.

As of September 30, 2020 and December 31, 2019, cash and due from banks includes interest-bearing deposits in other banks of $ 162.8 million and $ 83.4 million, respectively.

See Note 9 for additional disclosure regarding cash collateral pledged to derivative counterparties.

9 unchanged sentences

The Corporation also excludes accrued interest from the estimate of credit losses.

Accrued interest receivable on available for sale debt securities totaled $ 2.7 million and $ 2.9 million , respectively, as of June 30, 2020 and December 31, 2019 .

Accrued interest receivable on available for sale debt securities totaled $ 2.5 million and $ 2.9 million, respectively, as of September 30, 2020 and December 31, 2019.

A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain.

Accrued interest for a debt security placed on nonaccrual is reversed against interest income.

There were no debt securities on nonaccrual status and therefore there was no accrued interest related to debt securities reversed against interest income for the three and six months ended June 30, 2020 and 2019.

There were no debt securities on nonaccrual status and therefore there was no accrued interest related to debt securities reversed against interest income for the three and nine months ended September 30, 2020 and 2019.

For available for sale debt securities in an unrealized loss position, management first assesses whether the Corporation intends to sell, or if it is likely that the Corporation will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through a provision for credit losses charge to earnings.

For debt securities available for sale that do not meet either these criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors.

For debt securities available for sale that do not meet either of these criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers both quantitative and qualitative factors.

3 unchanged sentences

These securities are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major credit rating agencies and have a long history of no credit losses.

government, are highly rated by major credit rating agencies and have a long

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

history of no credit losses.

For these securities, management takes into consideration the long history of no credit losses and other factors to assess the risk of nonpayment even if the U.S.

3 unchanged sentences

government agencies and U.S.

government-sponsored enterprises, such as individual name issuer trust preferred debt securities and corporate bonds, management utilizes a third party credit modeling tool based on observable market data, which assists management in identifying

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

any potential credit risk associated with its available for sale debt securities.

This model estimates probability of default, loss given default and exposure at default for each security.

7 unchanged sentences

(Dollars in thousands)

June 30, 2020

Amortized Cost

Unrealized Gains

Unrealized Losses

Allowance for Credit Losses

September 30, 2020 Amortized Cost Unrealized Gains Unrealized Losses Allowance for Credit Losses Fair Value

Available for Sale Debt Securities:

1 unchanged sentence

government-sponsored enterprises

$ 145,778 $ 1,058 ($ 296 ) $ — $ 146,540

Mortgage-backed securities issued by U.S.

1 unchanged sentence

government-sponsored enterprises

729,575 16,239 ( 743 ) — 745,071

Individual name issuer trust preferred debt securities

13,336 — ( 973 ) — 12,363

Corporate bonds

11,150 — ( 1,274 ) — 9,876

Total available for sale debt securities $ 899,839 $ 17,297 ($ 3,286 ) $ — $ 913,850

1 unchanged sentence

(Dollars in thousands)

December 31, 2019

Amortized Cost

Unrealized Gains

Unrealized Losses

December 31, 2019 Amortized Cost Unrealized Gains Unrealized Losses Fair Value

Available for Sale Debt Securities:

1 unchanged sentence

government-sponsored enterprises

$ 157,255 $ 626 ($ 233 ) $ 157,648

Mortgage-backed securities issued by U.S.

1 unchanged sentence

government-sponsored enterprises

713,553 8,491 ( 2,964 ) 719,080

Individual name issuer trust preferred debt securities

13,324 — ( 745 ) 12,579

Corporate bonds

11,141 — ( 958 ) 10,183

Total available for sale debt securities $ 895,273 $ 9,117 ($ 4,900 ) $ 899,490

As of June 30, 2020 and December 31, 2019 , debt securities with a fair value of $ 353.1 million and $ 431.9 million , respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRB’s discount window, certain public deposits and for other purposes.

As of September 30, 2020 and December 31, 2019, debt securities with a fair value of $ 312.2 million and $ 431.9 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRB’s discount window, certain public deposits and for other purposes.

See Note 7 for additional disclosure on FHLB borrowings.

4 unchanged sentences

Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)

Available for Sale

June 30, 2020

Amortized Cost

(Dollars in thousands) Available for Sale

September 30, 2020 Amortized Cost Fair Value

Due in one year or less $ 103,108 $ 105,289

Due after one year to five years

314,187 320,191

Due after five years to ten years

304,576 307,688

Due after ten years

177,968 180,682

Total debt securities

Included in the above table are debt securities with an amortized cost balance of $ 178.4 million and a fair value of $ 176.0 million at June 30, 2020 that are callable at the discretion of the issuers.

Final maturities of the callable securities range from 3 years to 17 years, with call features ranging from 1 month to 1 year.

$ 899,839 $ 913,850

Included in the above table are debt securities with an amortized cost balance of $ 169.0 million and a fair value of $ 167.4 million at September 30, 2020 that are callable at the discretion of the issuers.

Final maturities of the callable securities range from 4 years to 16 years, with call features ranging from 1 month to 2 years.

The following table summarizes amounts relating to sales of securities:

(Dollars in thousands)

For the periods ended June 30,

(Dollars in thousands) Three Months Nine Months

For the periods ended September 30, 2020 2019 2020 2019

Proceeds from sales $ — $ — $ — $ 9,920

7 unchanged sentences

For the accounting policy on the assessment of available for sale debt securities for impairment that was in effect prior to the adoption of Topic 326 on January 1, 2020, see Note 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The following table summarizes available for sale debt securities in an unrealized loss position for which an allowance for credit losses on securities has not been recorded at June 30, 2020 , segregated by length of time the securities have been in a continuous unrealized loss position:

(Dollars in thousands)

Less than 12 Months

12 Months or Longer

June 30, 2020

The following table summarizes available for sale debt securities in an unrealized loss position for which an allowance for credit losses on securities has not been recorded at September 30, 2020, segregated by length of time the securities have been in a continuous unrealized loss position:

(Dollars in thousands) Less than 12 Months 12 Months or Longer Total

September 30, 2020 # Fair

Value Unrealized

Losses # Fair

Value Unrealized

Losses # Fair

Value Unrealized

Obligations of U.S.

government-sponsored enterprises 4 $ 43,704 ($ 296 ) — $ — $ — 4 $ 43,704 ($ 296 )

Mortgage-backed securities issued by U.S.

1 unchanged sentence

government-sponsored enterprises

16 148,609 ( 743 ) — — — 16 148,609 ( 743 )

Individual name issuer trust preferred debt securities

— — — 5 12,363 ( 973 ) 5 12,363 ( 973 )

Corporate bonds — — — 3 9,876 ( 1,274 ) 3 9,876 ( 1,274 )

20 $ 192,313 ($ 1,039 ) 8 $ 22,239 ($ 2,247 ) 28 $ 214,552 ($ 3,286 )

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following tables summarize temporarily impaired securities, segregated by length of time the securities have been in a continuous unrealized loss position:

(Dollars in thousands)

Less than 12 Months

12 Months or Longer

December 31, 2019

(Dollars in thousands) Less than 12 Months 12 Months or Longer Total

December 31, 2019 # Fair

Value Unrealized

Losses # Fair

Value Unrealized

Losses # Fair

Value Unrealized

Obligations of U.S.

government-sponsored enterprises

3 $ 20,364 ($ 136 ) 3 $ 49,902 ($ 97 ) 6 $ 70,266 ($ 233 )

Mortgage-backed securities issued by U.S.

1 unchanged sentence

government-sponsored enterprises

4 41,150 ( 56 ) 23 216,804 ( 2,908 ) 27 257,954 ( 2,964 )

Individual name issuer trust preferred debt securities

— — — 5 12,579 ( 745 ) 5 12,579 ( 745 )

Corporate bonds — — — 3 10,183 ( 958 ) 3 10,183 ( 958 )

7 $ 61,514 ($ 192 ) 34 $ 289,468 ($ 4,708 ) 41 $ 350,982 ($ 4,900 )

Further deterioration in credit quality of the underlying issuers of the securities, deterioration in the condition of the financial services industry, worsening of the current economic environment, or additional declines in real estate values, among other things, may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as credit losses, and the Corporation may incur write-downs.

8 unchanged sentences

government-sponsored enterprises.

The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at June 30, 2020 .

The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at September 30, 2020.

Management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality.

1 unchanged sentence

Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity.

Therefore, no allowance for credits losses on securities was recorded at June 30, 2020 .

Therefore, no allowance for credits losses on securities was recorded at September 30, 2020.

Individual Name Issuer Trust Preferred Debt Securities

Included in debt securities in an unrealized loss position at June 30, 2020 were five trust preferred securities issued by four individual companies in the banking sector.

Included in debt securities in an unrealized loss position at September 30, 2020 were five trust preferred securities issued by four individual companies in the banking sector.

Based on the information available through the filing date of this report, all individual name issuer trust preferred debt securities held in our portfolio continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers.

Management reviewed the collectibility of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report, and other information.

As of June 30, 2020 , individual name issuer trust preferred debt securities with an amortized cost of $ 2.0 million and unrealized losses of $ 254 thousand were rated below investment grade by Standard & Poors, Inc.

Another individual name issuer trust preferred security with an amortized cost of $ 2.0 million and an unrealized loss of $ 245 thousand as of June 30, 2020 was downgraded by S&P to a rating of BB+ (below investment grade) on July 22, 2020.

We noted no additional downgrades to below investment grade between June 30, 2020 and the filing date of this report.

As of September 30, 2020, there were two individual name issuer trust preferred debt securities with an amortized cost of $ 4.0 million and unrealized losses of $ 358 thousand that were rated below investment grade by Standard & Poors, Inc.

We noted no additional downgrades to below investment grade between September 30, 2020 and the filing date of this report.

Management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates and not material changes in the credit quality of the issuers of the debt securities.

1 unchanged sentence

Therefore, no allowance for credit losses on securities was recorded at June 30, 2020 .

Therefore, no allowance for credit losses on securities was recorded at September 30, 2020.

Corporate Bonds

At June 30, 2020 , the Corporation had three corporate bond holdings with unrealized losses totaling $ 2.1 million .

