What changed in this filing

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Item 1. Business

2021-02-25 compared with 2020-02-25 · 111 added, 69 removed, 329 unchanged (35% of the section changed)

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The accounting and reporting policies of Washington Trust conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices of the banking industry.

At December 31, 2019 , Washington Trust had total assets of $5.3 billion , total deposits of $3.5 billion and total shareholders’ equity of $503.5 million .

At December 31, 2020,

Washington Trust had total assets of $5.7 billion, total deposits of $4.4 billion and total shareholders’ equity of $534.2 million.

Lending Activities

Washington Trust’s total loan portfolio amounted to $4.2 billion, or 73% of total assets, at December 31, 2020.

The Corporation classifies loans as commercial, residential real estate or consumer.

The Corporation’s lending activities are conducted primarily in southern New England and, to a lesser extent, other states.

Washington Trust offers a variety of commercial and retail lending products.

Interest rates charged on loans may be fixed or variable and vary with the degree of risk, loan term, underwriting and servicing costs, loan amount and the

extent of other banking relationships maintained with customers.

Interest rates charged on loans may be fixed or variable and vary with the degree of risk, loan term, underwriting and servicing costs, loan amount and the extent of other banking relationships maintained with customers.

Rates are further subject to competitive pressures, the current interest rate environment, availability of funds and government regulations.

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Based on management’s assessment of these matters, underwriting standards and credit monitoring activities are enhanced from time to time in response to changes in these conditions.

These assessments may result in clarification of debt service ratio calculations, changes in geographic and loan type concentrations, modifications to loan to value standards for real estate collateral, changes in credit monitoring criteria and enhancements to monitoring of construction loans.

These assessments may result in clarification of debt service ratio calculations, changes in geographic and loan type concentrations, modifications to loan to value (“LTV”) standards for real estate collateral, changes in credit monitoring criteria and enhancements to monitoring of construction loans.

Commercial Loans

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Commercial loans fall into two major categories:

commercial real estate and commercial and industrial loans.

commercial real estate (“CRE”) and commercial and industrial (“C&I”) loans.

Commercial real estate loans consist of commercial mortgages secured by real property where the primary source of repayment is derived from rental income associated with the property or the proceeds of the sale, refinancing or permanent financing of the property.

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Commercial real estate loans frequently involve larger loan balances to single borrowers or groups of related borrowers.

The Bank’s commercial real estate loans are secured by a variety of property types, such as multi-family dwellings, retail facilities, office buildings, lodging, healthcare facilities, industrial and warehouse and commercial mixed use properties.

The Bank’s commercial real estate loans are secured by a variety of property types, such as multi-family dwellings, retail facilities, office buildings, hospitality properties, healthcare facilities, industrial and warehouse and commercial mixed use properties.

At December 31, 2020, commercial real estate loans represented 67% of the total commercial loan portfolio and 39% of the total loan portfolio.

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Commercial and industrial loans are frequently collateralized by equipment, inventory, accounts receivable and/or general business assets.

A significant portion of the Bank’s commercial and industrial loan portfolio is also collateralized by real estate.

Commercial and industrial loans also include tax-exempt loans made to states and political subdivisions, as well as industrial development or revenue bonds issued through quasi-public corporations for the benefit of a private or non-profit entity where that entity rather than the governmental entity is obligated to pay the debt service.

The Bank’s commercial and industrial loan portfolio includes loans to business sectors such as health care/social assistance, educational services, manufacturing, owner-occupied and other real estate, retail trade, professional, scientific and technical, entertainment and recreation, finance and insurance, other services, public administration, transportation and warehousing.

A portion of the Bank’s commercial and industrial loan portfolio is also collateralized by real estate.

Commercial and industrial loans also include Paycheck Protection Program loans that are fully guaranteed by the U.S.

government, tax-exempt loans made to states and political subdivisions, as well as industrial development or revenue bonds issued through quasi-public corporations for the benefit of a private or non-profit entity where that entity rather than the governmental entity is obligated to pay the debt service.

The Bank’s commercial and industrial loan portfolio includes loans to business sectors such as healthcare and social assistance, manufacturing, owner-occupied and other real estate, educational services, retail, accommodation and food services, professional, scientific and technical services, entertainment and recreation, information sector, finance and insurance, transportation and warehousing, and public administration.

