What changed in this filing

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Item 1A. Risk Factors

2021-02-25 compared with 2020-02-25 · 138 added, 94 removed, 217 unchanged (52% of the section changed)

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The risks and uncertainties described below and in our other filings are not the only ones facing us.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business, particularly in light of the fast-changing nature of the COVID-19 pandemic, containment measures and the related

impacts to economic and operating conditions.

If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be impaired.

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This report is qualified in its entirety by these risk factors.

RISKS RELATED TO THE COVID-19 PANDEMIC

The COVID-19 pandemic, and the measures taken to control its spread, will continue to adversely impact our employees, customers, business operations and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has impacted and is likely to continue to impact the national economy and the regional and local markets in which we operate, lower equity market valuations, create significant volatility and disruption in capital and debt markets, and increase unemployment levels.

Our business operations may be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic.

We are subject to heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements that we and our third party service providers have put in place for employees.

Federal Reserve actions 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 our net interest income and margins, and our profitability.

The continued closures of many businesses and the institution of pandemic-related orders and directives in the states and communities we serve have reduced business activity and financial transactions.

Government policies and directives relating to the pandemic response are subject to change as the effects and spread of the COVID-19 pandemic continue to evolve.

It is unclear whether any COVID-19 pandemic-related businesses losses that we or our customers may suffer will be recovered by existing insurance policies.

Changes in customer behavior due to worsening business and economic conditions or legislative or regulatory initiatives may impact the demand for our products and services, which could adversely affect our revenue.

Additionally, certain government directives and social distancing protocols may hinder our ability to conduct timely appraisals of collateral securing loans and may cause disruption in the loan origination process and add uncertainty about the adequacy of our allowance for credit losses (“ACL”).

The measures we have taken to aid our customers, including loan payment deferments, may be insufficient to help our customers who have been negatively impacted by the economic fallout from the COVID-19 pandemic.

Loans that are currently in deferral status may become nonperforming loans.

More generally, because of adverse economic and market conditions, our borrowers may be unable to repay their loans.

A borrower’s default may result in lost principal and interest income and increased operating expenses as a result of the allocation of management time and external resources to the collection and workout of the loan.

If there is an increase in borrower defaults, we may be required to increase our provision for credit losses.

Further deterioration in economic and financial market conditions may cause us to recognize impairments on investment securities we hold, goodwill, intangible assets and right-of-use-assets.

The increase in financial market volatility and a corresponding increase in trading frequency also means that our Wealth Management Services business is subject to an increased risk of trading errors, and the risk that any trading errors are of an increased magnitude.

While the most notable adverse impact to the Corporation’s results of operations in 2020 was a higher provision for credit losses, the extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial condition, as well as our 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 we may take as may be required by government authorities or that we determine is in the best interests of our employees and customers.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.

All of these risks and uncertainties can be expected to persist at least until the pandemic is demonstrably and sustainably contained, authorities cease curbing household and business activity, and consumer and business confidence recover.

Our participation in the SBA’s PPP may expose us to reputational harm, increased litigation risk, as well as the risk that the SBA may not fund some or all of the guarantees associated with PPP loans.

As of December 31, 2020, there were 1,706 PPP loans with a carrying value of $199.8 million included in our commercial and industrial loan portfolio.

Lenders participating in the PPP have faced increased public scrutiny about their loan application process and procedures, and the nature and type of the borrowers receiving PPP loans.

We depend on our reputation as a trusted and responsible financial services company to compete effectively in the

communities that we serve, and any negative public or customer response to, or any litigation or claims that might arise out of, our participation in the PPP and any other legislative or regulatory initiatives and programs that may be enacted in response to the COVID-19 pandemic, could adversely impact our business.

Other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP, and we may be subject to the same or similar litigation, in addition to litigation in connection with our processing of PPP loan forgiveness applications.

In addition, if the SBA determines that there is a deficiency in the manner in which a PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency or the processing fee from us.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

Changes in the business and economic conditions, particularly those of southern New England, could adversely affect our financial condition and results of operations.

A deterioration in the economy or increased levels of unemployment, downside economic shocks, or a return to recessionary economic conditions could lead to erosion of customer confidence, a reduction in general business activity and increased market volatility.

A worsening of economic conditions, increased levels of unemployment, downside economic shocks, or recessionary economic conditions could lead to erosion of customer confidence, a reduction in general business activity and increased market volatility.

The resulting economic pressure on consumers and businesses and lack of confidence in the financial markets could adversely affect our business, financial condition, results of operations and stock price.

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• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

• our ability to continue to originate real estate loans may be impaired.

Fluctuations in interest rates may impair the Bank’s business.

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Fixed-rate investment securities, mortgage-backed securities and mortgage loans typically decline in value as interest rates rise.

The Bank has adopted asset and liability management policies to mitigate the potential adverse effects of changes in interest rates on net interest income, primarily by altering the mix and maturity of loans, investments, funding sources, and derivatives.

and derivatives.

However, even with these policies in place, a change in interest rates can impact our results of operations or financial condition.

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The Corporation may incur losses or expenses if security interests granted to Washington Trust are not enforceable.

Our allowance for loan losses may not be adequate to cover actual loan losses, and an increase in the allowance for loan losses will adversely affect our earnings.

We maintain an allowance for loan losses based on available information, including, but not limited to, the quality and collectability of the loan portfolio, the creditworthiness of borrowers, certain economic conditions, the value of the underlying collateral and the level of nonaccrual and criticized loans.

We rely on our loan quality reviews, our experience and our evaluation of economic conditions, among other factors, in determining the amount of provision required for the allowance for loan losses.

Provisions to this allowance result in an expense for the period.

If, as a result of general economic conditions, changes to previous assumptions, or an increase in defaulted loans, we determine that additional increases in the allowance for loan losses are necessary, we will incur additional expense.

A problem with one or more loans could require Washington Trust to significantly increase the level of its allowance for loan losses.

Federal and state regulators, in reviewing our loan portfolio as part of a regulatory examination, may request that we increase our allowance for loan losses.

Any increases in our allowance for loan losses will result in a decrease in our net income and, possibly, our capital, and could have an adverse effect on our financial condition and results of operations.

See Note 2 to the Consolidated Financial Statements for additional information regarding the January 1, 2020 adoption of a new accounting standard for determining the amount of the allowance for credit losses.

Additionally, the new standard could produce higher volatility in future provisions for credit losses than our current process and could adversely impact our results of operations.

Environmental liability associated with our lending activities could result in losses.

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These events could have an adverse effect on our financial condition and results of operations.

Our allowance for credit losses on loans may not be adequate to cover actual loan losses, and an increase in the allowance for credit losses on loans will adversely affect our earnings.

We maintain an ACL on loans that is based on relevant internal and external information related to past events, current economic conditions and reasonable supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

The Corporation makes various assumptions and judgments about the quality and collectability of the loan portfolio, the creditworthiness of borrowers, the value of the underlying collateral, the enforceability of its loan documents, current economic conditions and reasonable and supportable forecasts.

If the assumptions underlying the determination of its ACL prove to be incorrect, the ACL may not be sufficient to cover actual loan losses and an increase to the ACL may be necessary to allow for different assumptions or adverse developments.

In addition, a problem with one or more loans could require a significant increase to the ACL.

Federal and state regulators, in reviewing our loan portfolio as part of a regulatory examination, may request that we increase our ACL.

Any increases in our ACL will result in a decrease in our net income and, possibly, our capital, and could have an adverse effect on our financial condition and results of operations.

In 2020, significant deterioration in the economic forecast due to the COVID-19 pandemic was estimated in the ACL, however, continued uncertainty regarding the severity and duration of the pandemic and related economic effects will continue to affect the ACL.

Deteriorating conditions or assumptions could lead to further increases in the ACL.

We are subject to liquidity risk, which could negatively affect our funding levels.

Market conditions or other events could negatively affect our access to or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, or fund asset growth and new business initiatives at a reasonable cost, in a timely manner and without adverse consequences.

Although we maintain a liquid asset portfolio and have implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes in assets, liabilities, and off-balance sheet commitments under various economic conditions, a substantial, unexpected, or prolonged change in the level or cost of

liquidity could have a material adverse effect on us.

If the cost effectiveness or the availability of supply in these credit markets is reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity by other means.