At September 30, 2020, the Corporation had three corporate bond holdings with unrealized losses totaling $ 1.3 million.

These investment grade corporate bonds were issued by large corporations in the financial services industry.

The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at June 30, 2020 .

The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at September 30, 2020.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report, and other information.

Management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates and not changes in the credit quality of the issuers of the debt securities.

1 unchanged sentence

Therefore, no allowance for credit losses was recorded at June 30, 2020 .

Therefore, no allowance for credit losses was recorded at September 30, 2020.

Note 5 - Loans

The following is a summary of loans:

(Dollars in thousands)

(Dollars in thousands) September 30,

2020 December 31, 2019

Commercial real estate (1)

$ 1,665,745 $ 1,547,572

Commercial & industrial (2)

822,269 585,289

Total commercial 2,488,014 2,132,861

1 unchanged sentence

Residential real estate (3)

1,506,726 1,449,090

268,551 290,874

18,756 20,174

Total consumer 287,307 311,048

Total loans (5)

$ 4,282,047 $ 3,892,999

(1) Commercial real estate (“CRE”) consists of commercial mortgages primarily secured by income-producing property, as well as construction and development loans.

1 unchanged sentence

(2) Commercial and industrial (“C&I”) consists of loans to businesses and individuals, a portion of which are fully or partially collateralized by real estate.

C&I also includes $ 212.2 million of PPP loans as of June 30, 2020 .

C&I also includes $ 216.8 million of PPP loans as of September 30, 2020.

(3) Residential real estate consists of mortgage and homeowner construction loans secured by one- to four-family residential properties.

(4) Other consists of loans to individuals secured by general aviation aircraft and other personal installment loans.

Includes net unamortized loan origination fees of $ 453 thousand at June 30, 2020 and net unamortized loan origination costs of $ 5.3 million , at December 31, 2019 and net unamortized premiums on purchased loans of $ 1.1 million and $ 995 thousand , respectively, at June 30, 2020 and December 31, 2019 .

As of June 30, 2020 and December 31, 2019 , loans amounting to $ 2.2 billion and $ 2.1 billion , respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB.

(5) Includes net unamortized loan origination fees of $ 670 thousand at September 30, 2020 and net unamortized loan origination costs of $ 5.3 million, at December 31, 2019 and net unamortized premiums on purchased loans of $ 919 thousand and $ 995 thousand, respectively, at September 30, 2020 and December 31, 2019.

As of September 30, 2020 and December 31, 2019, loans amounting to $ 2.2 billion and $ 2.1 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB.

See Note 7 for additional disclosure regarding borrowings.

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The following tables present an age analysis of past due loans, segregated by class of loans:

(Dollars in thousands)

Days Past Due

June 30, 2020

Total Past Due

(Dollars in thousands) Days Past Due

September 30, 2020 30-59 60-89 Over 90 Total Past Due Current Total Loans

Commercial real estate

$ — $ — $ 431 $ 431 $ 1,665,314 $ 1,665,745

Commercial & industrial

21 — — 21 822,248 822,269

Total commercial 21 — 431 452 2,487,562 2,488,014

1 unchanged sentence

Residential real estate

2,689 890 4,502 8,081 1,498,645 1,506,726

969 166 618 1,753 266,798 268,551

18 2 88 108 18,648 18,756

Total consumer 987 168 706 1,861 285,446 287,307

(Dollars in thousands)

Days Past Due

December 31, 2019

Total Past Due

Total loans $ 3,697 $ 1,058 $ 5,639 $ 10,394 $ 4,271,653 $ 4,282,047

(Dollars in thousands) Days Past Due

December 31, 2019 30-59 60-89 Over 90 Total Past Due Current Total Loans

Commercial real estate

$ 830 $ — $ 603 $ 1,433 $ 1,546,139 $ 1,547,572

Commercial & industrial

1 — — 1 585,288 585,289

Total commercial 831 — 603 1,434 2,131,427 2,132,861

1 unchanged sentence

Residential real estate

4,574 2,155 4,700 11,429 1,437,661 1,449,090

971 729 996 2,696 288,178 290,874

42 — 88 130 20,044 20,174

Total consumer 1,013 729 1,084 2,826 308,222 311,048

Included in past due loans as of June 30, 2020 and December 31, 2019 , were nonaccrual loans of $ 10.6 million and $ 11.5 million , respectively.

All loans 90 days or more past due at June 30, 2020 and December 31, 2019 were classified as nonaccrual.

Total loans $ 6,418 $ 2,884 $ 6,387 $ 15,689 $ 3,877,310 $ 3,892,999

Included in past due loans as of September 30, 2020 and December 31, 2019, were nonaccrual loans of $ 8.8 million and $ 11.5 million, respectively.

All loans 90 days or more past due at September 30, 2020 and December 31, 2019 were classified as nonaccrual.

Nonaccrual Loans

7 unchanged sentences

The following is a summary of nonaccrual loans, segregated by class of loans:

(Dollars in thousands)

(Dollars in thousands) Sep 30,

Commercial real estate

3 unchanged sentences

Residential real estate

12,792 14,297

Total consumer 1,517 1,851

1 unchanged sentence

Accruing loans 90 days or more past due $ — $ —

For nonaccrual loans with a carrying value of $ 1.4 million as of June 30, 2020 , no ACL was deemed necessary.

As of June 30, 2020 and December 31, 2019 , loans secured by one- to four-family residential property amounting to $ 3.4 million and $ 5.8 million , respectively, were in process of foreclosure.

Nonaccrual loans of $ 5.5 million and $ 5.9 million , respectively, were current as to the payment of principal and interest at June 30, 2020 and December 31, 2019 .

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2020 .

For nonaccrual loans with a carrying value of $ 2.9 million as of September 30, 2020, no ACL was deemed necessary.

As of September 30, 2020 and December 31, 2019, nonaccrual loans secured by one- to four-family residential property amounting to $ 2.9 million and $ 5.8 million, respectively, were in process of foreclosure.

Nonaccrual loans of $ 5.9 million were current as to the payment of principal and interest at both September 30, 2020 and December 31, 2019.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2020.

The following table presents interest income recognized on nonaccrual loans segregated by loan class:

(Dollars in thousands)

Interest Income Recognized

Periods ended June 30, 2020

(Dollars in thousands) Interest Income Recognized

Periods ended September 30, 2020 Three Months Nine Months

Commercial real estate

4 unchanged sentences

Total consumer 11 51

Total $ 81 $ 392

Troubled Debt Restructurings

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1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower’s benefit that would not otherwise be considered for a borrower or a transaction with similar credit risk characteristics.

These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions.

These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

be bifurcated with separate terms for each tranche of the restructured debt.

balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions.

Debt may be bifurcated with separate terms for each tranche of the restructured debt.

Restructuring of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection.

3 unchanged sentences

Troubled debt restructurings that did not involve a below-market rate concession and perform in accordance with their modified contractual terms for a reasonable period of time may be included in the Corporation’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

Restructured loans are classified as accruing or non-accruing based on management’s assessment of the collectibility of the loan.

Loans which are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status.

TDRs are classified as accruing or non-accruing based on management’s assessment of the collectibility of the loan.

Loans that are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status.

Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term and full collection of principal and interest is in doubt.

3 unchanged sentences

For accruing TDRs, the recorded investment also includes accrued interest.

The recorded investment in TDRs was $ 6.5 million and $ 869 thousand , respectively, at June 30, 2020 and December 31, 2019 .

The ACL on loans included specific reserves for these TDRs of $ 137 thousand and $ 97 thousand , respectively, at June 30, 2020 and December 31, 2019 .

As of June 30, 2020 , there were no significant commitments to lend additional funds to borrowers whose loans had been restructured in a TDR.

The following table presents the recorded investment in TDRs and certain other information related to TDRs:

(Dollars in thousands) Sep 30,

Accruing TDRs $ 5,756 $ 377

Nonaccrual TDRs 2,894 492

Total TDRs $ 8,650 $ 869

Specific reserves on TDRs included in the ACL on loans $ 101 $ 97

Additional commitments to lend to borrowers with TDRs $ — $ —

The Corporation has elected to account for eligible loan modifications under Section 4013 of the CARES Act.

To be eligible under Section 4013 of the CARES Act, a loan modification must be (1) related to the COVID-19 pandemic;

To be eligible, a loan modification must be (1) related to the COVID-19 pandemic;

(2) executed on a loan that was not more than 30 days past due as of December 31, 2019;

2 unchanged sentences

Interest income will continue to be recognized in accordance with GAAP unless the loan is placed on nonaccrual status in accordance with the nonaccrual loans accounting policy described above.

As of June 30, 2020, Washington Trust has executed 583 modifications on loan balances of $ 652.2 million .

Through September 30, 2020, we have executed loan payment deferment modifications on 617 loans totaling $ 685.4 million.

The majority of these modifications qualified as eligible loan modifications under Section 4013 of the CARES Act and therefore, were not required to be classified as TDRs and were not reported as past due.

Twelve of these modifications on loan balances of $ 5.6 million were past due before the COVID-19 pandemic and therefore, were classified as TDRs and were included in past due loans as of June 30, 2020.

Seventeen of these modifications on loan balances of $ 7.8 million were past due before the COVID-19 pandemic and therefore, were classified as TDRs and were included in past due loans as of September 30, 2020.

Washington Trust has active deferrals on 253 loans totaling $ 418.2 million as of September 30, 2020.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following tables present loans modified as a TDR:

(Dollars in thousands)

Outstanding Recorded Investment (1)

Pre-Modifications

Post-Modifications

Three months ended June 30,

(Dollars in thousands) Outstanding Recorded Investment

# of Loans Pre-Modifications Post-Modifications

Three months ended September 30, 2020 2019 2020 2019 2020 2019

Commercial real estate

— — $ — $ — $ — $ —

Commercial & industrial

2 unchanged sentences

Residential real estate

4 — 2,092 — 2,092 —

1 — 71 — 71 —

Total consumer 1 — $ 71 $ — $ 71 $ —

The recorded investment in TDRs consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs, at the time of the restructuring.