At December 31, 2020, commercial and industrial loans represented 33% of the total commercial loan portfolio and 19% of the total loan portfolio.

Residential Real Estate Loans

Washington Trust originates residential real estate mortgages through our residential mortgage lending offices in Rhode Island, eastern Massachusetts and Connecticut.

Our mortgage origination business reaches beyond our bank branch network, which is primarily located in Rhode Island.

The residential real estate loan portfolio consists of mortgage and homeowner construction loans secured by one- to four-family residential properties and represented 35% of total loans at December 31, 2020.

Residential real estate loans are primarily originated by commissioned mortgage originator employees.

Residential real estate

loans are primarily originated by commissioned mortgage originator employees.

Residential real estate loans are originated both for sale to the secondary market, as well as for retention in the Bank’s loan portfolio.

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Residential real estate loans are also originated for various investors in a broker capacity, including conventional mortgages and reverse mortgages.

In 2019 , residential real estate loan originations for retention in portfolio amounted

to $347.4 million , while loans originated for sale to the secondary market, including loans originated in a broker capacity, totaled $598.1 million .

Also included in the residential real estate loan portfolio are purchased mortgage loans secured by one- to four-family residential properties in southern New England and other states.

These loans were purchased from other financial institutions and were individually evaluated to Washington Trust’s underwriting standards.

As of December 31, 2019 , purchased residential mortgages were largely secured by properties located in Massachusetts and represented 10% of the total residential real estate loan portfolio and 4% of the total loan portfolio.

In 2020, residential real estate loan originations for retention in portfolio amounted to $502.1 million, while loans originated for sale to the secondary market, including loans originated in a broker capacity, totaled $1.2 billion.

Also included in the residential real estate loan portfolio are mortgage loans purchased from and serviced by other financial institutions.

These loans are individually evaluated at time of purchase to Washington Trust’s underwriting standards and are secured by one- to four-family residential properties in southern New England and other states.

As of December 31, 2020, purchased residential mortgages serviced by others were largely secured by properties located in Massachusetts and represented 9% of the total residential real estate loan portfolio and 3% of the total loan portfolio.

Consumer Loans

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The Bank offers a wide variety of deposit products with a range of interest rates and terms to consumer, commercial, non-profit and municipal deposit customers.

Washington Trust’s deposit accounts consist of noninterest-bearing demand deposits, interest-bearing demand deposits, NOW accounts, savings accounts, money market accounts and time deposits.

Washington Trust’s deposit accounts consist of noninterest-bearing demand deposits, interest-bearing demand deposits, NOW accounts, money market accounts, savings accounts and time deposits.

A variety of retirement deposit accounts are offered to customers.

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These services include investment management;

financial planning;

holistic financial planning services;

personal trust and estate services, including services as trustee, personal representative, custodian and guardian;

and settlement of decedents’ estates.

Institutional trust services are also provided, including custody and fiduciary services.

settlement of decedents’ estates;

institutional trust services, including custody and fiduciary services.

Wealth management services are primarily provided through the Bank and its registered investment adviser subsidiary.

See additional information under the caption “Subsidiaries.”

At December 31, 2019 , wealth management assets under administration totaled $6.2 billion .

At December 31, 2020, wealth management assets under administration (“AUA”) totaled $6.9 billion.

These assets are not included in the Consolidated Financial Statements.

Washington Trust’s wealth management revenues represented 18% of total revenues in 2019 .

A substantial portion of wealth management revenues is largely dependent on the value of wealth management assets under administration and is closely tied to the performance of the financial markets.

Washington Trust’s wealth management revenues represented 16% of total revenues in December 31, 2020.

A substantial portion of wealth management revenues is largely dependent on the value of wealth management AUA and is closely tied to the performance of the financial markets.

This portion of wealth management revenues is referred to as “asset-based” and includes trust and investment management fees.

management revenues also include “transaction-based” revenues, such as financial planning, commissions and other service fees that are not primarily derived from the value of assets.

Wealth management revenues also include “transaction-based” revenues, such as commissions and other service fees that are not primarily derived from the value of assets.

Investment Security Activities

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Its current charter dates to 1902.

The Bank provides a broad range of financial services, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management and trust services.

The Bank provides a broad range of financial services, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services.

