What changed in this filing

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Item 1. Business

2022-02-24 compared with 2021-02-25 · 95 added, 115 removed, 325 unchanged (39% of the section changed)

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The Bancorp’s common stock trades on the NASDAQ Stock Market under the symbol WASH.

The Bancorp owns all of the outstanding common stock of The Washington Trust Company, of Westerly (the “Bank”), a Rhode Island chartered commercial bank founded in 1800.

The Bancorp owns all of the outstanding common stock of The Washington Trust Company, of Westerly (the “Bank”), a Rhode Island chartered financial institution founded in 1800.

The Bancorp was formed in 1984 under a plan of reorganization in which outstanding common shares of the Bank were exchanged for common shares of the Bancorp.

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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, 2020,

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

At December 31, 2021, Washington Trust had total assets of $5.9 billion, total deposits of $5.0 billion and total shareholders’ equity of $564.8 million.

Lending Activities

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Our participation in commercial loans originated by other banks also includes shared national credits.

Shared national credits are defined as participation in loans or loan commitments of at least $100 million that are shared by three or more banks.

Commercial loans fall into two major categories:

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

commercial real estate and commercial and industrial 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, 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.

December 31, 2021, commercial real estate loans represented 72% of the total commercial loan portfolio and 38% of the total loan portfolio.

Commercial and industrial loans primarily provide working capital, equipment financing and financing for other business-related purposes.

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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, 2021, commercial and industrial loans represented 28% of the total commercial loan portfolio and 15% of the total loan portfolio.

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The residential real estate loan portfolio consists of mortgage and homeowner construction loans secured by one- to four-family residential properties and represented 40% of total loans at December 31, 2021.

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 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.

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Home equity lines and home equity loans represent 93% of the total consumer portfolio at December 31, 2021.

Our home equity line and home equity loan origination activities are conducted primarily in southern New England.

The Bank estimates that approximately 60% of the combined home equity line and home equity loan balances are first lien positions or subordinate to other Washington Trust mortgages.

Also included in the consumer loan portfolio are purchased loans to individuals secured by general aviation aircraft.

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Washington Trust is a participant in the Demand Deposit Marketplace program, the Insured Cash Sweep program and the Certificate of Deposit Account Registry Service program.

Washington Trust uses these deposit sweep services to place customer and client funds into interest-bearing demand accounts, money market accounts, and/or certificates of deposits issued by other participating banks.

Washington Trust uses these deposit sweep services to

place customer and client funds into interest-bearing demand accounts, money market accounts, and/or certificates of deposits issued by other participating banks.

Customer and client funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of Federal Deposit Insurance Corporation (“FDIC”) insurance.

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We consider these reciprocal deposit balances to be in-market deposits as distinguished from traditional out-of-market brokered deposits.

Investment Security Activities

Washington Trust’s investment securities portfolio amounted to $1.0 billion, or 18% of total assets, at December 31, 2021 and is managed to generate interest income, to implement interest rate risk management strategies and to provide a readily available source of liquidity for balance sheet management.

Washington Trust may acquire, hold and transact in various types of investment securities in accordance with applicable federal regulations, state statutes and guidelines specified in Washington Trust’s internal investment policy.

At December 31, 2021, the investment securities portfolio consisted of obligations of U.S.

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

individual name issuer trust preferred debt securities;

and corporate bonds.

Wholesale Funding Activities

The Bank is a member of the Federal Home Loan Bank of Boston (“FHLB”).

The Bank utilizes advances from the FHLB to meet short-term liquidity needs and also to fund loan growth and additions to the securities portfolio.

As a member of the FHLB, the Bank must own a minimum amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB.

At December 31, 2021, the Bank had advances payable to the FHLB of $145.0 million.

In addition, the Bank had borrowing capacity remaining of $1.6 billion, as well as a $40.0 million unused line of credit with the FHLB at December 31, 2021.

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

Additional funding sources are available through the Federal Reserve Bank of Boston (“FRBB”) and in other forms of borrowing, such as securities sold under repurchase agreements.

As noted above under the heading “Deposit Activities,” the Corporation also utilizes out-of-market brokered time deposits as part of its overall funding program.

Wealth Management Services

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settlement of decedents’ estates;

institutional trust services, including custody and fiduciary services.

and institutional trust services, including custody and fiduciary services.

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

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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

Washington Trust’s investment securities portfolio amounted to $894.6 million, or 16% of total assets, at December 31, 2020 and is managed to generate interest income, to implement interest rate risk management strategies and to provide a readily available source of liquidity for balance sheet management.

At December 31, 2020, the investment securities portfolio consisted of obligations of U.S.

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

individual name issuer trust preferred debt securities;

and corporate bonds.

Wholesale Funding Activities

The Bank is a member of the Federal Home Loan Bank of Boston (“FHLB”).