For accruing TDRs, the recorded investment also includes accrued interest.

(Dollars in thousands)

Outstanding Recorded Investment (1)

Pre-Modifications

Post-Modifications

Six months ended June 30,

Total 5 — $ 2,163 $ — $ 2,163 $ —

(Dollars in thousands) Outstanding Recorded Investment

# of Loans Pre-Modifications Post-Modifications

Nine months ended September 30, 2020 2019 2020 2019 2020 2019

Commercial real estate

1 — $ 841 $ — $ 841 $ —

Commercial & industrial

2 — 460 — 460 —

Total commercial 3 — 1,301 — 1,301 —

1 unchanged sentence

Residential real estate

10 — 5,604 — 5,604 —

4 — 873 — 873 —

Total consumer 4 — $ 873 $ — $ 873 $ —

The recorded investment in TDRs consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs, at the time of the restructuring.

For accruing TDRs, the recorded investment also includes accrued interest.

Total 17 — $ 7,778 $ — $ 7,778 $ —

The following table presents information on how loans were modified as a TDR:

(Dollars in thousands)

Periods ended June 30,

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2020 2019 2020 2019

Below-market interest rate concession $ — $ — $ — $ —

3 unchanged sentences

Combination (1)

Total $ 2,163 $ — $ 7,778 $ —

(1) Loans included in this classification were modified with a combination of any two of the concessions listed in this table.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

For the three and six months ended June 30, 2020 , payment defaults on TDRs modified within the previous 12 months occurred on one loan with a carrying value of $ 47 thousand at the time of the default.

For the three and six months ended June 30, 2019 , there were no payment defaults on TDRs modified within the previous 12 months.

The following tables present payment defaults on TDRs modified within the previous 12 months:

(Dollars in thousands) # of Loans Recorded Investment

Three months ended September 30, 2020 2019 2020 2019

Residential real estate:

Residential real estate 1 — $ 903 $ —

Home equity 1 — 47 —

Other — — — —

Totals 2 — $ 950 $ —

(Dollars in thousands) # of Loans Recorded Investment

Nine months ended September 30, 2020 2019 2020 2019

Residential real estate:

Residential real estate 1 — $ 903 $ —

Home equity 1 — 47 —

Other — — — —

Totals 2 — $ 950 $ —

Individually Analyzed Loans

Effective January 1, 2020, individually analyzed loans include nonaccrual commercial loans, loans classified as TDRs, and certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans.

As of June 30, 2020 , the carrying value of individually analyzed loans amounted to $ 7.1 million , of which $ 4.3 million were considered collateral dependent.

Effective January 1, 2020, individually analyzed loans include nonaccrual commercial loans, reasonably expected TDRs and executed TDRs, as well as certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans.

As of September 30, 2020, the carrying value of individually analyzed loans amounted to $ 15.7 million, of which $ 7.5 million were considered collateral dependent.

For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date.

See Note 10 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table presents the carrying value of collateral dependent individually analyzed loans:

(Dollars in thousands)

As of June 30, 2020

Carrying Value

Related Allowance

As of September 30, 2020 Carrying Value Related Allowance

Commercial real estate (1)

5 unchanged sentences

Total consumer 825 232

Total $ 7,510 $ 378

(1) Secured by income-producing property.

2 unchanged sentences

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Prior to January 1, 2020, impaired loans included nonaccrual loans and loans restructured in a TDR.

Prior to January 1, 2020, impaired loans included nonaccrual loans and executed TDRs.

The Corporation identified loss allocations for impaired loans on an individual loan basis.

1 unchanged sentence

(Dollars in thousands)

As of December 31, 2019

Recorded Investment (1)

Unpaid Principal

Related Allowance

As of December 31, 2019 Recorded Investment (1) Unpaid Principal Related Allowance

No Related Allowance Recorded

4 unchanged sentences

Residential real estate 13,968 14,803 —

1,471 1,472 —

Total consumer 1,559 1,560 —

Subtotal 15,527 16,363 —

With Related Allowance Recorded

Commercial real estate

$ 603 $ 926 $ —

Commercial & industrial

3 unchanged sentences

Total consumer 310 309 293

Subtotal 2,257 2,606 968

Total impaired loans $ 17,784 $ 18,969 $ 968

Commercial $ 1,260 $ 1,583 $ 580

Residential real estate 14,655 15,517 95

Consumer 1,869 1,869 293

Total impaired loans $ 17,784 $ 18,969 $ 968

3 unchanged sentences

The following table presents the average recorded investment balance of impaired loans and interest income recognized on impaired loans segregated by loan class.

(Dollars in thousands)

For the periods ended June 30, 2019

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

(Dollars in thousands) Three Months Nine Months

For the periods ended September 30, 2019 Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized

Commercial real estate

$ 886 $ — $ 929 $ 1

Commercial & industrial

— — 2,835 103

Total commercial 886 — 3,764 104

1 unchanged sentence

Residential real estate

12,017 109 10,972 331

1,414 16 1,409 43

Total consumer 1,522 19 1,464 45

Total $ 14,425 $ 128 $ 16,200 $ 480

Credit Quality Indicators

29 unchanged sentences

Management monitors the relatively homogeneous residential real estate and consumer loan portfolios on an ongoing basis using delinquency information by loan type.

In addition, other techniques are utilized to monitor indicators of credit deterioration in the residential real estate loans and home equity consumer loans.

Among these techniques is the periodic tracking of loans with an updated Fair Isaac Corporation (“FICO”) score and an estimated loan to value (“LTV”) ratio.

LTV is estimated based on such factors as the location, the original LTV ratio, and the date of origination of the loan and do not reflect actual appraisal amounts.

The results of these analyses and other loan review procedures, including selected targeted internal reviews, are taken into consideration in the determination of qualitative loss factors for residential real estate and home equity consumer credits.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment:

(Dollars in thousands)

Term Loans Amortized Cost by Origination Year

As of June 30, 2020

Revolving Loans Amortized Cost

Revolving Loans Converted to Term Loans

(Dollars in thousands) Term Loans Amortized Cost by Origination Year

As of September 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Revolving Loans Converted to Term Loans Total

$ 231,992 $ 387,398 $ 317,206 $ 253,085 $ 158,862 $ 270,453 $ 14,778 $ 2,406 $ 1,636,180

Special Mention

649 — 18,104 9,537 — 844 — — 29,134

— — — — — 431 — — 431

232,641 387,398 335,310 262,622 158,862 271,728 14,778 2,406 1,665,745

284,453 96,228 83,099 62,716 67,899 98,371 98,285 1,380 792,431

Special Mention

1,398 573 — 2,429 293 15,007 3,273 68 23,041

409 — — — — 6,388 — — 6,797

286,260 96,801 83,099 65,145 68,192 119,766 101,558 1,448 822,269

Residential Real Estate:

Residential real estate:

351,153 300,217 176,465 179,310 145,739 345,761 — — 1,498,645

— 238 627 768 401 6,047 — — 8,081

Total residential real estate

351,153 300,455 177,092 180,078 146,140 351,808 — — 1,506,726

8,821 8,247 4,425 1,858 1,379 4,432 225,650 11,986 266,798

— — — 50 — 63 489 1,151 1,753

Total home equity

8,821 8,247 4,425 1,908 1,379 4,495 226,139 13,137 268,551

2,801 2,437 1,713 1,992 628 8,746 330 1 18,648

9 11 — — 88 — — — 108

2,810 2,448 1,713 1,992 716 8,746 330 1 18,756

Total Loans $ 881,685 $ 795,349 $ 601,639 $ 511,745 $ 375,289 $ 756,543 $ 342,805 $ 16,992 $ 4,282,047

Consistent with industry practice, Washington Trust may renew commercial loans at or immediately prior to their maturity.

Renewals subject to full credit evaluation before being granted are reported as current period originations in the table above.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

In the table above, renewals subject to full credit evaluation before being granted are reported as originations in the period renewed.

The following table presents the commercial loan portfolio, segregated by category of credit quality indicator:

(Dollars in thousands)

As of December 31, 2019

Special Mention

As of December 31, 2019 Pass Special Mention Classified

Commercial real estate

$ 1,546,139 $ 830 $ 603

Commercial & industrial

549,416 24,961 10,912

Total commercial $ 2,095,555 $ 25,791 $ 11,515

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator:

(Dollars in thousands)

As of December 31, 2019

As of December 31, 2019 Current Past Due

Residential Real Estate:

Residential real estate $ 1,437,661 $ 11,429

$ 288,178 $ 2,696

Total consumer $ 308,222 $ 2,826

9 unchanged sentences

The Corporation also excludes accrued interest from the estimate of credit losses.

Accrued interest receivable on loans totaled $ 9.2 million and $ 11.0 million , respectively, as of June 30, 2020 and December 31, 2019 .

Accrued interest receivable on loans totaled $ 10.9 million and $ 11.0 million, respectively, as of September 30, 2020 and December 31, 2019.

The ACL on loans is management’s estimate of expected credit losses over the expected life of the loans at the reporting date.

8 unchanged sentences

The methodology for evaluating quantitative factors consists of two basic components.

The first component involves

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

pooling loans into portfolio segments for loans that share similar risk characteristics.

Pooled loan portfolio segments include commercial real estate (including commercial construction), commercial and industrial (including PPP loans), residential real estate (including homeowner construction), home equity and other consumer loans.

The first component involves pooling loans into portfolio segments for loans that share similar risk characteristics.

Pooled loan portfolio segments include commercial real estate (including commercial construction loans), commercial and industrial (including PPP loans), residential real estate (including homeowner construction), home equity and other consumer loans.

The second component involves individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments.

Individually analyzed loans include nonaccrual commercial loans, loans classified as TDRs and certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans.

Individually analyzed loans include nonaccrual commercial loans, reasonably expected TDRs and executed TDRs, as well as certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans.

For loans that are individually analyzed, the ACL is measured using a discounted cash flow method based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or, if the loan is collateral dependent, at the fair value of the collateral.

Factors management considers when measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due.

Factors management considers when measuring the extent of expected credit loss include payment

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due.