The deposits of the Bank are insured by the FDIC, subject to regulatory limits.

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Halsey Associates, Inc.

(“Halsey”), located in New Haven, Connecticut, operated as a wholly-owned registered investment adviser subsidiary of the Bank since August 2015, when it was acquired by the Bancorp.

On October 1, 2019, Halsey was merged into the Bank as a separate department and ceased to be a separate registered investment adviser subsidiary of the Bank.

(“Halsey”), located in New Haven, Connecticut, operated as a wholly-owned registered investment adviser subsidiary of the Bank from August 2015, when it was acquired by the Bancorp, until 2019, when Halsey was merged into the Bank.

The acquisitions of Weston Financial and Halsey expanded the geographic reach of Washington Trust’s wealth management business.

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Washington Trust’s primary deposit gathering area consists of the communities that are served by its branch network.

As of December 31, 2019 , the Bank had 10 branch offices located in southern Rhode Island (Washington County), 12 branch offices located in the greater Providence area in Rhode Island and one branch office located in southeastern Connecticut.

As of December 31, 2020, the Bank had 10 branch offices located in southern Rhode Island (Washington County), 12 branch offices located in the greater Providence area in Rhode Island and 1 branch office located in southeastern Connecticut.

In 2021, we plan to open a new full-service branch in East Greenwich, Rhode Island.

As noted above, Washington Trust’s lending activities are conducted primarily in southern New England and, to a lesser extent, other states.

In addition to branch offices, the Bank has a commercial lending office at its main office and in the financial district of Providence, Rhode Island.

Washington Trust also has six residential mortgage lending offices located in eastern Massachusetts (Sharon, Burlington, Braintree and Wellesley);

Washington Trust also has 6 residential mortgage lending offices located in eastern Massachusetts (Sharon, Burlington, Braintree and Wellesley);

in Glastonbury, Connecticut;

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Washington Trust contends with strong competition both in generating loans and attracting deposits.

The primary factors in competing are interest rates, financing terms, fees charged, products offered, personalized customer service, online access to accounts and convenience of branch locations, ATMs and branch hours.

The primary factors in competing are interest rates, financing terms, fees charged, products offered, personalized customer service, online and mobile access to accounts and convenience of branch locations, ATMs and branch hours.

Competition comes from commercial banks, credit unions, savings institutions and internet banks, as well as other non-bank institutions.

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Key competitive factors include investment performance, quality and level of service, as well as personal relationships.

Principal competitors in the wealth management services business are commercial banks and trust companies, investment advisory firms, mutual fund companies, stock brokerage firms and other financial companies.

Principal competitors

in the wealth management services business are commercial banks and trust companies, investment advisory firms, mutual fund companies, online and full-service stock brokerage firms and other financial companies.

Many of these companies have greater resources than Washington Trust.

At December 31, 2019 , Washington Trust had 619 employees consisting of 598 full-time and 21 part-time and other employees.

Employees and Human Capital Resources

Washington Trust had 609 full-time equivalent employees at December 31, 2020.

Management considers relations with its employees to be good.

Washington Trust maintains a comprehensive employee benefit program providing, among other benefits, group medical and dental insurance, life insurance, disability insurance and a 401(k) plan.

Washington Trust maintains a tax-qualified defined benefit pension plan (“qualified pension plan”) for the benefit of certain eligible employees who were hired prior to October 1, 2007.

Washington Trust also has non-qualified defined benefit retirement plans to provide supplemental retirement benefits to certain employees, as described in these plans.

The defined benefit pension plans were previously amended to freeze benefit accruals after a

ten-year transition period ending in December 2023.

See Note 17 to the Consolidated Financial Statements for additional information on certain employee benefit programs.

We encourage and support the growth and development of our employees.

Continual learning and career development is advanced through internally developed training programs, customized corporate training engagements, educational reimbursement programs, as well as ongoing performance and development conversations with employees.

The safety, health and wellness of our employees is a top priority.

The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while continuing successful operations.

Through teamwork and the adaptability of our management and staff, we were able to transition, over a short period of time, approximately 70% of our employees to effectively working from remote locations and ensure a safely-distanced working environment for employees performing customer facing activities at branches and operations centers.

All employees are asked not to come to work when they experience signs or symptoms of a possible COVID-19 illness and have been provided additional paid time off to cover compensation during such absences.