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See Item, “Business-Supervision and Regulation-Dividend Restrictions” and “Business - Supervision and Regulation-Capital Adequacy and Safety and Soundness-Regulatory Capital Requirements.”

We operate in a highly regulated industry, and laws and regulations, or changes in them, could limit or restrict our activities and could have a material adverse effect on our operations.

We are subject to extensive federal and state regulation and supervision.

Federal and state laws and regulations govern numerous matters affecting us, including changes in the ownership or control of banks and bank holding companies;

maintenance of adequate capital and the financial condition of a financial institution;

permissible types, amounts and terms of extensions of credit and investments;

the manner in which we conduct mortgage banking activities;

permissible non-banking activities;

the level of reserves against deposits;

and restrictions on dividend payments.

The FDIC and the banking divisions or departments of states in which we are licensed to do business have the power to issue consent orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the Federal Reserve possesses similar powers with respect to bank holding companies.

In addition, Weston Financial, a registered investment advisor subsidiary, is subject to regulation under federal and state securities laws and fiduciary laws.

These and other restrictions limit the manner in which we may conduct business and obtain financing.

The laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change.

These changes could adversely and materially impact us.

Such changes could, among other things, subject us to additional costs, including costs of compliance;

limit the types of financial services and products we may offer;

and/or increase the ability of non-banks to offer competing financial services and products.

Failure to comply with laws, regulations, policies, or supervisory guidance could result in enforcement and other legal actions by federal and state authorities, including criminal and civil penalties, the loss of FDIC insurance, revocation of a banking charter or registration as an investment adviser, other sanctions by regulatory agencies, civil money penalties, and/or reputational damage, which could have a material adverse effect on our business, financial condition, and results of operations.

See “Business-Supervision and Regulation.”

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose community investment and nondiscriminatory lending requirements on financial institutions.

The Consumer Financial Protection Bureau, the Department of Justice and other federal agencies are responsible for enforcing these laws and regulations.

A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act or other fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on expansion and restrictions on entering new business lines.

Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.

Such actions could have a material adverse effect on our business, financial condition and results of operations.

We may become subject to enforcement actions even though noncompliance was inadvertent or unintentional.

The financial services industry is subject to intense scrutiny from bank supervisors in the examination process and aggressive enforcement of federal and state regulations, particularly with respect to mortgage-related practices and other consumer compliance matters, and compliance with anti-money laundering, Bank Secrecy Act and Office of Foreign Assets Control regulations, and economic sanctions against certain foreign countries and nationals.

Enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices.

We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations;

however, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there were systems and procedures designed to ensure compliance in place at the time.

Failure to comply with these and other regulations, and supervisory expectations related thereto, may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage, or restrictions on our business.

We face significant legal risks, both from regulatory investigations and proceedings, and from private actions brought against us.

From time to time we are named as a defendant or are otherwise involved in various legal proceedings, including class actions and other litigation or disputes with third parties.

There is no assurance that litigation with private parties will not increase in the future.

Actions currently pending against us may result in judgments, settlements, fines, penalties or other results adverse to us, which could materially adversely affect our business, financial condition or results of operations, or cause serious reputational harm to us.

As a participant in the financial services industry, it is likely that we will continue to experience litigation related to our businesses and operations.

We are subject to capital and liquidity standards that require banks and bank holding companies to maintain more and higher quality capital and greater liquidity than has historically been the case.

We became subject to new capital requirements in 2015.

These new standards, which are now fully phased-in, force bank holding companies and their bank subsidiaries to maintain substantially higher levels of capital as a percentage of their assets, with a greater emphasis on common equity as opposed to other components of capital.

The need to maintain more and higher quality capital, as well as greater liquidity, and generally increased regulatory scrutiny with respect to capital levels, may at some point limit our business activities, including lending, and our ability to expand.

It could also result in our being required to take steps to increase our regulatory capital and may dilute shareholder value or limit our ability to pay dividends or otherwise return capital to our investors through stock repurchases.

We have credit and market risk inherent in our investment securities portfolio.

We maintain a securities portfolio, which includes obligations of U.S.

We maintain a securities portfolio, which may include obligations of U.S.

government-sponsored enterprises and agencies, including mortgage-backed securities;

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We seek to limit credit losses in our securities portfolios by generally purchasing only highly-rated securities.