For collateral dependent loans for which repayment is to be provided substantially through the sale of the collateral, management adjusts the fair value for estimated costs to sell.

28 unchanged sentences

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table presents the activity in the ACL on loans for the three months ended June 30, 2020 :

(Dollars in thousands)

Total Commercial

Residential Real Estate

Total Consumer

The following table presents the activity in the ACL on loans for the three months ended September 30, 2020:

(Dollars in thousands) Commercial Consumer

CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 20,283 $ 11,278 $ 31,561 $ 8,053 $ 1,394 $ 433 $ 1,827 $ 41,441

Charge-offs — ( 2 ) ( 2 ) ( 99 ) — ( 10 ) ( 10 ) ( 111 )

Recoveries — 2 2 — 4 9 13 15

Provision 1,474 ( 93 ) 1,381 ( 35 ) ( 51 ) 5 ( 46 ) 1,300

Ending Balance $ 21,757 $ 11,185 $ 32,942 $ 7,919 $ 1,347 $ 437 $ 1,784 $ 42,645

The following table presents the activity in the ACL on loans for the six months ended June 30, 2020 :

(Dollars in thousands)

Total Commercial

Residential Real Estate

Total Consumer

The following table presents the activity in the ACL on loans for the nine months ended September 30, 2020:

(Dollars in thousands) Commercial Consumer

CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 14,741 $ 3,921 $ 18,662 $ 6,615 $ 1,390 $ 347 $ 1,737 $ 27,014

Adoption of Topic 326 (1)

3,405 3,029 6,434 221 ( 106 ) ( 48 ) ( 154 ) 6,501

Charge-offs ( 172 ) ( 585 ) ( 757 ) ( 99 ) ( 174 ) ( 42 ) ( 216 ) ( 1,072 )

Recoveries — 11 11 — 11 23 34 45

Provision 3,783 4,809 8,592 1,182 226 157 383 10,157

Ending Balance $ 21,757 $ 11,185 $ 32,942 $ 7,919 $ 1,347 $ 437 $ 1,784 $ 42,645

1 unchanged sentence

For the accounting policy on the allowance for loan losses that was in effect prior to the adoption of Topic 326, see Note 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The following table presents the activity in the allowance for loan losses for the three months ended June 30, 2019 :

(Dollars in thousands)

Total Commercial

Residential Real Estate

Total Consumer

The following table presents the activity in the allowance for loan losses for the three months ended September 30, 2019:

(Dollars in thousands) Commercial Consumer

CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 16,882 $ 4,453 $ 21,335 $ 4,857 $ 913 $ 293 $ 1,206 $ 27,398

Charge-offs ( 947 ) ( 1 ) ( 948 ) — — ( 18 ) ( 18 ) ( 966 )

Recoveries — 123 123 — 36 6 42 165

Provision 866 ( 1,128 ) ( 262 ) 554 64 44 108 400

Ending Balance $ 16,801 $ 3,447 $ 20,248 $ 5,411 $ 1,013 $ 325 $ 1,338 $ 26,997

The following table presents the activity in the allowance for loan losses for the six months ended June 30, 2019 :

(Dollars in thousands)

Total Commercial

Residential Real Estate

Total Consumer

The following table presents the activity in the allowance for loan losses for the nine months ended September 30, 2019:

(Dollars in thousands) Commercial Consumer

CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 15,381 $ 5,847 $ 21,228 $ 3,987 $ 1,603 $ 254 $ 1,857 $ 27,072

Charge-offs ( 947 ) ( 19 ) ( 966 ) ( 486 ) ( 372 ) ( 64 ) ( 436 ) ( 1,888 )

Recoveries — 151 151 — 71 16 87 238

Provision 2,367 ( 2,532 ) ( 165 ) 1,910 ( 289 ) 119 ( 170 ) 1,575

Ending Balance $ 16,801 $ 3,447 $ 20,248 $ 5,411 $ 1,013 $ 325 $ 1,338 $ 26,997

1 unchanged sentence

The following table presents the Corporation’s loan portfolio and associated allowance for loan losses by portfolio segment and by impairment methodology as of December 31, 2019:

(Dollars in thousands)

Related Allowance

(Dollars in thousands) Loans Related Allowance

Loans Individually Analyzed for Credit Losses

4 unchanged sentences

Residential real estate 14,654 95

Home equity 1,763 291

Total consumer 1,869 293

Subtotal 17,783 968

Loans Collectively Evaluated for Credit Losses

4 unchanged sentences

Residential real estate 1,434,436 6,520

Home equity 289,111 1,099

Other 20,068 345

Total consumer 309,179 1,444

Subtotal 3,875,216 26,046

Total $ 3,892,999 $ 27,014

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 7 - Borrowings

Advances payable to the FHLB amounted to $ 1.0 billion and $ 1.1 billion , respectively, at June 30, 2020 and December 31, 2019 .

As of June 30, 2020 and December 31, 2019 , the Bank had access to a $ 40.0 million unused line of credit and also had remaining available borrowing capacity of $ 647.9 million and $ 535.0 million , respectively, with the FHLB.

Advances payable to the FHLB amounted to $ 713.9 million and $ 1.1 billion, respectively, at September 30, 2020 and December 31, 2019.

As of September 30, 2020 and December 31, 2019, the Bank had access to a $ 40.0 million unused line of credit and also had remaining available borrowing capacity of $ 828.4 million and $ 535.0 million, respectively, with the FHLB.

The Bank pledges certain qualified investment securities and loans as collateral to the FHLB.

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of June 30, 2020 :

(Dollars in thousands)

July 1, 2020 to December 31, 2020

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of September 30, 2020:

(Dollars in thousands) Scheduled

Maturity Weighted

October 1, 2020 to December 31, 2020 $ 365,437 1.33 %

2021 258,222 1.04

2022 813 5.12

2023 5,238 3.80

2024 40,900 2.51

2025 and thereafter 43,258 3.29

Balance at June 30, 2020

In June 2020, Washington Trust began participating in the FRB’s Paycheck Protection Program Liquidity Facility ("PPPLF").

Balance at September 30, 2020 $ 713,868 1.44 %

In the second quarter of 2020, Washington Trust began participating in the FRB’s Paycheck Protection Program Liquidity Facility ("PPPLF").

PPPLF extends credit to depository institutions at a fixed interest rate of 0.35 %.

1 unchanged sentence

The maturity date of the PPPLF borrowings matches the maturity date of the pledged PPP loans.

As of June 30, 2020 , PPPLF borrowings amounted to $ 38.9 million and have a scheduled maturity in April 2022.

PPP loans totaling $ 38.9 million were pledged as collateral to the FRB as of June 30, 2020 .

As of September 30, 2020, PPPLF borrowings amounted to $ 105.7 million and have scheduled maturities in the second quarter of 2022.

PPP loans totaling $ 105.7 million were pledged as collateral to the FRB as of September 30, 2020.

Note 8 - Shareholders' Equity

3 unchanged sentences

The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities.

The 2019 Stock Repurchase Program expires on October 31, 2020 and may be modified, suspended, or discontinued at any time.

As of June 30, 2020 , 124,863 shares have been repurchased under the 2019 Stock Repurchase Program, totaling $ 4.3 million , at an average price of $ 34.61 .

Due to the economic uncertainty resulting from the COVID-19 pandemic, Washington Trust suspended its 2019 Stock Repurchase Program effective March 25, 2020.

The 2019 Stock Repurchase Program expired October 31, 2020.

As of September 30, 2020, 124,863 shares had been repurchased under the 2019 Stock Repurchase Program, totaling $ 4.3 million, at an average price of $ 34.61 .

All of the shares were repurchased prior to the suspension of the 2019 Stock Repurchase Program effective March 25, 2020.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Regulatory Capital Requirements

Capital levels at June 30, 2020 exceeded the regulatory minimum levels to be considered “well capitalized.”

Capital levels at September 30, 2020 exceeded the regulatory minimum levels to be considered “well capitalized.”

The following table presents the Corporation’s and the Bank’s actual capital amounts and ratios, as well as the corresponding minimum and well capitalized regulatory amounts and ratios that were in effect during the respective periods:

(Dollars in thousands)

For Capital Adequacy Purposes

To Be “Well Capitalized” Under Prompt Corrective Action Provisions

June 30, 2020

(Dollars in thousands) Actual For Capital Adequacy Purposes To Be “Well Capitalized” Under Prompt Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

September 30, 2020

Total Capital (to Risk-Weighted Assets):

$ 527,140 13.09 % $ 322,243 8.00 % N/A N/A

524,468 13.02 322,164 8.00 $ 402,705 10.00 %

Tier 1 Capital (to Risk-Weighted Assets):

492,683 12.23 241,682 6.00 N/A N/A

490,011 12.17 241,623 6.00 322,164 8.00

Common Equity Tier 1 Capital (to Risk-Weighted Assets):

470,684 11.69 181,262 4.50 N/A N/A

490,011 12.17 181,217 4.50 261,758 6.50

Tier 1 Capital (to Average Assets):

492,683 8.77 224,714 4.00 N/A N/A

490,011 8.73 224,625 4.00 280,782 5.00

December 31, 2019

Total Capital (to Risk-Weighted Assets):

494,603 12.94 305,728 8.00 N/A N/A

490,993 12.85 305,693 8.00 382,116 10.00

Tier 1 Capital (to Risk-Weighted Assets):

467,296 12.23 229,296 6.00 N/A N/A

463,686 12.13 229,270 6.00 305,693 8.00

Common Equity Tier 1 Capital (to Risk-Weighted Assets):

445,298 11.65 171,972 4.50 N/A N/A

463,686 12.13 171,952 4.50 248,375 6.50

Tier 1 Capital (to Average Assets):

467,296 9.04 206,682 4.00 N/A N/A

463,686 8.98 206,596 4.00 258,245 5.00

(1) Leverage ratio.

In addition to the minimum regulatory capital required for capital adequacy purposes outlined in the table above, the Corporation is required to maintain a minimum capital conservation buffer, in the form of common equity, of 2.50% in order to avoid restrictions on capital distributions and discretionary bonuses.

The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at June 30, 2020 and December 31, 2019 .