On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, keeping the employee portion of health care premiums to a minimum and sponsoring various wellness programs.

Statistical Disclosures

The information required by Securities Act Guide 3 “Statistical Disclosure by Bank Holding Companies” is located on the pages noted below.

Description Page

Distribution of Assets, Liabilities and Stockholder Equity;

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Summary of Loan Loss Experience 64-67, 115

Deposits 67-68, 120

Return on Equity and Assets 32

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The following discussion is qualified in its entirety by reference to the full text of the statutes, regulations, policies and guidelines described below.

COVID-19 Pandemic Related

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted to address the economic effects of the COVID-19 pandemic.

The CARES Act was a $2 trillion stimulus bill, with the goal of preventing 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.

On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act (the “CRRSA Act”) was signed into law, authorizing more than $900 billion in economic aid to small businesses and consumer.

Participation in the Paycheck Protection Program.

The CARES Act initially appropriated $349 billion for a loan program administered through the U.S.

Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”).

The amount appropriated was subsequently increased to $659 billion (the “Original PPP”).

The CRRSA Act appropriated an additional $285 billion to PPP for loans to small businesses, including borrowers that have previously received PPP loans under the CARES Act (the “PPP-2”).

PPP loans have either a two-year or five-year term and earn interest at a rate of 1%.

Loans under the PPP that meet SBA requirements may be forgiven in certain circumstances, and are 100% guaranteed by SBA.

Through December 31, 2020, Washington Trust originated 1,782 PPP loans with principal balances totaling $225.7 million under the Original PPP.

Washington Trust began participating in the PPP-2 in January 2021.

As of February 19, 2021, we have originated 706 PPP-2 loans with principal balances totaling $67.8 million.

A significant portion of the PPP loans are expected to ultimately be forgiven by the SBA in accordance with the terms of the program.

In conjunction with the PPP, the Federal Reserve has created the Paycheck Protection Program Liquidity Facility (“PPPLF”), a lending facility for qualified financial institutions.

Only loans issued under the PPP can be pledged as collateral to access the facility.

The PPPLF extends credit to depository institutions at a fixed interest rate of 0.35% with maturity terms matching the maturity date of the pledged PPP loans.

In 2020, Washington Trust participated in PPPLF, however, as of December 31, 2020, Washington Trust had no PPPLF borrowings outstanding.

Troubled Debt Restructuring Relief.

The CARES Act also provided troubled debt restructuring (“TDR”) accounting relief, which was subsequently extended by the CRRSA Act.

From March 1, 2020 through the earlier of January 1, 2022 or 60 days after the termination date of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”), a financial institution may elect to suspend the requirements under GAAP for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR, including impairment accounting.

This TDR relief applies for the term of the loan modification that occurs during the applicable period for a loan that was not more than 30 days past due as of December 31, 2019.

Financial institutions are required to maintain records of the volume of loans involved in modifications to which TDR relief is applicable.

Washington Trust made this election.

Through December 31, 2020, Washington Trust executed loan payment deferment modifications on 636 loans totaling $717.4 million.

Eligible deferment modifications are not classified as TDRs and will not be reported as past due provided that they are performing in accordance with the modified terms.

Forbearance .

The CARES Act codified in part guidance from state and federal regulators and government-sponsored enterprises, including the 60-day suspension of foreclosures on federally-backed mortgages and requirements that servicers grant forbearance to borrowers affected by COVID-19.

The suspension of foreclosures on federally-backed mortgages and forbearance requirements have been extended until March 31, 2021.

Moratorium on Negative Credit Reporting .

Any furnisher of credit information that agrees to defer payments, forbear on any delinquent credit or account, or provide any other relief to consumers affected by the COVID-19 pandemic must report the credit obligation or account as current if the credit obligation or account was current before the accommodation.

Regulation of the Bancorp

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As a financial holding company, the Bancorp is authorized to engage in certain financial activities in which a bank holding company that has not elected to be a financial holding company may not engage.

“Financial activities” is broadly defined to include not only banking, insurance and

securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

“Financial activities” is broadly defined to include not only banking, insurance and securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

Currently, as a financial holding company, the Bancorp engages, through its subsidiary WSC, in broker-dealer activities pursuant to this authority.

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Limitations on Acquisitions of Bancorp Common Stock.

The Change in Bank Control Act prohibits a person or group of persons acting in concert from acquiring “control” of a bank holding company unless the Federal Reserve has been notified and has not objected to the transaction.

Under rebuttable presumptions of control established by the Federal Reserve, the acquisition of control of more than 5% of a class of voting securities of a bank holding company, together with other factors enumerated by the Federal Reserve, could constitute the acquisition of control of a bank holding company.

The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company unless the Federal Reserve has been notified and has not objected to the transaction.

Under rebuttable presumptions of control established by the Federal Reserve, the acquisition of control of voting securities of a bank holding company constitutes an acquisition of control under the Change in Bank Control Act, requiring prior notice to the Federal Reserve, if, immediately after the transaction, the acquiring person (or persons acting in concert) will own, control, or hold with power to vote 10% or more of any class of voting securities of the bank holding company, and if either (i) the bank holding company has registered securities under Section 12 of the Securities Exchange Act of 1934, or (ii) no other person will own, control, or hold the power to vote a greater percentage of that class of voting securities immediately after the transaction.

In addition, the BHCA prohibits any company from acquiring control of a bank or bank holding company without first having obtained the approval of the Federal Reserve.

Among other circumstances, under the BHCA, a company has control of a bank or bank holding company if the company owns, controls or holds with power to vote 25% or more of a class of voting securities of the bank or bank holding company, controls in any manner the election of a majority of directors or trustees of the bank or bank holding company, or the Federal Reserve has determined, after notice and opportunity for hearing, that the company has the power to exercise a controlling influence over the management or policies of the bank or bank holding company.

Among other circumstances, under the BHCA, a company has control of a bank or bank holding company if the company owns, controls or holds with power to vote 25% or more of

a class of voting securities of the bank or bank holding company, controls in any manner the election of a majority of directors or trustees of the bank or bank holding company, or the Federal Reserve has determined, after notice and opportunity for hearing, that the company has the power to exercise a controlling influence over the management or policies of the bank or bank holding company.

The Federal Reserve has established presumptions of control under which the acquisition of control of 5% or more of a class of voting securities of a bank holding company, together with other factors enumerated by the Federal Reserve, could constitute the acquisition of control of a bank holding company for purposes of the BHCA.

Regulation of the Bank

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Deposit Insurance.

The deposit obligations of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) up to $250,000 per depositor.

In 2016, as mandated by the Federal Deposit Insurance Act (the “FDIA”), the FDIC’s Board of Directors approved a final rule to increase the DIF’s reserve ratio to the statutorily required minimum ratio of 1.35% of estimated insured deposits.

On September 30, 2018, the DIF reserve ratio reached 1.36%.

Small banks, which are generally banks with less than $10 billion in assets, were awarded assessment credits to offset the portion of their assessments that help to raise the reserve ratio from 1.15% to 1.35%.

In 2019, the Bank was awarded FDIC insurance assessment credits totaling approximately $1.1 million.

The credits were fully utilized and recorded as a reduction to FDIC deposit insurance costs in the Consolidated Statement of Income for the year ended December 31, 2019.

Deposit premiums are based on assets.

The deposit obligations of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) up to $250,000 per depositor with respect to deposits held in the same right and capacity.

Deposit insurance premiums are based on assets.

In 2016, the FDIC’s Board of Directors adopted a final rule that changed the manner in which deposit insurance assessment rates are calculated for established small banks, generally those banks with less than $10 billion of assets that have been insured for at least five years.

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In addition, under the FDIA, the FDIC may terminate deposit insurance, among other circumstances, upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

For 2019 , the FDIC insurance expense for the Bank was $618 thousand , net of assessment credits that were fully utilized in 2019.

For December 31, 2020, the FDIC insurance expense for the Bank was $1.8 million.

Acquisitions and Branching.

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Prior to the effectiveness of certain provisions of the Dodd-Frank Act, bank holding companies were permitted to include trust preferred securities and cumulative perpetual preferred stock in Tier 1 capital, subject to limitations.

However, the Federal Reserve’s capital rule applicable to bank holding companies permanently grandfathers non-qualifying capital instruments, including trust preferred securities, issued before May 19, 2010 by depository institution holding companies with less than $15 billion in total assets as of December 31, 2009, subject to a limit of 25% of Tier 1 capital.

depository institution holding companies with less than $15 billion in total assets as of December 31, 2009, subject to a limit of 25% of Tier 1 capital.