The Bank utilizes advances from the FHLB to meet short-term liquidity needs and also to fund loan growth and additions to the securities portfolio.

As a member of the FHLB, the Bank must own a minimum amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB.

At December 31, 2020, the Bank had advances payable to the FHLB of $0.6 billion.

In addition, the Bank had borrowing capacity remaining of $969.7 million, as well as a $40.0 million unused line of credit with the FHLB at December 31, 2020.

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

Additional funding sources are available through the Federal Reserve Bank of Boston (“FRB”) and in other forms of borrowing, such as securities sold under repurchase agreements.

As noted above under the heading “Deposit Activities,” the Corporation also utilizes out-of-market brokered time deposits as part of its overall funding program.

The Bancorp’s subsidiaries include the Bank and Weston Securities Corporation (“WSC”).

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

The Bank has a registered investment adviser subsidiary, Weston Financial Group, Inc.

(“Weston Financial”) that is located in Wellesley, Massachusetts.

Weston Financial and its broker-dealer and insurance agency subsidiaries were acquired by the Bancorp in August 2005.

Halsey Associates, Inc.

(“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.

The Bank has a registered investment adviser subsidiary, Washington Trust Advisors, Inc.

(“WTA”), which until November 2021, was known as Weston Financial Group, Inc.

The Bank also has a mortgage banking subsidiary, Washington Trust Mortgage Company LLC (“WTMC”) that is licensed to do business in Rhode Island, Massachusetts, Connecticut and New Hampshire.

See “-Supervision and Regulation-Consumer Protection Regulation-Mortgage Reform” for a discussion of certain regulations that apply to WTMC.

See “-Supervision and Regulation-Consumer Protection Regulation” for a discussion of certain regulations that apply to WTMC.

Washington Trust’s residential mortgage origination business conducted in our residential mortgage lending offices located outside of Rhode Island is performed by this Bank subsidiary.

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In addition, the Bank has a subsidiary that was formed for the purpose of holding, monitoring and disposing of certain foreclosed properties.

The Bank also has a limited liability company subsidiary that serves as a special limited partner responsible for certain administrative functions associated with the Bank’s investment in real estate limited partnerships.

Weston Securities Corporation

WSC is a licensed introducing broker-dealer that offers variable annuities and services 529 College Savings Plans, primarily to Weston Financial clients.

WSC is a licensed introducing broker-dealer that offers variable annuities and services 529 College Savings Plans, primarily to WTA clients.

Washington Trust’s headquarters and main office is located in Westerly in Washington County, Rhode Island.

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As of December 31, 2021, the Bank had 10 branch offices located in southern Rhode Island (Washington County), 13 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.

In 2022, we plan to open a new full-service branch in Cumberland, Rhode Island.

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

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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, online and full-service 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.

Employees and Human Capital Resources

Human Capital

Washington Trust had 623 full-time equivalent employees at December 31, 2021.

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.

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.

Our employees are the first point of contact for our customers and the reason our customers view us as a trusted financial advisor.

They are community leaders, brand ambassadors and the embodiment of our values of Quality, Integrity, and Community.

We strive to create an environment where people feel valued and empowered.

We seek to provide opportunities for professional growth and we invest in our employees.

We evaluate compensation in relation to market trends and internal pay equity to ensure that we are providing fair and competitive pay;

promote and recognize employees for their work successes;

provide numerous training and professional development opportunities for employees to enhance their skills;

offer a flexible, wide-ranging benefit package to meet the diverse needs of our workforce;

and provide policies and benefits to help employees create a work-life balance.

We are committed to providing a culture of inclusion and mutual respect, where all perspectives and experiences are welcome.

We celebrate our differences and recognize the value that diversity, be it ethnicity, gender, age or other factors, brings to Washington Trust.

We maintain a comprehensive employee handbook that includes a number of human resources and other policies, including a harassment policy and an anti-retaliation policy, to promote a workplace that is safe for all and supports a culture where people feel they can report incidents without fear of reprisal.

In addition, we have a confidential whistleblower program that forwards complaints to the Audit Committee and the Board of Directors, and we take necessary action as quickly as possible after a complaint is received.

We also prohibit discrimination on the grounds of race, color, ethnicity, age, religion, gender, pregnancy/childbirth, national origin, sexual orientation, gender identity or expression, disability or perceived disability, genetic information, citizenship, veteran or military status or any other category protected by federal, state and/or local laws.

We employ based on talent and potential for growth, and we value a diversity of backgrounds and ideas.

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.

Through teamwork and the adaptability of our management and staff, we transitioned a significant portion of our workforce to effectively working from remote locations.

We also established various protocols and safe work practices for our onsite staff.

We provided additional paid time-off to employees following a potential COVID-19 exposure or while they experienced symptoms.

To encourage vaccination and ensure that financial considerations did not prevent employees from getting vaccinated, we provided paid time-off for vaccination and booster appointments, as well as additional time-off to cope with any side effects.

We continue to monitor and respond to COVID-19 developments on the national, state and local levels.

And, we continue to take a scientific, data driven approach to our return to work strategy with the top priority being the safety of employees, customers and the community.

Statistical Disclosures

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Return on Equity and Assets 33

Short-Term Borrowings 68, 121

Supervision and Regulation

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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.

On March 11, 2021, the American Rescue Plan Act (“ARP”) was signed into law providing an additional $1.9 trillion in COVID-19 economic relief.

The ARP included provisions on aid to state and local governments, hard-hit industries and communities, additional direct stimulus payments to qualifying individuals, additional funding for the Small Business Administration’s (“SBA’s”) Paycheck Protection Program (“PPP”) and other provisions.

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.

Through December 31, 2021, Washington Trust originated 2,939 PPP loans with principal balances totaling $326.7 million, of which 347 loans with principal balances of $39.3 million remain outstanding.

In conjunction with the PPP, the Federal Reserve created the Paycheck Protection Program Liquidity Facility (“PPPLF”), a lending facility for qualified financial institutions who could pledge loans issued under the PPP as collateral to access the facility.

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

Washington Trust participated in PPPLF in 2020 and has had no PPPLF borrowings outstanding since December 31, 2020.

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.

From March 1, 2020 through January 1, 2022, a financial institution was permitted to 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.

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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.

Through December 31, 2021, Washington Trust processed loan payment deferral modifications, or “deferments”, on 654 loans totaling $728 million, of which active deferments remain on 2 loans totaling $9.7 million.

The majority of these deferments qualified as eligible loan modifications under Section 4012 of the CARES Act, as amended, and therefore were not required to be classified as TDRs.

Moratorium on Negative Credit Reporting .

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If a financial holding company remains out of compliance for 180 days or such longer period as the Federal Reserve permits, the Federal Reserve may require the financial holding company to divest either its insured depository institution or all of its non-banking subsidiaries engaged in activities not permissible for a bank holding company.

If an insured depository institution subsidiary of a financial holding company fails to maintain a “satisfactory” or better record of performance under the Community Reinvestment Act (“CRA”), the financial holding company will be prohibited, until the rating is raised to “satisfactory” or better, from engaging in new activities authorized particularly for financial holding companies or acquiring companies engaged in such activities.

company will be prohibited, until the rating is raised to “satisfactory” or better, from engaging in new activities authorized particularly for financial holding companies or acquiring companies engaged in such activities.

Limitations on Acquisitions of Bancorp Common Stock.

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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.

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The FDIC, the RI Division of Banking and the Connecticut Department of Banking have the authority to issue cease and desist orders;

to terminate issuance of deposits;

to terminate insurance of deposits;

to assess civil money penalties;

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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.

The rule utilizes the CAMELS rating system, which is a supervisory rating system designed to take into account and reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk.

The FDIC calculates deposit insurance assessment rates for established small banks, generally those banks with less than $10 billion of assets that have been insured for at least five years using the CAMELS rating system and other factors.

The CAMELS rating system is a supervisory rating system designed to take into account and reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk.

To determine a bank’s assessment rate, each of seven financial ratios and a weighted average of CAMELS component ratings are multiplied by a corresponding pricing multiplier.

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

For 2021, the FDIC insurance expense for the Bank was $1.6 million.

Acquisitions and Branching.

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Brokered Deposits.

The FDIA and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” Depository institutions that have brokered deposits in excess of 10% of total assets are subject to increased FDIC deposit insurance premium assessments.

The FDIA and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” Depository institutions that have brokered deposits in excess of 10% of total assets may be subject to increased FDIC deposit insurance premium assessments.

However, for institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits.

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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.

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.

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.

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

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However, for purposes of processing regulatory applications and notices, the Federal Reserve Board’s Regulation Y provides that a bank holding company is considered “well capitalized” if (i) on a consolidated basis, the bank holding company maintains a total risk-based capital ratio of 10.0% or greater;

(ii) on a consolidated basis, the bank holding company maintains a Tier 1 risk-based capital ratio of 6.0% or greater;

(ii) on a consolidated basis, the bank holding

company maintains a Tier 1 risk-based capital ratio of 6.0% or greater;

and (iii) the bank holding company is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board to meet and maintain a specific capital level for any capital measure.

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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%.

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.

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.

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%, are 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.

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.

Effective January 1, 2022, the community bank leverage ratio reverted to 9.0%.

The Corporation did not opt in to the community bank leverage ratio.

Safety and Soundness Standard.

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The Federal Reserve has the authority to prohibit bank holding companies from paying dividends if such payment is deemed to be an unsafe or unsound practice.

The Federal Reserve has indicated generally that it may be an unsafe or unsound practice for bank holding companies to pay dividends unless the bank holding company’s net income over the preceding year is sufficient to fund the dividends and the expected rate of earnings retention is consistent with the organization’s capital needs, asset quality and overall financial condition.

The Federal Reserve has indicated generally that it may be an unsafe or unsound practice for bank holding companies to pay

dividends unless the bank holding company’s net income over the preceding year is sufficient to fund the dividends and the expected rate of earnings retention is consistent with the organization’s capital needs, asset quality and overall financial condition.

Further, under the Federal Reserve’s capital rules, the Bancorp’s ability to pay dividends is restricted if it does not maintain the required capital conservation buffer.

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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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The FDIC examines the Bank for compliance with CFPB rules and enforces CFPB rules with respect to the Bank.

Mortgage Reform.

The Dodd-Frank Act prescribes certain standards that mortgage lenders must consider before making a residential mortgage loan, including verifying a borrower’s ability to repay such mortgage loan and allows borrowers to assert violations of certain provisions of the TILA as a defense to foreclosure proceedings.

Under the Dodd-Frank Act, prepayment penalties are prohibited for certain mortgage transactions and creditors are prohibited from financing insurance policies in connection with a residential mortgage loan or home equity line of credit.

In addition, the Dodd-Frank Act prohibits mortgage originators from receiving compensation based on the terms of residential mortgage loans and generally limits the ability of a mortgage originator to be compensated by others if compensation is received from a consumer.

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.

Additionally, the CFPB’s qualified mortgage 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.

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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Congress continues to consider federal legislation that would require consumer notice of data security breaches.

In addition, Massachusetts has promulgated data security regulations with respect to personal information of Massachusetts residents.

In addition, individual states in our market area have promulgated data security regulations with respect to personal information of their residents.

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 method to opt out of the making of such solicitations.

Additionally, the FACT Act amended 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

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Generally, however, they contain one or more of the following elements:

(i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S.

(i) restrictions on trade with or investment in a sanctioned country, including prohibitions against

direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S.

persons” engaging in financial or other transactions relating to a sanctioned country or with certain designated persons and entities;

(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

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

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

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Securities and Exchange Commission (“SEC”), FINRA and the Commonwealth of Massachusetts.

WSC is a licensed introducing broker-dealer that offers variable annuities and services 529 College Savings Plans, primarily to Weston Financial clients.

Weston Financial is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).

WSC is a licensed introducing broker-dealer that offers variable annuities and services 529 College Savings Plans, primarily to WTA clients.

WTA is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).

The Advisers Act imposes numerous obligations on registered investment advisers, including compliance with the anti-fraud provisions of the Advisers Act and fiduciary duties arising out of those provisions.

Weston Financial must maintain a compliance program reasonably designed to prevent violations of the Advisers Act and are also subject to recordkeeping, operational and disclosure obligations.

WTA must maintain a compliance program reasonably designed to prevent violations of the Advisers Act and are also subject to recordkeeping, operational and disclosure obligations.

Employee Retirement Income Security Act of 1974.

The Bank and Weston Financial are each also subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and related regulations, to the extent it is a “fiduciary” under ERISA with respect to some of its clients.

ERISA and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”) impose duties on persons who are fiduciaries under ERISA, and prohibit certain transactions involving the assets of each ERISA plan that is a client of the Bank or Weston Financial, as applicable, as well as certain transactions by the fiduciaries (and several other related parties) to such plans.

The foregoing laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict Weston Financial from conducting business in the event it fails to comply with such laws and regulations.

The Bank and WTA are each also subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and related regulations, to the extent it is a “fiduciary” under ERISA with respect to some of its clients.

ERISA and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”) impose duties on persons who are fiduciaries under ERISA, and prohibit certain transactions involving the assets of each ERISA plan that is a client of the Bank or WTA, as applicable, as well as certain transactions by the fiduciaries (and several other related parties) to such plans.

The foregoing laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict WTA from conducting business in the event it fails to comply with such laws and regulations.

Possible sanctions that may be imposed in the event of such noncompliance include the suspension of individual employees, limitations on business activities for specified periods of time, revocation of registration as an investment adviser, commodity trading adviser and/or other registrations, and other censures and fines.

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WTMC is subject to the regulation, supervision and examination by the banking divisions in each of these states.

See “-Consumer Protection Regulation” and “-Consumer Protection Regulation-Mortgage Reform” above for a description of certain regulations that apply to WTMC.

See “-Consumer Protection Regulation” for a description of certain regulations that apply to WTMC.

Securities and Exchange Commission Availability of Filings

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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