The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at September 30, 2020 and December 31, 2019.

The Bancorp owns the common stock of two capital trusts, which have issued trust preferred securities.

In accordance with GAAP, the capital trusts are treated as unconsolidated subsidiaries.

At both June 30, 2020 and December 31, 2019 , $ 22.0 million in trust preferred securities were included in the Tier 1 Capital of the Corporation for regulatory capital reporting purposes pursuant to the FRB’s capital adequacy guidelines.

At both September 30, 2020 and December 31, 2019, $ 22.0 million in trust preferred securities were included in the Tier 1 Capital of the Corporation for regulatory capital reporting purposes pursuant to the FRB’s capital adequacy guidelines.

In response to the recent disruptions in economic conditions caused by the COVID-19 pandemic and the uncertainty of its overall effects on the economy, the FDIC issued an interim final rule (“IFR”) on March 27, 2020 that delays the estimated impact on regulatory capital stemming from the adoption of Topic 326, often referred to as CECL.

The amount of capital relief provided in the CECL IFR is an estimate of the approximate difference in ACL under the CECL accounting methodology relative to the

The amount of capital relief provided in the CECL IFR is an estimate of the approximate difference in ACL under the CECL accounting methodology relative to the previously used incurred loss accounting methodology for the first two years of the five-year

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

previously used incurred loss accounting methodology for the first two years of the five-year transition period.

transition period.

The cumulative difference at the end of the second year of the transition period will then be phased-in to regulatory capital over a three-year transition period beginning in 2022.

13 unchanged sentences

Cash Flow Hedging Instruments

As of June 30, 2020 and December 31, 2019 , the Corporation had two interest rate caps with a total notional amount of $ 22.7 million that were designated as cash flow hedges to hedge the interest rate risk associated with our variable rate junior subordinated debentures.

As of September 30, 2020 and December 31, 2019, the Corporation had two interest rate caps with a total notional amount of $ 22.7 million that were designated as cash flow hedges to hedge the interest rate risk associated with our variable rate junior subordinated debentures.

For both interest rate caps, the Corporation obtained the right to receive the difference between 3-month LIBOR and a 4.5 % strike.

The caps mature in November and December of 2020.

As of June 30, 2020 and December 31, 2019 , the Corporation had two interest rate swap contracts with a total notional amount of $ 60.0 million that were designated as cash flow hedges to hedge the interest rate risk associated with short-term variable rate FHLB advances.

As of September 30, 2020 and December 31, 2019, the Corporation had two interest rate swap contracts with a total notional amount of $ 60.0 million that were designated as cash flow hedges to hedge the interest rate risk associated with short-term variable rate FHLB advances.

The interest rate swaps mature in 2021 and 2023.

As of June 30, 2020 , the Corporation had one interest rate floor contract, compared to three interest rate floor contracts as of December 31, 2019 .

The total notional amount of the interest rate floor contracts were $ 100.0 million and $ 300.0 million , respectively, as of June 30, 2020 and December 31, 2019 .

As of September 30, 2020, the Corporation had no interest rate floor contracts.

As of December 31, 2019, the Corporation had three interest rate floor contracts with a total notional amount of $ 300.0 million.

These contracts were designated as cash flow hedges to hedge the interest rate risk associated with a pool of variable rate commercial loans.

The Corporation obtained the right to receive the difference between 1-month LIBOR and a 1.0 % strike for each of the interest rate floors.

During the six months ended June 30, 2020 , two interest rate floor contracts matured.

The remaining floor matures in September of 2020.

During the nine months ended September 30, 2020, the three interest rate floor contracts matured.

The changes in fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income and subsequently reclassified to earnings when gains or losses are realized.

6 unchanged sentences

The Corporation retains the risk that is associated with the potential failure of counterparties and the risk inherent in originating loans.

As of June 30, 2020 and December 31, 2019 , Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $ 958.6 million and $ 813.5 million , respectively, and equal amounts of “mirror” swap contracts with third-party financial institutions.

As of September 30, 2020 and December 31, 2019, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $ 995.7 million and $ 813.5 million, respectively, and equal amounts of “mirror” swap contracts with third party financial institutions.

These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.

6 unchanged sentences

Under a risk participation-in agreement, a derivative liability, the Corporation assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank.

As of June 30, 2020 , the notional amounts of risk participation-out agreements and risk participation-in agreements were $ 60.7 million and $ 93.1 million , respectively, compared to $ 61.2 million and $ 72.9 million , respectively, as of December 31, 2019 .

As of September 30, 2020, the notional amounts of risk participation-out agreements and risk participation-in agreements were $ 60.4 million and $ 92.9 million, respectively, compared to $ 61.2 million and $ 72.9 million, respectively, as of December 31, 2019.

Mortgage Loan Commitments

3 unchanged sentences

Both interest rate lock commitments and forward sale commitments are derivative financial instruments, but do not meet criteria for hedge accounting and therefore, the changes in fair value of these commitments are reflected in earnings.

As of June 30, 2020 , the notional amounts of interest rate lock commitments and forward sale commitments were $ 203.5 million and $ 291.7 million , respectively, compared to $ 51.4 million and $ 94.8 million , respectively, as of December 31, 2019 .

As of September 30, 2020, the notional amounts of interest rate lock commitments and forward sale commitments were $ 180.1 million and $ 312.1 million, respectively, compared to $ 51.4 million and $ 94.8 million, respectively, as of December 31, 2019.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table presents the fair values of derivative instruments in the Unaudited Consolidated Balance Sheets:

(Dollars in thousands)

Derivative Assets

Derivative Liabilities

Balance Sheet Location

(Dollars in thousands) Derivative Assets Derivative Liabilities

Fair Value Fair Value

Balance Sheet Location Sep 30, 2020 Dec 31, 2019 Balance Sheet Location Sep 30, 2020 Dec 31, 2019

Derivatives Designated as Cash Flow Hedging Instruments:

1 unchanged sentence

Interest rate caps

Other liabilities

Other assets $ — $ — Other liabilities $ — $ —

Interest rate swaps

Other liabilities

Other assets — — Other liabilities 2,224 730

Interest rate floors

Other liabilities

Other assets — 3 Other liabilities — —

Derivatives not Designated as Hedging Instruments:

1 unchanged sentence

Interest rate swaps with customers

Other liabilities

Other assets 86,500 27,736 Other liabilities — 358

Mirror swaps with counterparties

Other liabilities

Other assets — 351 Other liabilities 86,955 27,819

Risk participation agreements

Other liabilities

Other assets 25 1 Other liabilities 3 1

Mortgage loan commitments:

Interest rate lock commitments

Other liabilities

Other assets 6,882 1,097 Other liabilities — —

Forward sale commitments

Other liabilities

Other assets 111 30 Other liabilities 3,726 827

Gross amounts

93,518 29,218 92,908 29,735

Less amounts offset in Consolidated Balance Sheets (1)

Net amounts presented in Consolidated Balance Sheets

93,518 28,864 92,908 29,381

Less collateral pledged (2)

— — 85,516 27,105

Net amounts $ 93,518 $ 28,864 $ 7,392 $ 2,276

(1) Interest rate risk management contracts and loan related derivative contracts with counterparties are subject to master netting arrangements.

2 unchanged sentences

The following tables present the effect of derivative instruments in the Unaudited Consolidated Statements of Changes in Shareholders’ Equity and Unaudited Consolidated Statements of Income:

(Dollars in thousands)

Gain (Loss) Recognized in

(Dollars in thousands) Gain (Loss) Recognized in

Other Comprehensive Income, Net of Tax

Periods ended June 30,

Three Months Nine Months

Periods ended September 30, 2020 2019 2020 2019

Derivatives Designated as Cash Flow Hedging Instruments:

1 unchanged sentence

Interest rate caps

$ 25 $ 18 $ 71 $ 32

Interest rate swaps

214 ( 211 ) ( 1,109 ) ( 1,442 )

Interest rate floors

( 85 ) 22 150 175

Total $ 154 ($ 171 ) ($ 888 ) ($ 1,235 )

For derivatives designated as cash flow hedging instruments, see Note 15 for additional disclosure pertaining to the amounts and location of reclassifications from accumulated other comprehensive income into earnings.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands)

Amount of Gain (Loss)

(Dollars in thousands) Amount of Gain (Loss)

Recognized in Income on Derivatives

Periods ended June 30,

Statement of Income Location

Three Months Nine Months

Periods ended September 30, Statement of Income Location 2020 2019 2020 2019

Derivatives not Designated as Hedging Instruments:

13 unchanged sentences

Mortgage banking revenues ( 4,743 ) ( 101 ) ( 10,733 ) ( 1,969 )

Total ($ 4,978 ) $ 966 ($ 1,130 ) $ 1,863

Note 10 - Fair Value Measurements

17 unchanged sentences

The following table presents a summary of mortgage loans held for sale accounted for under the fair value option:

(Dollars in thousands)

(Dollars in thousands) September 30,

2020 December 31,

Aggregate fair value $ 68,095 $ 27,833

Aggregate principal balance

65,263 27,168

Difference between fair value and principal balance $ 2,832 $ 665

Changes in fair value of mortgage loans held for sale accounted for under the fair value option election amounted to increases of $ 149 thousand and $ 1.0 million , respectively, in the three and six months ended June 30, 2020 , compared to increases of

Changes in fair value of mortgage loans held for sale accounted for under the fair value option election amounted to increases of $ 1.1 million and $ 2.2 million, respectively, in the three and nine months ended September 30, 2020, compared to increases

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

$ 679 thousand and $ 544 thousand , respectively, in the three and six months ended June 30, 2019 .

of $ 82 thousand and $ 462 thousand, respectively, in the three and nine months ended September 30, 2019.

These amounts were partially offset in earnings by the changes in fair value of forward sale commitments used to economically hedge them.

The changes in fair value are reported as a component of mortgage banking revenues in the Unaudited Consolidated Statements of Income.

There were no mortgage loans held for sale 90 days or more past due as of June 30, 2020 and December 31, 2019 .

There were no mortgage loans held for sale 90 days or more past due as of September 30, 2020 and December 31, 2019.