The Bancorp’s currently outstanding trust preferred securities were grandfathered under this rule.

In addition, under rules that became effective January 1, 2015, accumulated other comprehensive income (positive or negative) must be reflected in Tier 1 capital;

however, the Bancorp and the Bank were permitted to make a one-time, permanent election to continue to exclude accumulated other comprehensive income from capital.

In addition, under rules that became effective January 1, 2015, accumulated other comprehensive income (“AOCI”) (positive or negative) must be reflected in Tier 1 capital;

however, the Bancorp and the Bank were permitted to make a one-time, permanent election to continue to exclude AOCI from capital.

The Bancorp and the Bank made this election.

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Section 201 of the Economic Growth Act directs the federal bank regulatory agencies to establish a community bank leverage ratio of tangible capital to average total consolidated assets of not less than 8.0% or more than 10.0%.

In November 2019, the federal banking agencies published in the Federal Register a final rule to implement Section 201 of the Economic Growth Act.

Under the final rule, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to Tier 1 capital divided by average total consolidated assets) of greater than 9%, will be eligible to opt into the community bank leverage ratio framework.

A community banking organization that qualifies for and elects to use the community bank leverage ratio framework, and that maintains a leverage ratio of greater than 9%, will be considered to have satisfied the risk-based and leverage capital requirements in the capital rules and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act.

Under the final rule issued by federal banking agencies, effective January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to Tier 1 capital divided by average total consolidated assets) of greater than 9.0%, will be eligible to opt into the community bank leverage ratio framework.

A community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9.0% will be considered to have satisfied the risk-based and leverage capital requirements in the banking agencies’

capital rules and will be considered to have met the well-capitalized ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act.

The final rule includes a two-quarter grace period during which a qualifying banking organization that temporarily fails to meet any of the qualifying criteria, including the greater than 9.0% leverage ratio requirement, generally would still be deemed well-capitalized so long as the banking organization maintains a leverage ratio greater than 8.0%.

At the end of the grace period, the banking organization must meet all qualifying criteria to remain in the community bank leverage ratio framework or otherwise must comply with and report under the generally applicable rule.

The final rule became effective on January 1, 2020.

As required by Section 4012 of the CARES Act, the federal banking agencies temporarily lowered the community bank leverage ratio, issuing two interim final rules to set the community bank leverage ratio at 8.0% and then gradually re-establish it at 9%.

Under the interim final rules, the community bank leverage ratio was set at 8.0% beginning in the second quarter of 2020 through the end of the year.

Community banks that have a leverage ratio of 8.0% or greater and meet certain other criteria may elect to use the community bank leverage ratio framework.

Beginning in 2021, the community bank leverage ratio will increase to 8.5% for the calendar year.

Community banks will have until January 1, 2022, before the leverage ratio requirement to use the CBLR framework will return to 9.0%.

At this time, the Corporation does not anticipate opting in to the community bank leverage ratio.

Safety and Soundness Standard.

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Revenues of the Bancorp are derived primarily from dividends paid to it by the Bank and the Bancorp’s other subsidiaries.

The right of the Bancorp,

and consequently the right of shareholders of the Bancorp, to participate in any distribution of the assets or earnings of its subsidiaries, through the payment of such dividends or otherwise, is subject to the prior claims of creditors of the subsidiaries, including, with respect to the Bank, depositors of the Bank, except to the extent that certain claims of the Bancorp in a creditor capacity may be recognized.

The right of the Bancorp, and consequently the right of shareholders of the Bancorp, to participate in any distribution of the assets or earnings of its subsidiaries, through the payment of such dividends or otherwise, is subject to the prior claims of creditors of the subsidiaries, including, with respect to the Bank, depositors of the Bank, except to the extent that certain claims of the Bancorp in a creditor capacity may be recognized.

Restrictions on Bank Holding Company Dividends.

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Federal law also prohibits the payment of dividends by a bank that will result in the bank failing to meet its applicable capital requirements on a pro forma basis.

Payment of dividends by a bank is also restricted pursuant to various state regulatory limitations.

Payment of dividends by a bank is also restricted pursuant to various state

regulatory limitations.