The valuation and liquidity of our securities could be adversely impacted by reduced market liquidity, increased normal bid-asked spreads and increased uncertainty of market participants, which could reduce the market value of our securities, even those with no apparent credit exposure.

The valuation and liquidity of our securities could be adversely impacted by reduced market liquidity, increased normal bid-asked spreads and increased uncertainty of market

participants, which could reduce the market value of our securities, even those with no apparent credit exposure.

The valuation of our securities requires judgment and as market conditions change security values may also change.

Significant negative changes to valuations could result in impairments in the value of the Corporation’s securities portfolio, which could have an adverse effect on the Corporation’s financial condition or results of operations.

Potential downgrades of U.S.

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There is no assurance that any such losses would not materially and adversely affect our results of operations.

Uncertainty about the replacement of LIBOR may adversely affect our business, financial condition, and results of operations.

LIBOR is used extensively in the United States as a benchmark for various commercial and financial contracts, including funding sources, adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives.

LIBOR is set based on interest rate information reported by certain banks.

These LIBOR banks have indicated they will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate.

In the United States, efforts to identify a set of alternative U.S.

dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve.

Other financial services regulators and industry groups are evaluating the phase-out of LIBOR and the development of alternate reference rate indices or reference rates.

Some of the Corporation’s assets and liabilities are indexed to LIBOR.

The Corporation is evaluating the potential impact of the possible replacement of the LIBOR benchmark interest rate, but is not able to predict whether LIBOR will cease to be available after 2021, whether the alternative rates the Federal Reserve proposes to publish will become market benchmarks in place of LIBOR, or what the impact of such a transition will have on the Corporation’s business, financial condition, or results of operations.

Changes to and replacement of LIBOR may adversely affect our business, financial condition, and results of operations.

LIBOR is used extensively in the United States as a benchmark for various commercial and financial contracts, including loans, securities, funding sources, interest rate swaps and other derivatives.

ICE Benchmark Administration (“IBA”), the authorized and regulated administrator of LIBOR recently announced it would consult on its plans for the discontinuation of LIBOR.

IBA intends to end publication of some LIBOR tenors on December 31, 2021 and the remaining LIBOR tenors in June 2023.

Financial services regulators recently issued guidance on the ongoing use of LIBOR, encouraging banks to transition away from LIBOR as soon as practicable and to not enter into new transactions referencing LIBOR after December 31, 2021.

Financial services regulators and industry groups have collaborated to develop alternate reference rate indices or reference rates.

The transition to a new reference rate requires changes to contracts, risk and pricing models, valuation tools, systems, product design and hedging strategies.

The Corporation has established a cross-functional project team to address the LIBOR transition.

Given the complexity of the transition, as well as the different risk characteristics between LIBOR and the replacement reference rate, the Corporation continues to evaluate the impact the transition, which may, ultimately, adversely affect the Corporation’s business, financial condition, or results of operations.

Market changes or economic downturns may adversely affect demand for our fee-based services and level of wealth management assets under administration.

Economic downturns could affect the volume of income earned from, and demand for, fee-based services.

Revenues from wealth management services depend in large part on the level of assets under administration, which are primarily marketable securities.

Market volatility that results in clients liquidating investments, as well as lower asset values, can

reduce the level of assets under management and administration and decrease the Corporation's wealth management revenues, which could materially adversely affect the Corporation's results of operations.

In addition, revenues from mortgage banking activities are largely dependent on mortgage origination volume and sales volume.

Revenues from mortgage banking activities are largely dependent on mortgage origination volume and sales volume.

Changes in interest rates and the condition of housing markets could adversely impact the volume of residential mortgage originations, sales and related mortgage banking activities.

Revenues from wealth management services depend in large part on the level of AUA, which are primarily marketable securities.

Market volatility that results in clients liquidating investments, as well as lower asset values, can reduce the level of assets under management and administration and decrease the Corporation's wealth management revenues, which could materially adversely affect the Corporation's results of operations.

We may be required to repurchase mortgage loans or indemnify buyers against losses in some circumstances, which could adversely affect our results of operations and financial condition.

When mortgage loans are sold, we are required to make customary representations and warranties to purchasers, guarantors and insurers, including government-sponsored entities, about the mortgage loans and the manner in which they were originated.

Whole loan sale agreements require us to repurchase or substitute mortgage loans, or indemnify buyers against losses, in the event we breach these representations or warranties.

In addition, we may be required to repurchase mortgage loans as a result of early payment default of the borrower on a mortgage loan.

If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for potential losses, our results of operations and financial condition may be adversely affected.

Our wealth management business is highly regulated, and the regulators have the ability to limit or restrict our activities and impose fines or suspensions on the conduct of our business.

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Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect our earnings.

Also, any failure to prevent a security breach or to quickly and effectively deal with such a breach could negatively impact customer confidence, damaging our reputation and undermining our ability to attract and keep customers.

Also, any failure to prevent a security breach or to quickly and

effectively deal with such a breach could negatively impact customer confidence, damaging our reputation and undermining our ability to attract and keep customers.

We rely on other companies to provide key components of our business infrastructure.

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and other mechanisms.

While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application may not be effective and may not anticipate every economic and financial outcome in all market environments or the specifics and timing of such outcomes.

In some cases, management of the Corporation’s risks depends upon the use of analytical and/or forecasting models, which, in turn, rely on assumptions and estimates.

If the models used to mitigate these risks are inadequate, or the assumption or estimates are inaccurate or otherwise flawed, the Corporation may fail to adequately protect against risks and may incur losses.

In addition, there may be risks that exist, or that develop in the future, that the Corporation has not appropriately anticipated, identified or mitigated, which could lead to unexpected losses and the Corporation's results of operations or financial condition could be materially adversely affected.

Damage to our reputation could significantly harm our business, including our competitive position and business prospects.

We are dependent on our reputation within our market area, as a trusted and responsible financial services company, for all aspects of our business with customers, employees, vendors, third-party service providers, and others, with whom we conduct business or potential future businesses.

whom we conduct business or potential future businesses.

Our ability to attract and retain customers and employees could be adversely affected if our reputation is damaged.

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We may not be able to compete effectively in our increasingly competitive industry.

We compete with financial and non-financial services firms, including traditional banks, online banks, financial technology companies, and investment management and wealth advisory firms, including commercial banks and trust companies,

investment advisory firms, mutual fund companies, stock brokerage firms.

These companies compete on the basis of, among other factors, size, location, quality and type of products and services offered, price, technology, brand recognition and reputation.

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Natural disasters can disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate, which could have a material adverse effect on our results of operations and financial condition.

A significant natural disaster, such as a tornado, hurricane, earthquake, fire or flood, could have a material adverse impact on our ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur.

A significant natural disaster, such as a hurricane, blizzard, flood, fire or earthquake, could have a material adverse impact on our ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur.

Acts of terrorism, war, civil unrest, or pandemics could cause disruptions to our business or the economy as a whole.

While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.

The performance of our securities portfolio in difficult market conditions could have adverse effects on our results of operations.

Under GAAP, we are required to review our securities portfolio periodically for the presence of other-than-temporary impairment, taking into consideration current market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, our ability and intent to hold securities until a recovery of fair value, as well as other factors.

Adverse developments with respect to one or more of the foregoing factors may require us to deem particular securities to be other-than-temporarily impaired, with the credit related portion of the reduction in the value recognized as a charge to the results of operations in the period in which the impairment occurs.

Market volatility may make it difficult to value certain securities.

Subsequent valuations, in light of factors prevailing at that time, may result in significant changes in the values of these securities in future periods.

Any of these factors could require us to recognize further impairments in the value of our securities portfolio, which may have an adverse effect on our results of operations in future periods.

Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.

The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment.

As a result, political and social attention to the issue of climate change has increased.

In recent years, governments across the world have entered into international agreements to attempt to reduce global temperatures, in part by limiting greenhouse gas emissions.

Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change.

These agreements and measures may result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational changes, each of which may require us to expend significant capital and incur compliance, operating, maintenance, and remediation costs.

Consumers and businesses may also change their behavior on their own as a result of these concerns.

The impact on our customers will likely vary depending on their specific attributes, including reliance on, or role in, carbon intensive activities.

Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

If we are required to write-down goodwill or other intangible assets recorded in connection with our acquisitions, our profitability would be negatively impacted.

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Long-lived intangible assets are amortized and are tested for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset or asset group may not be recoverable.

significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or other factors could result in impairment of goodwill.

A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or other factors could result in impairment of goodwill.

Write-downs of the amount of any impairment, if necessary, would be charged to the results of operations in the period in which the impairment occurs.

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Additionally, significant changes to accounting standards may require costly technology changes, additional training and personnel, and other expense that will negatively impact our results of operations.

In 2016, the FASB released a new accounting standard for determining the amount of the allowance for credit losses (“ACL”).

The new accounting standard will be effective for reporting periods beginning January 1, 2020 and will be a significant change from the accounting standard in effect for prior reporting periods.

The new accounting standard requires the ACL to be calculated based on current expected credit losses over the full remaining expected life of the financial assets rather than losses inherent in the portfolio as of a point in time.

Upon adoption of this new accounting standard, we expect to recognize increases in the ACL on loans and in the ACL on off-balance sheet credit exposures, and a one-time net of tax cumulative-effect adjustment that decreases retained earnings.

The Corporation also plans to elect the regulatory capital transition relief issued by the FDIC to provide banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital resulting from the adoption of this new accounting standard.

See Note 2 to the Consolidated Financial Statements.

For example, in June 2016, the FASB issued Accounting Standards Update No.

2016-13, “Financial Instruments - Credit Losses” ("ASU 2016-13") that, effective January 1, 2020, substantially changed the accounting for credit losses on loans and other financial assets held by banks, financial institutions, and other organizations.

The accounting standard removed the existing “probable” threshold in GAAP for recognizing credit losses and instead required companies to measure estimated lifetime credit losses.

Companies must also consider all relevant information when estimating expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts.

See Note 2 to the Consolidated Financial Statements for additional information on the adoption of ASU 2016-13.

The ongoing impact to earnings could be more volatile and could adversely impact our results of operations and lending activity.

Changes in tax laws and regulations and differences in interpretation of tax laws and regulations may adversely impact our financial statements.

We are subject to tax law changes that could impact our effective income tax rate and our net deferred tax assets.

Tax law changes may or may not be retroactive to previous periods and could negatively affect our current and future financial performance.

Our net deferred tax assets are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled.

The Corporation assesses the deferred tax assets periodically to determine the likelihood of the Corporation’s ability to realize the benefits.

Management judgment is required in determining the appropriate recognition and valuation of deferred tax assets and liabilities, including projections of future taxable income, as well as the character of that income.

Management judgment is

required in determining the appropriate recognition and valuation of deferred tax assets and liabilities, including projections of future taxable income, as well as the character of that income.

A change in statutory tax rates may result in a decrease or increase to the Corporation’s deferred tax assets.

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We cannot assure you that the market price of our common stock will not fluctuate or decline significantly.

Some of the factors that could cause fluctuations or declines in the price of our common stock include, but are not limited to, actual or anticipated variations in reported operating results, recommendations by securities analysts, the level of trading activity in our common stock, new services or delivery systems offered by competitors, business combinations involving our competitors, operating and stock price performance of companies that investors deem to be comparable to Washington Trust, news reports relating to trends or developments in the financial, credit, mortgage and housing markets as well as the financial services industry, and changes in government regulations.

Some of the factors that could cause fluctuations or declines in the price of our common stock include, but are not limited to, actual or anticipated variations in reported operating results, recommendations by securities analysts, the level of trading activity in our common stock, our past and future dividend and share repurchase practices, new services or delivery systems offered by competitors, business combinations involving our competitors, operating and stock price performance of companies that investors deem to be comparable to Washington Trust, news reports relating to trends or developments in the financial, credit, mortgage and housing markets, as well as the financial services industry, and changes in government regulations.

We may need to raise additional capital in the future and such capital may not be available when needed.

As a bank holding company, we are required by regulatory authorities to maintain adequate levels of capital to support our operations.

We are required by regulatory authorities to maintain adequate levels of capital to support our operations.

We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs.

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The combination of these provisions may inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.

RISKS RELATED TO OUR REGULATORY ENVIRONMENT