Valuation Techniques

3 unchanged sentences

such items are classified as Level 1.

There were no Level 1 debt securities held at June 30, 2020 and December 31, 2019 .

There were no Level 1 debt securities held at September 30, 2020 and December 31, 2019.

Level 2 debt securities are traded less frequently than exchange-traded instruments.

1 unchanged sentence

This category includes obligations of U.S.

government-sponsored enterprises, including mortgage-backed securities, obligations of states and political subdivisions, individual name issuer trust preferred debt securities and corporate bonds.

government-sponsored enterprises, including mortgage-backed securities, individual name issuer trust preferred debt securities and corporate bonds.

Debt securities not actively traded whose fair value is determined through the use of cash flows utilizing inputs that are unobservable are classified as Level 3.

There were no Level 3 debt securities held at June 30, 2020 and December 31, 2019 .

There were no Level 3 debt securities held at September 30, 2020 and December 31, 2019.

Mortgage Loans Held for Sale

8 unchanged sentences

Collateral dependent individually analyzed / impaired loans are categorized as Level 3.

Loan Servicing Rights

Loans sold with the retention of servicing result in the recognition of loan servicing rights.

Loan servicing rights are included in other assets in the Consolidated Balance Sheets and are amortized as an offset to mortgage banking revenues over the estimated period of servicing.

Loan servicing rights are evaluated quarterly for impairment based on their fair value.

Impairment exists if the carrying value exceeds the estimated fair value.

Impairment is measured on an aggregated basis by stratifying the loan servicing rights based on homogeneous characteristics such as note rate and loan type.

The fair value is estimated using an independent valuation model that estimates the present value of expected cash flows, incorporating assumptions for discount rates and prepayment rates.

Any impairment is recognized through a valuation allowance and as a reduction to mortgage banking revenues.

Loan servicing rights are categorized as Level 3.

Property Acquired Through Foreclosure or Repossession

4 unchanged sentences

Management may adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property, and such property is categorized as Level 3.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Interest rate cap, swap and floor contracts are traded in over-the-counter markets where quoted market prices are not readily available.

4 unchanged sentences

Although the Corporation has determined that the majority of the inputs used to value its interest rate swap, cap and floor contracts fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with interest rate contracts and risk participation agreements utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Corporation and its counterparties.

However, as of June 30, 2020 and December 31, 2019 , the Corporation has assessed the significance of the impact of the credit

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.

However, as of September 30, 2020 and December 31, 2019, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.

As a result, the Corporation has classified its derivative valuations in their entirety as Level 2.

6 unchanged sentences

The following tables present the balances of assets and liabilities reported at fair value on a recurring basis:

(Dollars in thousands)

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

June 30, 2020

(Dollars in thousands) Total Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

September 30, 2020

Available for sale debt securities:

1 unchanged sentence

government-sponsored enterprises

$ 146,540 $ — $ 146,540 $ —

Mortgage-backed securities issued by U.S.

1 unchanged sentence

government-sponsored enterprises

745,071 — 745,071 —

Individual name issuer trust preferred debt securities

12,363 — 12,363 —

Corporate bonds

9,876 — 9,876 —

Mortgage loans held for sale 68,095 — 68,095 —

4 unchanged sentences

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands)

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

(Dollars in thousands) Total Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

December 31, 2019

2 unchanged sentences

government-sponsored enterprises

$ 157,648 $ — $ 157,648 $ —

Mortgage-backed securities issued by U.S.

1 unchanged sentence

government-sponsored enterprises

719,080 — 719,080 —

Individual name issuer trust preferred debt securities

12,579 — 12,579 —

Corporate bonds

10,183 — 10,183 —

Mortgage loans held for sale 27,833 — 27,833 —

4 unchanged sentences

Items Recorded at Fair Value on a Nonrecurring Basis

The following table presents the carrying value of assets held at June 30, 2020 , which were written down to fair value during the six months ended June 30, 2020 :

(Dollars in thousands)

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

The following table presents the carrying value of assets held at September 30, 2020, which were written down to fair value during the nine months ended September 30, 2020:

(Dollars in thousands) Total Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Collateral dependent individually analyzed CRE loan $ 285 $ — $ — $ 285

Loan servicing rights 6,584 — — 6,584

Total assets at fair value on a nonrecurring basis $ 6,869 $ — $ — $ 6,869

The ACL on all collateral dependent individually analyzed loans amounted to $ 233 thousand at June 30, 2020 .

The following table presents the carrying value of assets held at December 31, 2019, which were written down to fair value during the year ended December 31, 2019:

(Dollars in thousands)

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

(Dollars in thousands) Total Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Collateral dependent impaired loans $ 1,448 $ — $ — $ 1,448

1 unchanged sentence

Total assets at fair value on a nonrecurring basis $ 2,557 $ — $ — $ 2,557

The allowance for loan losses on all collateral dependent impaired loans amounted to $ 871 thousand at December 31, 2019 .

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following tables present valuation techniques and unobservable inputs for assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value:

(Dollars in thousands)

Valuation Technique

Unobservable Input

Range of Inputs Utilized

(Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range of Inputs Utilized

(Weighted Average)

June 30, 2020

September 30, 2020

Collateral dependent individually analyzed CRE loan

Appraisals of collateral

Discount for costs to sell

0% - 20% (12%)

$ 285 Appraisals of collateral Discount for costs to sell 0 % - 25 % ( 14 %)

Appraisal adjustments (1) 0 % - 100 % ( 43 %)

0% - 100% (43%)

Loan servicing rights

$ 6,584 Discounted Cash Flow Discount rates 10 % - 14 % ( 10 %)

Prepayment rates 18 % - 39 % ( 20 %)

(1) Management may adjust appraisal values to reflect market value declines or other discounts resulting from its knowledge of the property.

(Dollars in thousands)

Valuation Technique

Unobservable Input

Range of Inputs Utilized

(Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range of Inputs Utilized

(Weighted Average)

1 unchanged sentence

Collateral dependent impaired loans

Appraisals of collateral

Discount for costs to sell

0% - 20% (5%)

$ 1,448 Appraisals of collateral Discount for costs to sell 0 % - 20 % ( 5 %)

Appraisal adjustments (1) 0 % - 100 % ( 67 %)

0% - 100% (67%)

Property acquired through foreclosure or repossession

Appraisals of collateral

Discount for costs to sell

$ 1,109 Appraisals of collateral Discount for costs to sell 12 %

Appraisal adjustments (1) 22 %

2 unchanged sentences

The estimated fair values and related carrying amounts for financial instruments for which fair value is only disclosed are presented below as of the periods indicated.

The tables exclude financial instruments for which the carrying value approximates fair value such as cash and cash equivalents, FHLB stock, accrued interest receivable, bank-owned life insurance, non-maturity deposits and accrued interest payable.

(Dollars in thousands)

June 30, 2020

Carrying Amount

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

September 30, 2020 Carrying Amount Total

Fair Value Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Financial Assets:

6 unchanged sentences

(Dollars in thousands)

December 31, 2019

Carrying Amount

Quoted Prices in Active Markets for Identical Assets

Significant Other Observable Inputs

Significant Unobservable Inputs

December 31, 2019 Carrying Amount Total

Fair Value Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Financial Assets:

7 unchanged sentences

As shown below, a substantial portion of our revenues are specifically excluded from the scope of Topic 606.

For the three months ended June 30,

(Dollars in thousands)

For the three months ended September 30, 2020 2019

(Dollars in thousands) Revenue (1)

ASC 606 Revenue (2)

3 unchanged sentences

Asset-based wealth management revenues

8,786 8,786 9,013 9,013

Transaction-based wealth management revenues

168 168 140 140

Total wealth management revenues

8,954 8,954 9,153 9,153

Mortgage banking revenues

12,353 — 4,840 —

Card interchange fees

1,161 1,161 1,099 1,099

Service charges on deposit accounts

598 598 939 939

Loan related derivative income

1,264 — 1,407 —

Income from bank-owned life insurance

Net realized losses on securities

571 491 335 323

Total noninterest income 25,468 11,204 18,342 11,514

3 unchanged sentences

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

For the six months ended June 30,

(Dollars in thousands)

ASC 606 Revenue (2)

For the nine months ended September 30, 2020 2019

(Dollars in thousands) Revenue (1) ASC 606 Revenue (2) Revenue (1) ASC 606 Revenue (2)

Net interest income $ 95,201 $ — $ 101,420 $ —

1 unchanged sentence

Asset-based wealth management revenues

25,297 25,297 27,075 27,075

Transaction-based wealth management revenues

951 951 879 879

Total wealth management revenues

26,248 26,248 27,954 27,954

Mortgage banking revenues

33,300 — 11,126 —

Card interchange fees

3,139 3,139 3,114 3,114

Service charges on deposit accounts

1,975 1,975 2,743 2,743

Loan related derivative income

3,818 — 2,877 —

Income from bank-owned life insurance

1,922 — 1,784 —

Net realized losses on securities

1,313 1,026 944 917

Total noninterest income 71,715 32,388 50,462 34,728

12 unchanged sentences

The following table presents revenue from contracts with customers based on the timing of revenue recognition:

(Dollars in thousands)

Periods ended June 30,

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2020 2019 2020 2019

Revenue recognized at a point in time:

1 unchanged sentence

Service charges on deposit accounts 447 728 1,488 2,109

Other income 441 268 895 771

Revenue recognized over time:

Wealth management revenues

8,954 9,153 26,248 27,954

Service charges on deposit accounts

151 211 487 634

50 55 131 146

Total revenues from contracts in scope of Topic 606 $ 11,204 $ 11,514 $ 32,388 $ 34,728

1 unchanged sentence

Receivables for revenue from contracts with customers primarily consist of amounts due for wealth management services performed for which the Corporation’s performance obligations have been fully satisfied.

Receivables amounted to $ 4.2 million at June 30, 2020 , compared to $ 4.5 million at December 31, 2019 and were included in other assets in the Unaudited Consolidated Balance Sheets.

Receivables amounted to $ 4.3 million at September 30, 2020, compared to $ 4.5 million at December 31, 2019 and were included in other assets in the Unaudited Consolidated Balance Sheets.