Reference is made to Note 13 to the Consolidated Financial Statements for additional discussion of the Bancorp and the Bank’s ability to pay dividends.

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and (ii) in the case of all affiliates, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries cannot exceed 20% of the capital stock and surplus of the insured depository institution.

For this purpose, “covered transactions” are defined by statute to include a loan or extension of credit to an affiliate, a purchase of or investment in securities issued by an affiliate, a purchase of assets from an affiliate unless exempted by the Federal Reserve, the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any person or company, the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, securities borrowing or lending transactions with an affiliate that creates a credit exposure to such affiliate, or a derivatives transaction with an affiliate that creates a credit exposure to such affiliate.

For this purpose, “covered transactions” are defined by statute to include:

a loan or extension of credit to an affiliate, a purchase of or investment in securities issued by an affiliate, a purchase of assets from an affiliate unless exempted by the Federal Reserve, the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any person or company, the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, securities borrowing or lending transactions with an affiliate that creates a credit exposure to such affiliate, or a derivatives transaction with an affiliate that creates a credit exposure to such affiliate.

“Covered transactions” are also subject to certain collateral security requirements.

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These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making loans, collecting loans and providing other services.

Further, the CFPB also has a broad mandate to prohibit unfair, deceptive or abusive acts and practices and is specifically empowered to require certain disclosures to

consumers and draft model disclosure forms.

Further, the CFPB also has a broad mandate to prohibit unfair, deceptive or abusive acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms.

Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines and other penalties.

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The Dodd-Frank Act requires mortgage lenders to make additional disclosures prior to the extension of credit, and in each billing statement, for negative amortization loans and hybrid adjustable rate mortgages.

Additionally, CFPB’s qualified mortgage rule (the “QM Rule”), requires creditors, such as Washington Trust, to make a reasonable good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling.

transaction secured by a dwelling.

The Economic Growth Act included provisions that ease certain requirements related to residential mortgage transactions for certain institutions with less than $10 billion in total consolidated assets.

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In general, the Bank must provide its customers with an initial and annual disclosure that explains its policies and procedures regarding the disclosure of such nonpublic personal information, and, except as otherwise required or permitted by law, the Bank is prohibited from disclosing such information except as provided in such policies and procedures.

However, an annual disclosure is not required to be provided by a financial institution if the financial institution only discloses information under exceptions from GLBA that do not require an opt out to be provided and if there has been no change in its privacy policies and practices since its most recent disclosure provided to consumers.

However, an annual disclosure is not required to be provided by a financial institution if the financial institution only discloses information under exceptions from GLBA that do not require an opt out to be provided and if there has been no change in its privacy policies and procedures since its most recent disclosure provided to consumers.

The GLBA also requires that the Bank develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information (as defined under GLBA), to protect against anticipated threats or hazards to the security or integrity of such information;

5 unchanged sentences

Pursuant to the FACT Act, the Bank had to develop and implement a written identity theft prevention program to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts.

Additionally, the FACT Act amends the Fair Credit Reporting Act to generally prohibit a person from using information received from an affiliate to make a solicitation for marketing purposes to a consumer, unless the consumer is given notice and a reasonable opportunity and a reasonable and simple method to opt out of the making of such solicitations.

Additionally, the FACT Act amends the Fair Credit Reporting Act to generally prohibit a person from using information received from an affiliate to make a solicitation for marketing purposes to a consumer, unless the consumer is given notice and a reasonable opportunity and method to opt out of the making of such solicitations.

Anti-Money Laundering

6 unchanged sentences

In evaluating an application to acquire a bank or to merge banks or effect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking regulator must consider the anti-money laundering compliance record of both the applicant and the target.

In addition, under the USA PATRIOT

Act financial institutions are required to take steps to monitor their correspondent banking and private banking relationships as well as, if applicable, their relationships with “shell banks.”

In addition, under the USA PATRIOT Act financial institutions are required to take steps to monitor their correspondent banking and private banking relationships as well as, if applicable, their relationships with “shell banks.”

Office of Foreign Assets Control.

6 unchanged sentences

(ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S.

jurisdiction (including property in the possession or control of U.S.

jurisdiction (including property in the possession or control

and (iii) restrictions on transactions with or involving certain persons or entities.

25 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-K

Item 1. Business