Deferred revenues, which are considered contract liabilities under Topic 606, represent advance consideration received from customers for which the Corporation has a remaining performance obligation to fulfill.

Contract liabilities are recognized as revenue over the life of the contract as the performance obligations are satisfied.

The balances of contract liabilities were insignificant at both June 30, 2020 and December 31, 2019 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.

The balances of contract liabilities were insignificant at both September 30, 2020 and December 31, 2019 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.

For commissions and incentives that are in-scope of Topic 606, such as those paid to employees in our wealth management services and commercial banking segments in order to obtain customer contracts, contract cost assets are established.

The contract cost assets are capitalized and amortized over the estimated useful life that the asset is expected to generate benefits.

The carrying value of contract cost assets amounted to $ 1.0 million at June 30, 2020 , compared to $ 905 thousand at December 31, 2019 and were included in other assets in the Unaudited Consolidated Balance Sheets.

The carrying value of contract cost assets amounted to $ 1.2 million at September 30, 2020, compared to $ 905 thousand at December 31, 2019 and were included in other assets in the Unaudited Consolidated Balance Sheets.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 12 - Defined Benefit Pension Plans

4 unchanged sentences

The following table presents components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss), on a pre-tax basis:

(Dollars in thousands)

Non-Qualified Retirement Plans

Periods ended June 30,

(Dollars in thousands) Qualified

Pension Plan Non-Qualified Retirement Plans

Three Months Nine Months Three Months Nine Months

Periods ended September 30, 2020 2019 2020 2019 2020 2019 2020 2019

Net Periodic Benefit Cost:

Service cost (1)

$ 541 $ 510 $ 1,623 $ 1,528 $ 43 $ 31 $ 128 $ 94

Interest cost (2)

626 741 1,879 2,225 116 140 349 422

Expected return on plan assets (2)

( 1,135 ) ( 1,124 ) ( 3,404 ) ( 3,371 ) — — — —

Amortization of prior service credit (2)

— ( 4 ) — ( 12 ) — — — —

Recognized net actuarial loss (2)

396 198 1,187 594 139 104 419 307

Net periodic benefit cost $ 428 $ 321 $ 1,285 $ 964 $ 298 $ 275 $ 896 $ 823

2 unchanged sentences

The following table presents the measurement date and weighted-average assumptions used to determine net periodic benefit cost:

Qualified Pension Plan

Non-Qualified Retirement Plans

For the six months ended June 30,

Measurement date

Qualified Pension Plan Non-Qualified Retirement Plans

For the nine months ended September 30, 2020 2019 2020 2019

Measurement date Dec 31, 2019 Dec 31, 2018 Dec 31, 2019 Dec 31, 2018

Equivalent single discount rate for benefit obligations

3.42 % 4.38 % 3.30 % 4.28 %

Equivalent single discount rate for service cost

3.54 4.44 3.62 4.48

Equivalent single discount rate for interest cost

3.07 4.12 2.93 3.98

Expected long-term return on plan assets

5.75 5.75 N/A N/A

Rate of compensation increase

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

3.75 3.75 3.75 3.75

Note 13 - Share-Based Compensation Arrangements

During the six months ended June 30, 2020 , the Corporation granted performance share unit awards and nonvested share unit awards.

During the nine months ended September 30, 2020, the Corporation granted performance share unit awards and nonvested share unit awards.

Performance share awards were granted to certain key employees of the Corporation to provide them with the opportunity to earn shares of common stock of the Corporation.

5 unchanged sentences

The weighted average grant date fair value of the nonvested share units was $ 39.56 .

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 14 - Business Segments

25 unchanged sentences

The following table presents the statement of operations and total assets for Washington Trust’s reportable segments:

(Dollars in thousands)

Commercial Banking

Wealth Management Services

Consolidated Total

Three months ended June 30,

(Dollars in thousands) Commercial Banking Wealth Management Services Corporate Consolidated Total

Three months ended September 30, 2020 2019 2020 2019 2020 2019 2020 2019

Net interest income (expense) $ 33,103 $ 28,515 ($ 24 ) ($ 114 ) ($ 1,425 ) $ 4,577 $ 31,654 $ 32,978

1 unchanged sentence

Net interest income (expense) after provision for credit losses

31,778 28,115 ( 24 ) ( 114 ) ( 1,425 ) 4,577 30,329 32,578

Noninterest income 15,940 8,607 8,954 9,153 574 582 25,468 18,342

1 unchanged sentence

Depreciation and amortization expense

601 642 350 360 38 40 989 1,042

Other noninterest expenses

20,273 16,255 7,178 6,217 3,904 3,356 31,355 25,828

Total noninterest expenses 20,874 16,897 7,528 6,577 3,942 3,396 32,344 26,870

Income (loss) before income taxes

26,844 19,825 1,402 2,462 ( 4,793 ) 1,763 23,453 24,050

Income tax expense (benefit) 5,828 4,347 403 646 ( 1,100 ) 243 5,131 5,236

2 unchanged sentences

Expenditures for long-lived assets

(Dollars in thousands)

Commercial Banking

Wealth Management Services

Consolidated Total

Six months ended June 30,

360 662 20 87 26 48 406 797

(Dollars in thousands) Commercial Banking Wealth Management Services Corporate Consolidated Total

Nine months ended September 30, 2020 2019 2020 2019 2020 2019 2020 2019

Net interest income (expense) $ 94,692 $ 83,684 ($ 117 ) ($ 361 ) $ 626 $ 18,097 $ 95,201 $ 101,420

1 unchanged sentence

Net interest income (expense) after provision for loan losses

84,131 82,109 ( 117 ) ( 361 ) 626 18,097 84,640 99,845

Noninterest income 43,515 20,753 26,248 27,961 1,952 1,748 71,715 50,462

1 unchanged sentence

Depreciation and amortization expense

1,832 1,985 1,058 1,089 116 118 3,006 3,192

Other noninterest expenses

56,571 48,676 20,408 19,631 11,290 10,486 88,269 78,793

Total noninterest expenses

58,403 50,661 21,466 20,720 11,406 10,604 91,275 81,985

Income (loss) before income taxes

69,243 52,201 4,665 6,880 ( 8,828 ) 9,241 65,080 68,322

Income tax expense (benefit) 14,769 11,371 1,216 1,845 ( 2,168 ) 1,524 13,817 14,740

2 unchanged sentences

Expenditures for long-lived assets

1,147 2,259 86 379 98 130 1,331 2,768

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

1 unchanged sentence

The following tables present the activity in other comprehensive income (loss):

Three months ended June 30,

(Dollars in thousands)

Pre-tax Amounts

Three months ended September 30, 2020 2019

(Dollars in thousands) Pre-tax Amounts Income Taxes Net of Tax Pre-tax Amounts Income Taxes Net of Tax

Securities available for sale:

Changes in fair value of available for sale debt securities

($ 4,582 ) ($ 1,077 ) ($ 3,505 ) $ 3,772 $ 886 $ 2,886

Net losses on debt securities reclassified into earnings (1)

2 unchanged sentences

Change in fair value of cash flow hedges

( 146 ) ( 39 ) ( 107 ) ( 283 ) ( 66 ) ( 217 )

Net cash flow hedge gains reclassified into earnings (2)

344 83 261 60 14 46

Net change in fair value of cash flow hedges 198 44 154 ( 223 ) ( 52 ) ( 171 )

1 unchanged sentence

Amortization of net actuarial losses (3)

535 125 410 300 70 230

Amortization of net prior service credits (3)

— — — ( 4 ) ( 1 ) ( 3 )

Net change in defined benefit plan obligations 535 125 410 296 69 227

3 unchanged sentences

(3) The pre-tax amounts are included in other expenses in the Unaudited Consolidated Statements of Income.

Six months ended June 30,

(Dollars in thousands)

Pre-tax Amounts

Nine months ended September 30, 2020 2019

(Dollars in thousands) Pre-tax Amounts Income Taxes Net of Tax Pre-tax Amounts Income Taxes Net of Tax

Securities available for sale:

Changes in fair value of available for sale debt securities

$ 9,794 $ 2,301 $ 7,493 $ 25,985 $ 6,106 $ 19,879

Net losses on debt securities reclassified into earnings (1)

— — — 80 19 61

Net change in fair value of available for sale debt securities 9,794 2,301 7,493 26,065 6,125 19,940

1 unchanged sentence

Change in fair value of cash flow hedges

( 1,994 ) ( 473 ) ( 1,521 ) ( 1,653 ) ( 388 ) ( 1,265 )

Net cash flow hedge gains (losses) reclassified into earnings (2)

829 196 633 39 9 30

Net change in fair value of cash flow hedges ( 1,165 ) ( 277 ) ( 888 ) ( 1,614 ) ( 379 ) ( 1,235 )

1 unchanged sentence

Amortization of net actuarial losses (3)

1,606 377 1,229 900 211 689

Amortization of net prior service credits (3)

— — — ( 12 ) ( 3 ) ( 9 )

Net change in defined benefit plan obligations 1,606 377 1,229 888 208 680

5 unchanged sentences

The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax:

(Dollars in thousands)

Net Unrealized Gains (Losses) on Available For Sale Debt Securities

Net Unrealized (Losses) Gains on Cash Flow Hedges

Defined Benefit Pension Plan Adjustment

For the three months ended June 30, 2020

Balance at March 31, 2020

(Dollars in thousands) Net Unrealized Gains (Losses) on Available For Sale Debt Securities Net Unrealized (Losses) Gains on Cash Flow Hedges Defined Benefit Pension Plan Adjustment Total

For the three months ended September 30, 2020

Balance at June 30, 2020 $ 14,224 ($ 1,835 ) ($ 12,851 ) ($ 462 )

Other comprehensive loss before reclassifications

( 3,505 ) ( 107 ) — ( 3,612 )

Amounts reclassified from accumulated other comprehensive income

— 261 410 671

Net other comprehensive (loss) income

Balance at June 30, 2020

(Dollars in thousands)

Net Unrealized Gains on Available For Sale Debt Securities

Net Unrealized (Losses) Gains on Cash Flow Hedges

Defined Benefit Pension Plan Adjustment

For the six months ended June 30, 2020

( 3,505 ) 154 410 ( 2,941 )

Balance at September 30, 2020 $ 10,719 ($ 1,681 ) ($ 12,441 ) ($ 3,403 )

(Dollars in thousands) Net Unrealized Gains on Available For Sale Debt Securities Net Unrealized (Losses) Gains on Cash Flow Hedges Defined Benefit Pension Plan Adjustment Total

For the nine months ended September 30, 2020

Balance at December 31, 2019 $ 3,226 ($ 793 ) ($ 13,670 ) ($ 11,237 )

Other comprehensive income (loss) before reclassifications

7,493 ( 1,521 ) — 5,972

Amounts reclassified from accumulated other comprehensive income

— 633 1,229 1,862

Net other comprehensive income (loss)

7,493 ( 888 ) 1,229 7,834

Balance at September 30, 2020 $ 10,719 ($ 1,681 ) ($ 12,441 ) ($ 3,403 )

(Dollars in thousands) Net Unrealized Gains on Available For Sale Debt Securities Net Unrealized (Losses) Gains on Cash Flow Hedges Defined Benefit Pension Plan Adjustment Total

For the three months ended September 30, 2019

Balance at June 30, 2019 $ 292 ($ 873 ) ($ 11,285 ) ($ 11,866 )

(Dollars in thousands)

Net Unrealized (Losses) Gains on Available For Sale Debt Securities

Net Unrealized (Losses) Gains on Cash Flow Hedges

Defined Benefit Pension Plan Adjustment

For the three months ended June 30, 2019

Balance at March 31, 2019

Other comprehensive income (loss) before reclassifications

2,886 ( 217 ) — 2,669

Amounts reclassified from accumulated other comprehensive income

Net other comprehensive income (loss)

Balance at June 30, 2019

(Dollars in thousands)

Net Unrealized (Losses) Gains on Available For Sale Debt Securities

Net Unrealized Gains (Losses) on Cash Flow Hedges

Defined Benefit Pension Plan Adjustment

For the six months ended June 30, 2019

2,886 ( 171 ) 227 2,942

Balance at September 30, 2019 $ 3,178 ($ 1,044 ) ($ 11,058 ) ($ 8,924 )

(Dollars in thousands) Net Unrealized (Losses) Gains on Available For Sale Debt Securities Net Unrealized Gains (Losses) on Cash Flow Hedges Defined Benefit Pension Plan Adjustment Total

For the nine months ended September 30, 2019

Balance at December 31, 2018 ($ 16,762 ) $ 191 ($ 11,738 ) ($ 28,309 )

Other comprehensive income (loss) before reclassifications

19,879 ( 1,265 ) — 18,614

Amounts reclassified from accumulated other comprehensive income

61 30 680 771

Net other comprehensive income (loss)

Balance at June 30, 2019

19,940 ( 1,235 ) 680 19,385

Balance at September 30, 2019 $ 3,178 ($ 1,044 ) ($ 11,058 ) ($ 8,924 )

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

2 unchanged sentences

(Dollars and shares in thousands, except per share amounts)

Periods ended June 30,

Three Months Nine Months

Periods ended September 30, 2020 2019 2020 2019

Earnings per common share - basic:

Net income $ 18,322 $ 18,814 $ 51,263 $ 53,582

Less dividends and undistributed earnings allocated to participating securities

( 37 ) ( 36 ) ( 109 ) ( 105 )

Net income available to common shareholders

$ 18,285 $ 18,778 $ 51,154 $ 53,477

Weighted average common shares

17,260 17,338 17,287 17,324

Earnings per common share - basic $ 1.06 $ 1.08 $ 2.96 $ 3.09

Earnings per common share - diluted:

Net income $ 18,322 $ 18,814 $ 51,263 $ 53,582

Less dividends and undistributed earnings allocated to participating securities

( 37 ) ( 36 ) ( 109 ) ( 105 )

Net income available to common shareholders

$ 18,285 $ 18,778 $ 51,154 $ 53,477

Weighted average common shares

17,260 17,338 17,287 17,324

Dilutive effect of common stock equivalents

Weighted average diluted common shares

17,317 17,414 17,369 17,406

Earnings per common share - diluted $ 1.06 $ 1.08 $ 2.95 $ 3.07

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 256,721 and 220,305 , respectively for the three and six months ended June 30, 2020 , compared to 87,950 and 87,863 , respectively, for the same periods in 2019 .

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 223,210 and 221,047 , respectively for the three and nine months ended September 30, 2020, compared to 93,075 and 87,775 , respectively, for the same periods in 2019.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

1 unchanged sentence

The Corporation has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 973 thousand and $ 1.9 million respectively, for the three and six months ended June 30, 2020 , compared to $ 940 thousand and $ 1.9 million , respectively, for the same periods in 2019 .

As of September 30, 2020, there were no operating leases that had not yet commenced, compared to one operating lease that had not yet commenced as of December 31, 2019.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 1.0 million and $ 3.0 million respectively, for the three and nine months ended September 30, 2020, compared to $ 944 thousand and $ 2.8 million, respectively, for the same periods in 2019.

Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents information regarding Corporation’s operating leases:

Sep 30, 2020 Dec 31, 2019

Weighted average discount rate 3.36 % 3.67 %

Operating leases not yet commenced

Range of lease expiration dates

1 year - 21 years

Range of lease expiration dates 10 months - 20 years

4 months - 21 years

3 unchanged sentences

Weighted average remaining lease term

The following table presents the undiscounted annual lease payments under the terms of the Corporation’s operating leases at June 30, 2020 , including a reconciliation to the present value of operating lease liabilities recognized in the Unaudited Consolidated Balance Sheets:

13.6 years 14.0 years

The following table presents the undiscounted annual lease payments under the terms of the Corporation’s operating leases at September 30, 2020, including a reconciliation to the present value of operating lease liabilities recognized in the Unaudited Consolidated Balance Sheets:

(Dollars in thousands)

July 1, 2020 to December 31, 2020

October 1, 2020 to December 31, 2020 $ 3,905

2025 and thereafter 22,566

6 unchanged sentences

(Dollars in thousands)

Periods ended June 30,

Three Months Nine Months

Periods ended September 30, 2020 2019 2020 2019

Lease Expense:

Operating lease expense

$ 1,005 $ 931 $ 2,915 $ 2,787

Variable lease expense

Total lease expense (1)

$ 1,019 $ 944 $ 2,956 $ 2,823

Cash paid reducing operating lease liabilities

$ 956 $ 926 $ 2,831 $ 2,677

(1) Included in net occupancy expenses in the Unaudited Consolidated Income Statement.

34 unchanged sentences

Most standby letters of credit extend for one year.

The maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered totaled $ 10.1 million and $ 13.7 million , respectively, as of June 30, 2020 and December 31, 2019 .

At June 30, 2020 and December 31, 2019 , there were no liabilities to beneficiaries resulting from standby letters of credit.

Fee income on standby letters of credit was insignificant for the three and six months ended June 30, 2020 and 2019 .

The maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered totaled $ 10.3 million and $ 13.7 million, respectively, as of September 30, 2020 and December 31, 2019.

At September 30, 2020 and December 31, 2019, there were no liabilities to beneficiaries resulting from standby letters of credit.

Fee income on standby letters of credit was insignificant for the three and nine months ended September 30, 2020 and 2019.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

A substantial portion of the standby letters of credit were supported by pledged collateral.

1 unchanged sentence

Should the Corporation be required to make payments to the beneficiary, repayment from the customer to the Corporation is required.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Financial Instruments Whose Notional Amounts Exceed the Amount of Credit Risk

7 unchanged sentences

The following table presents the contractual and notional amounts of financial instruments with off-balance sheet risk:

(Dollars in thousands)

Financial instruments whose contract amounts represent credit risk:

(Dollars in thousands) Sep 30,

Financial instruments whose contract amounts represent credit risk (unfunded commitments):

Commitments to extend credit:

Commercial loans

$ 448,803 $ 471,338

Home equity lines

311,603 295,687

79,706 88,613

Standby letters of credit 10,331 13,710

2 unchanged sentences

Interest rate lock commitments

180,095 51,439

Forward sale commitments

312,074 94,829

Loan related derivative contracts:

Interest rate swaps with customers

995,661 813,458

Mirror swaps with counterparties

995,661 813,458

Risk participation-in agreements

92,937 72,866

Interest rate risk management contracts:

Interest rate swaps

60,000 60,000

See Note 9 for additional disclosure pertaining to derivative financial instruments.

The ACL on unfunded commitments amounted to $ 2.2 million at June 30, 2020 , compared to $ 293 thousand at December 31, 2019 .

The activity in the ACL on unfunded commitments for the three months ended June 30, 2020 is presented below:

(Dollars in thousands)

Total Commercial

Residential Real Estate

Total Consumer

The ACL on unfunded commitments amounted to $ 2.2 million at September 30, 2020, compared to $ 293 thousand at December 31, 2019.

The activity in the ACL on unfunded commitments for the three months ended September 30, 2020 is presented below:

(Dollars in thousands) Commercial Consumer

CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 887 $ 1,207 $ 2,094 $ 42 $ — $ 19 $ 19 $ 2,155

Provision ( 30 ) 60 30 ( 5 ) — — — 25

Ending Balance $ 857 $ 1,267 $ 2,124 $ 37 $ — $ 19 $ 19 $ 2,180

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The activity in the ACL on unfunded commitments for the six months ended June 30, 2020 is presented below:

(Dollars in thousands)

Total Commercial

Residential Real Estate

Total Consumer

The activity in the ACL on unfunded commitments for the nine months ended September 30, 2020 is presented below:

(Dollars in thousands) Commercial Consumer

CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 136 $ 144 $ 280 $ 6 $ — $ 7 $ 7 $ 293

Adoption of Topic 326 (1)

817 626 1,443 34 — 6 6 1,483

Provision ( 96 ) 497 401 ( 3 ) — 6 6 404

Ending Balance $ 857 $ 1,267 $ 2,124 $ 37 $ — $ 19 $ 19 $ 2,180

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements