What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 416 added, 630 removed, 2080 unchanged (33% of the section changed)

3 unchanged sentences

Management’s Annual Report on Internal Control Over Financial Reporting

Reports of Independent Registered Public Accounting Firms

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets at December 31, 2021 and 2020

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Note 5 - Loans

Note 6 - Allowance for Credit Losses on Loan s

Note 6 - Allowance for Credit Losses on Loans

Note 7 - Premises and Equipment

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Note 23 - Parent Company Financial Statements

Note 24 - Selected Quarterly Consolidated Financial Data (Unaudited)

Management’s Annual Report on Internal Control Over Financial Reporting

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This report expresses an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2021.

/s/ Edward O.

Handy III /s/ Ronald S.

Chairman and Chief Executive Officer

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We have audited Washington Trust Bancorp, Inc.

and Subsidiaries (the “Corporation”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Corporation as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”) and our report dated February 25, 2021 expressed an unqualified opinion.

and Subsidiaries’ (the “Corporation”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework:

(2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Corporation as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”) and our report dated February 24, 2022 expressed an unqualified opinion.

Basis for Opinion

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate .

/s/ Crowe LLP

Livingston, New Jersey

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Washington Trust Bancorp, Inc.

and Subsidiaries (the “Corporation”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Washington Trust Bancorp, Inc.

and Subsidiaries (the “Corporation”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Corporation’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework:

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Explanatory Paragraph - Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Corporation has changed its method of accounting for credit losses in 2020 due to the adoption of ASC 326.

The adoption of ASC 326 and its subsequent application is also communicated as a critical audit matter below .

As discussed in Note 1 to the consolidated financial statements, the Corporation changed its method of accounting for credit losses in 2020 due to the adoption of ASC 326.

Basis for Opinion

These financial statements are the responsibility of the Corporation’s management.

Our responsibility is to express an opinion on the Corporation’s financial statements based on our audit.

Our responsibility is to express an opinion on the Corporation’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

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The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses - Loans

The Corporation adopted ASC 326, Financial Instruments – Credit Losses as of January 1, 2020, using the modified retrospective method.

In doing so, the Corporation recorded a decrease to retained earnings of $6.1 million, net of tax, for the cumulative effect of adopting ASC 326, as noted in the Consolidated Statements of Changes in Shareholders’ Equity, which included $6.5 million for the allowance for credit losses (“ACL”) on loans.

The 2020 provision for credit losses – loans was $11.7 million.

As of December 31, 2020, the ACL on loans was $44.1 million.

The Corporation has disclosed the impact of adoption in Note 2 (see change in accounting principle explanatory paragraph above) to the consolidated financial statements and the allowance for credit losses on loans as of December 31, 2020 is

Report of Independent Registered Public Accounting Firm

disclosed in Notes 1 and 6.

Allowance for Credit Losses - Qualitative Factors on Total Commercial Loans

As described in Note 1 to the consolidated financial statements, the Corporation accounts for credit losses under ASC 326, Financial Instruments – Credit Losses.

ASC 326 requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost at the reporting date.

The measurement is based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.

Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors.

The methodology for evaluating quantitative factors includes pooling loans into portfolio segments for loans that share similar risk characteristics.

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

As of December 31, 2021, the balance of the allowance for credit losses on loans was $39.1 million.

Report of Independent Registered Public Accounting Firm

Management employs a process and methodology to estimate the allowance for credit losses (“ACL”) on loans that evaluates both quantitative and qualitative factors.

The methodology for evaluating quantitative factors involves pooling loans into portfolio segments for loans that share similar risk characteristics.

Pooled loan portfolio segments include commercial real estate, commercial and industrial, residential real estate, home equity and other consumer loans.

For pooled loans, the Corporation utilizes a discounted cash flow (“DCF”) methodology to estimate credit losses over the expected life of the loan.

The DCF methodology combines the probability of default, the loss given default, maturity date and prepayment speed assumptions to estimate a reserve for each loan.

The DCF methodology combines the probability of default, the loss given default, remaining life of the loan and prepayment speed assumptions to estimate a reserve for each loan.

The loss rates are adjusted by current and forecasted econometric assumptions and return to the mean after the forecasted periods.

The sum of all the loan level reserves are aggregated for each portfolio segment and a loss rate factor is derived.

These quantitative loss factors are also supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates.

Qualitative loss factors are applied to each portfolio segment with the amounts determined by correlation of credit stress to the maximum loss factors of a peer group’s historical charge-offs.

Changes in these assumptions could have a material effect on the Corporation’s financial results.

We identified auditing the ACL on pooled loans as a critical audit matter because the methodology to determine the estimate of credit losses significantly changed upon adoption of ASC 326, including the application of new accounting policies, the use of subjective judgments for both the quantitative and qualitative calculations and overall changes made to the loss estimation models.

Performing audit procedures to evaluate the implementation and subsequent application of ASC 326 for loans involved a high degree of auditor judgment and required significant effort, including the need to involve more experienced audit personnel and valuation specialists .

Qualitative loss factors are applied to each portfolio segment with the amounts determined by historical loan charge-offs of a peer group of similar-sized regional banks.

Changes in these assumptions could have a material effect on the Corporation’s financial conditions or results of operations.

We identified auditing the qualitative component of the ACL on pooled loans in the commercial real estate and commercial and industrial portfolios (total commercial loans) as a critical audit matter because the methodology to determine the estimate of credit losses uses subjective judgments by management and is subject to material variability.

Performing audit procedures to evaluate the qualitative factors on the commercial loans involved a high degree of auditor judgment and required significant effort, including the need to involve more experienced audit personnel.

The primary procedures we performed to address this critical audit matter included:

• Testing the effectiveness of controls over the evaluation of the ACL on the pooled loans, including controls addressing:

◦ The selection and application of new accounting policies.

◦ Data inputs, judgments and calculations used to determine the loss factors.

• Testing the effectiveness of controls over the evaluation of the ACL on pooled loans, including controls addressing:

◦ Methodology and accounting policies

◦ Data inputs, judgments and calculations used to determine the qualitative loss factors.

◦ Information technology general controls and application controls.

◦ Problem loan identification and delinquency monitoring.

◦ Management’s review of the qualitative factors.

• Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the ACL on pooled loans, which included:

◦ Evaluating the appropriateness of the Corporation’s accounting policies, judgments and elections involved in adoption of ASC 326.

• Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the ACL on commercial loans collectively evaluated for impairment, which included:

◦ Evaluation of the appropriateness of the Corporation’s accounting policies and assumptions involved in the application of ASC 326.

◦ Testing the mathematical accuracy of the calculation.

◦ Utilizing internal valuation specialists to perform procedures to evaluate the relevance of the econometric loss driver.

◦ Evaluating the reasonableness of management’s judgments related to the probability of default, loss given default, including the evaluation of triggering events related to default and actual losses.

◦ Evaluating the reasonableness of management’s judgments related to qualitative adjustments to determine if they are calculated to conform with management’s policies and were consistently applied from the point of adoption to year end.

Our evaluation considered the weight of evidence from internal and external sources and loan portfolio performance.

◦ Testing the completeness and accuracy of data used in the calculation.

◦ Evaluation of the reasonableness of management’s judgments related to qualitative factors to determine if they are calculated to conform with management’s policies and were consistently applied period over period.

Our evaluation considered the weight of evidence from internal and external sources and loan portfolio composition and performance.

/s/ Crowe LLP

We have served as the Corporation’s auditor since 2019.

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February 24, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Washington Trust Bancorp, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows of Washington Trust Bancorp, Inc.

and Subsidiaries (the Corporation) for the year ended December 31, 2018, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Corporation’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion .

We served as the Corporation’s auditor from 1973 to 2019.

Providence, Rhode Island

February 26, 2019

Washington Trust Bancorp, Inc.

and Subsidiaries

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net of allowance for credit losses on securities of $ 0 at December 31, 2021;

and amortized cost of $ 881,570 ;

net of allowance for credit losses on securities of $ 0 at December 31, 2020)

1,042,859 894,571

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authorized 60,000,000 shares;

17,363,457 shares issued and 17,265,337 shares outstanding at December 31, 2020 and 17,363,455 shares issued and outstanding at December 31, 2019

17,363,457 shares issued and 17,330,818 shares outstanding at December 31, 2021 and 17,363,457 shares issued and 17,265,337 shares outstanding at December 31, 2020

Paid-in capital 126,511 125,610

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Treasury stock, at cost;

98,120 shares at December 31, 2020

32,639 shares at December 31, 2021 and 98,120 shares at December 31, 2020

( 1,117 ) ( 3,355 )

Total shareholders’ equity 564,808 534,195

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Debt prepayment penalties 6,930 1,413 —

Change in fair value of contingent consideration — — ( 187 )

Other expenses 8,405 9,376 9,849

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Net income $ 76,870 $ 69,829 $ 69,118

Other comprehensive income (loss), net of tax:

Other comprehensive (loss) income, net of tax:

Net change in fair value of available for sale debt securities

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6,652 ( 2,155 ) ( 1,932 )

Total other comprehensive income (loss), net of tax

3,846 17,072 ( 4,799 )

Total other comprehensive (loss) income, net of tax ( 12,590 ) 3,846 17,072

Total comprehensive income $ 64,280 $ 73,675 $ 86,190

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

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

Net income — — — 69,118 — — 69,118

Total other comprehensive loss, net of tax — — — ( 4,799 ) — ( 4,799 )

Total other comprehensive income, net of tax — — — — 17,072 — 17,072

Cash dividends declared ($ 2.00 per share)

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Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered 27 — ( 1,437 ) — — 967 ( 470 )

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

Balance at December 31, 2020 17,265 $ 1,085 $ 125,610 $ 418,246 ($ 7,391 ) ($ 3,355 ) $ 534,195

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

Net income — — — 76,870 — — 76,870

Total other comprehensive income, net of tax — — — 3,846 — 3,846

Total other comprehensive loss, net of tax — — — — ( 12,590 ) — ( 12,590 )

Cash dividends declared ($ 2.10 per share)

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Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered 66 — ( 2,415 ) — — 2,238 ( 177 )

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

Balance at December 31, 2021 17,331 $ 1,085 $ 126,511 $ 458,310 ($ 19,981 ) ($ 1,117 ) $ 564,808

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Share–based compensation 3,316 3,766 3,124

Tax (expense) benefit from stock option exercises and other equity awards

Tax benefit (expense) from stock option exercises and other equity awards

182 ( 103 ) 248

Deferred income tax benefit ( 3,130 ) ( 1,491 ) ( 63 )

Deferred income tax expense (benefit) 2,155 ( 3,130 ) ( 1,491 )

Income from bank-owned life insurance ( 2,925 ) ( 2,491 ) ( 2,354 )

Net gains on loan sales, including fair value adjustments ( 48,005 ) ( 14,332 ) ( 9,749 )

Net gains on loan sales, including changes in fair value ( 28,195 ) ( 48,005 ) ( 14,332 )

Net realized losses on securities — — 53

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Loans originated for sale ( 887,341 ) ( 1,114,448 ) ( 525,675 )

Change in fair value of contingent consideration liability — — ( 187 )

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

Decrease (increase) in operating lease right-of-use assets

2,829 ( 2,729 ) 2,131

Increase (decrease) in operating lease liabilities

(Decrease) increase in operating lease liabilities

( 2,708 ) 2,856 ( 1,992 )

Increase in other assets ( 57,730 ) ( 27,961 ) ( 7,456 )

Increase in other liabilities 49,323 31,552 9,257

Decrease (increase) in other assets 38,935 ( 57,730 ) ( 27,961 )

(Decrease) increase in other liabilities ( 39,747 ) 49,323 31,552

Net cash provided by operating activities 100,812 36,478 73,435

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Other 82,800 176,000 108,306

Held to maturity debt securities:

Mortgage-backed — — 2,029

Net redemption (purchases) of Federal Home Loan Bank stock 17,254 20,568 ( 4,785 )

Purchases of other equity investments, net ( 650 ) — —

Net increase in loans ( 27,921 ) ( 241,418 ) ( 154,502 )

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Purchases of bank-owned life insurance ( 7,000 ) — —

Proceeds from sale of equity investment in real estate limited partnership 1,400 — —

Proceeds from surrender of bank-owned life insurance 1,526 787 326

Proceeds from sale of equity investment in real estate limited partnership 50 1,400 —

Equity investment in real estate limited partnership — — ( 1,256 )

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Repayment of Payment Protection Program Lending Facility — ( 200,628 ) —

Payment of contingent consideration liability — — ( 1,217 )

Treasury stock purchased — ( 4,322 ) —

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Net cash provided by financing activities 116,312 291,575 131,660

Net increase in cash and cash equivalents 63,813 44,980 10,552

Net (decrease) increase in cash and cash equivalents ( 23,775 ) 63,813 44,980

Cash and cash equivalents at beginning of year 202,268 138,455 93,475

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(the “Bancorp”) is a publicly-owned registered bank holding company that has elected to be a financial holding company.

The Bancorp’s subsidiaries include The Washington Trust Company, of Westerly (the “Bank”), a Rhode Island chartered commercial bank founded in 1800, and Weston Securities Corporation (“WSC”).

The Bancorp’s subsidiaries include The Washington Trust Company, of Westerly (the “Bank”), a Rhode Island chartered financial institution founded in 1800, and Weston Securities Corporation (“WSC”).

Through its subsidiaries, the Bancorp offers a complete product line of financial services including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices in Rhode Island, eastern Massachusetts and Connecticut.

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The capital trust’s only assets are junior subordinated debentures issued by the Bancorp, which were acquired by the capital trusts using the proceeds from the issuance of the trust preferred securities and common stock.

The Bancorp’s equity interest in the capital trusts, classified in other assets, and the junior subordinated debentures are included in the Consolidated Balance Sheets.

The Bancorp’s equity interest in the capital trusts, which is classified in other assets, and the junior subordinated debentures are included in the Consolidated Balance Sheets.

Interest expense on the junior subordinated debentures is included in the Consolidated Statements of Income.

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Actual results could differ from those estimates.

Material estimates that are particularly susceptible to change are the determination of the allowance for credit losses on loans, the valuation of goodwill and identifiable intangible assets and the accounting for defined benefit pension plans.

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

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

Management considers the allowance for credit losses on loans to be a material estimate that is particularly susceptible to change.

Short-term Investments

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Realized gains or losses from sales of securities are recorded on the trade date and are determined using the specific identification method.

Notes to Consolidated Financial Statements – (continued)

The fair values of securities may be based on either quoted market prices or third party pricing services.

Effective January 1, 2020, the Corporation adopted the provisions of ASC 326 and modified its accounting policy for the assessment of available for sale debt securities for impairment, as further described below.

The Corporation has made an accounting policy election to exclude accrued interest from the amortized cost basis of debt securities and reports accrued interest in other assets in the Consolidated Balance Sheets.

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

The Corporation excludes accrued interest from the amortized cost basis of debt securities and reports accrued interest in other assets in the Consolidated Balance Sheets.

The Corporation also excludes accrued interest from the estimate

Notes to Consolidated Financial Statements – (continued)

of credit losses on debt securities.

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

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Any impairment that has not been recorded through an ACL is considered market-related and is recognized in other comprehensive income, net of taxes.

Changes in the ACL on available for sale debt securities are recorded as provision for (or reversal of) credit losses.

Changes in the ACL on available for sale debt securities are recorded as provision for credit losses.

Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Prior to January 1, 2020, the accounting policy on the assessment of available for sale debt securities for impairment was based on an other-than-temporary assessment.

When the fair value of an investment security was less than its amortized cost basis, the Corporation assessed whether the decline in value was other-than-temporary.

The Corporation considered whether evidence indicating the cost of the investment was recoverable outweighed evidence to the contrary.

Evidence considered in this assessment included the reasons for impairment, the severity and duration of the impairment, changes in the value subsequent to the reporting date, forecasted performance of the issuer, changes in the dividend or interest payment practices of the issuer, changes in the credit rating of the issuer or the specific security, and the general market conditions in the geographic area or industry of the issuer.

Notes to Consolidated Financial Statements – (continued)

In determining whether an other-than-temporary impairment had occurred for debt securities, the Corporation compared the present value of cash flows expected to be collected from the security with the amortized cost of the security.

If the present value of expected cash flows was less than the amortized cost of the security, then the entire amortized cost of the security would not be recoverable;

that is, a credit loss and an other-than-temporary impairment would have occurred.

The credit loss component of an other-than-temporary impairment write-down for debt securities would have been recorded in earnings while the remaining portion of the impairment loss would have been recognized, net of tax, in other comprehensive income provided that the Corporation did not intend to sell the underlying debt security and it was more-likely-than-not that the Corporation would not have to sell the debt security prior to recovery of the unrealized loss.

If the Corporation intended to sell any securities with an unrealized loss or it was more-likely-than-not that the Corporation would have to sell the investment securities before recovery of their amortized cost basis, then the entire unrealized loss would have been recorded in earnings.

Federal Home Loan Bank Stock

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Based on the capital adequacy and the liquidity position of the FHLB, management believes there is no impairment related to the carrying amount of FHLB stock included in the Consolidated Balance Sheet as of December 31, 2021.

Other Equity Investments

The Corporation invests in equity investments without readily determinable fair value.

Such equity investments are classified within other assets in the Consolidated Balance Sheet.

The Corporation has elected to carry equity investments without readily determinable fair value at cost, less impairment, if any, plus or minus changes in observable prices.

A qualitative impairment analysis for equity investments without readily determinable fair value is performed quarterly.

If the equity investment is deemed to be impaired, an impairment loss is recognized in the

Notes to Consolidated Financial Statements – (continued)

amount by which the carrying value of the equity investment exceeds its estimated fair value.

The impairment loss is recognized as a reduction of other noninterest income in the Consolidated Statement of Income.

An impairment loss can be reversed in a subsequent period if there are observable transactions for the identical or similar investment of the same issuer at an amount that is greater than the carrying value of the investment that was established when the impairment loss was recognized.

The reversal of any impairment loss or other changes resulting from observable transactions are recognized in other noninterest income in the Consolidated Statement of Income.

Mortgage Banking Activities

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

Notes to Consolidated Financial Statements – (continued)

Portfolio Loans

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Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful.

When loans are placed on nonaccrual status, interest previously accrued but not collected is reversed against current period income.

When loans are placed on nonaccrual status, interest previously accrued but not collected is

Notes to Consolidated Financial Statements – (continued)

reversed against current period income.

Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectability of the loan.

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In years after the restructuring, TDRs are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is performing in accordance with their modified contractual terms for a reasonable period of time.

The Corporation has elected to account for eligible loan modifications under Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), as amended by the Coronavirus Response and Relief Supplemental Appropriations Act (the “CRRSA Act”).

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

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

and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency declared by the President on March 13, 2020 concerning the COVID-19 outbreak (the “national emergency”) or (B) January 1, 2022.

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

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

Notes to Consolidated Financial Statements – (continued)

Individually Analyzed Loans and Impaired Loans

Individually analyzed loans / impaired loans are individually assessed for credit impairment.

With the adoption of ASC 326 effective January 1, 2020, individually analyzed loans include nonaccrual commercial loans, reasonably expected TDRs, executed TDRs, and certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans.

The Corporation elected to account for eligible loan modifications under Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), as amended by the Coronavirus Response and Relief Supplemental Appropriations Act (the “CRRSA Act”).

From March 1, 2020 through January 1, 2022, the Corporation was permitted to suspend TDR accounting requirements under GAAP for loan modifications related to the COVID-10 pandemic and on loans that were not more than 30 days past due as of December 31, 2019.

Eligible loan modifications were not classified as TDRs and were not reported as past due provided that they were performing in accordance with the modified terms.

Interest income continued to be recognized unless the loan was placed on nonaccrual status.

Individually Analyzed Loans

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

A TDR is considered reasonably expected no later than the point when management concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession to avoid a default.

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

Allowance for Credit Losses on Loans

The ACL on loans is increased through a provision for credit losses recognized in the Consolidated Statements of Income and by recoveries of amounts previously charged-off.

The ACL on loans is reduced by charge-offs on loans.

The ACL on loans is established through a provision for credit losses recognized in the Consolidated Statements of Income.

The ACL on loans is also increased by recoveries of amounts previously charged-off and is reduced by charge-offs on loans.

Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely.

Full or partial charge-offs on collateral dependent individually analyzed loans are generally recognized when the collateral is deemed to be insufficient to support the carrying value of the loan.

Effective January 1, 2020, the Corporation adopted the provisions of ASC 326 and modified its accounting policy for the ACL on loans, as further described below.

The Corporation has made an accounting policy election to exclude accrued interest from the amortized cost basis of loans and reports accrued interest in other assets in the Consolidated Balance Sheets.

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

Effective January 1, 2020, the Corporation adopted the provisions of ASC 326 and modified its accounting policy for the ACL on loans.

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

The Corporation made an accounting policy election to exclude accrued interest from the amortized cost basis of loans and reports accrued interest in other assets in the Consolidated Balance Sheets.

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

Notes to Consolidated Financial Statements – (continued)

The level of the ACL on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

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

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

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

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

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For collateral dependent loans for which repayment is to be provided substantially through the operation of the collateral, such as accruing TDRs, estimated costs to sell are not incorporated into the measurement.

Management may also

Notes to Consolidated Financial Statements – (continued)

adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the collateral.

Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the collateral.

For pooled loans, the Corporation utilizes a DCF methodology to estimate credit losses over the expected life of the loan.

The life of the loan excludes expected extensions, renewals and modifications, unless 1) the extension or renewal options are included in the original or modified contract terms and not unconditionally cancellable by the Corporation, or 2) management reasonably expects at the reporting date that a TDR will be executed with an individual borrower.

The methodology incorporates the probability of default and loss given default, which are identified by default triggers such as past due by 90 or more days, whether a charge-off has occurred, the loan has been placed on nonaccrual status, the loan has been modified in a TDR or the loan is risk-rated as special mention or classified.

The probability of default for the life of the loan is determined by the use of an econometric factor.

Management utilizes the national unemployment rate as an econometric factor with a one-year forecast period and one-year straight-line reversion period to the historical mean of its macroeconomic assumption in order to estimate the probability of default for each loan portfolio segment.

Utilizing a third party regression model, the forecasted national unemployment rate is correlated with the probability of default for each loan portfolio segment.

The DCF methodology combines the probability of default, the loss given default, maturity date and prepayment speeds to estimate a reserve for each loan.

The life of the loan excludes expected extensions, renewals and modifications, unless the extension or renewal options are included in the original or modified contract terms and not unconditionally cancellable by the Corporation.

The methodology incorporates a probability of default and loss given default framework.

Default triggers include the loan has become past due by 90 or more days, a charge-off has occurred, the loan has been placed on nonaccrual status, the loan has been modified in a TDR or the loan is risk-rated as special mention or classified.

Loss given default is estimated based on historical credit loss experience.

Probability of default is estimated utilizing a regression model that incorporates econometric factors.

These factors are selected based on the correlation of the factor to historical credit losses for each portfolio segment.

In the first quarter of 2021, management updated its ACL methodology for pooled loans to incorporate additional econometric factors in the determination of the probability of default for each loan portfolio segment.

Effective January 1, 2021, the national unemployment rate (“NUR”) and gross domestic product econometric factors are utilized for the commercial real estate and other consumer loan portfolio segments;

the NUR and national home price index econometric factors are utilized for the residential real estate and home equity portfolio segments;

and the NUR econometric factor is utilized for the commercial & industrial loan portfolio segment.

Prior to January 1, 2021, solely the NUR was used in the determination of the probability of default for each loan portfolio segment.

To estimate the probability of default, the model utilizes forecasted econometric factors over a one-year reasonable and supportable forecast period.

After the forecast period, the model reverts to the historical mean of the respective econometric factor and the associated probability of default on a straight-line basis over a one-year reversion period.

The DCF methodology combines the probability of default, the loss given default, prepayment speeds and the remaining life of the loan to estimate a reserve for each loan.

The sum of all the loan level reserves are aggregated for each portfolio segment and a loss rate factor is derived.

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1) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;

2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

2) changes in international, national, regional, and local

Notes to Consolidated Financial Statements – (continued)

economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

3) changes in the nature and volume of the portfolio and in the terms of loans;

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Because the methodology is based upon historical experience and trends, current economic data, reasonable and supportable forecasts, as well as management’s judgment, factors may arise that result in different estimations.

While significant deterioration in the economic forecast due to the COVID-19 pandemic was estimated in the ACL on loans, 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 on loans.

Deteriorating conditions or assumptions could lead to further increases in the ACL on loans, conversely improving conditions or assumptions could lead to further reductions in the ACL on loans.

In addition, various regulatory agencies periodically review the ACL on loans.

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(1) the identification of loss allocations for individual loans deemed to be impaired and (2) the application of loss allocation factors for non-impaired loans based on historical loss experience and estimated loss emergence period, with adjustments for various exposures that management believed were not adequately represented by historical loss experience.

Notes to Consolidated Financial Statements – (continued)

Loss allocations for loans deemed to be impaired were measured using a discounted cash flow method based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or, if the loan was collateral dependent, at the fair value of the collateral.

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Allowance for Credit Losses on Unfunded Commitments

The Corporation adopted the provisions of ASC 326 effective January 1, 2020 and modified its accounting policy for the ACL on unfunded commitments.

The ACL on unfunded commitments is management’s estimate of expected credit losses over the expected contractual term (or life) in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation.

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The estimated funding factor applied to unfunded commitments represents the likelihood that the funding will occur and is based upon the Corporation’s average historical utilization rate for each portfolio.

Notes to Consolidated Financial Statements – (continued)

The ACL on unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

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

The Corporation adopted the provisions of ASC 842, Leases, effective January 1, 2019.

ASC 842 requires operating leases to be recorded on the balance sheet, through the recognition of an operating lease right-of-use (“ROU”) asset and an operating lease liability at the commencement date of the new lease.

Operating leases to be recorded on the balance sheet, through the recognition of an operating lease right-of-use (“ROU”) asset and an operating lease liability at the commencement date of the new lease.

ROU assets represent a right to use an underlying asset for the contractual lease term.

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The Corporation’s leases do not provide an implicit interest rate, therefore the Corporation uses its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities.

Notes to Consolidated Financial Statements – (continued)

The Corporation’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately.

The Corporation’s lease agreements do not contain any residual value guarantees.

Operating leases with terms of 12 months or less are included in ROU assets and operating lease liabilities recorded in the Corporation’s Consolidated Balance Sheets.

Operating leases with terms of 12 months or less are included in ROU assets and operating lease liabilities recorded in the Consolidated Balance Sheets.

Operating lease terms include options to extend when it is reasonably certain that the Corporation will exercise such options, determined on a lease-by-lease basis.

Prior to January 1, 2019, operating leases were accounted for under ASC 840, Leases, and were considered off-balance sheet commitments as neither an asset or liability was recognized in the Consolidated Balance Sheets.

Under both ASC 840 and ASC 842, rental expense for operating leases is recognized on a straight-line basis over the lease term.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

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

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If, after assessing the totality of such events or circumstances, we determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we would not be required to perform an impairment test.

Notes to Consolidated Financial Statements – (continued)

The quantitative impairment analysis requires a comparison of each reporting unit’s fair value to its carrying value to identify potential impairment.

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The remaining useful life of the intangible assets that are being amortized is also evaluated to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Notes to Consolidated Financial Statements – (continued)

Impairment of Long - Lived Assets Other than Goodwill

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Investment in Real Estate Limited Partnerships

The Bank has investments in real estate limited partnerships that renovate, own and operate low-income housing complexes.

The Bank invests in real estate limited partnerships that renovate, own and operate low-income housing complexes.

The Bank neither actively participates nor has a controlling interest in the real estate limited partnerships.

The carrying value of these investments is recorded in other assets on the Consolidated Balance Sheets.

The carrying value of such investments is recorded in other assets on the Consolidated Balance Sheets.

Investments in real estate limited partnerships are accounted for using the proportional amortization method.

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In addition, operating losses and tax credits generated by the partnership are also recorded as a reduction to income tax expense.

Notes to Consolidated Financial Statements – (continued)

Transfers and Servicing of Assets and Extinguishments of Liabilities

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Revenue from contracts with customers is measured based on the consideration specified in the contract with a customer.

The Corporation recognizes revenue from contracts with customers when it satisfies its performance

Notes to Consolidated Financial Statements – (continued)

The Corporation recognizes revenue from contracts with customers when it satisfies its performance obligations.

The performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time.

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Pension benefits are accounted for using the net periodic benefit cost method, which recognizes the compensation cost of an employee’s pension benefit over that employee’s approximate service period.

Pension benefit costs and benefit obligations incorporate various actuarial and other assumptions, including discount rates, mortality, rates of return on plan assets and compensation increases.

Pension benefit costs and benefit

Notes to Consolidated Financial Statements – (continued)

obligations incorporate various actuarial and other assumptions, including discount rates, mortality, rates of return on plan assets and compensation increases.

Management evaluates these assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to so do.

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Share-Based Compensation

Share-based compensation plans provide for awards of stock options and other equity incentives, including nonvested share units and nonvested performance share units.

Share-based compensation plans provide for awards of stock options and other equity incentives, including restricted stock units and performance share units.

Compensation expense for awards is recognized over the service period based on the fair value at the date of grant.

Grant date fair value for stock options is estimated using the Black-Scholes option-pricing model.

Awards of nonvested share units and nonvested performance share units are valued at the fair market value of the Bancorp’s

Notes to Consolidated Financial Statements – (continued)

common stock as of the award date.

Nonvested performance share unit compensation expense is based on the most recent performance assumption available and is adjusted as assumptions change.

Awards of restricted stock units and performance share units are valued at the fair market value of the Bancorp’s common stock as of the award date.

Performance share unit compensation expense is based on the most recent performance assumption available and is adjusted as assumptions change.

Forfeitures are recognized when they occur.

When available, vested equity awards are issued from treasury stock.

Vested equity awards are issued from treasury stock, when available, or from authorized but unissued stock.

Excess tax benefits (expenses) result when tax return deductions differ from recognized share-based compensation cost that are determined using the grant-date fair value approach for financial statement purposes.

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Excess tax benefits (expenses) on the settlement of share-based awards are reported in the Consolidated Statements of Cash Flows as an operating activity.

Dividends on nonvested share units are nonforfeitable and paid quarterly in conjunction with dividends declared and paid to common shareholders.

Dividends on nonvested performance share units are accrued based on the most recent performance assumptions available and paid upon the issuance of the award, once vested.

Dividends on restricted stock units are nonforfeitable and paid quarterly in conjunction with dividends declared and paid to common shareholders.

Dividends on performance share units are accrued based on the most recent performance assumptions available and paid upon the issuance of the award, once vested.

Income tax expense is determined based on the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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Segment Reporting

The Corporation segregates financial information in assessing its results among its Commercial Banking and Wealth Management Services operating segments.

The amounts in the Corporate unit include activity not related to the segments.

The Corporation manages its operations through two reportable business segments, consisting of Commercial Banking and Wealth Management Services.

Additional information on the segments is presented in Note 19.

Management uses an allocation methodology to allocate income and expenses to the business lines.

Direct activities are assigned to the appropriate business segment to which the activity relates.

Indirect activities, such as corporate, technology and other support functions, are allocated to business segments primarily based upon full-time equivalent

Notes to Consolidated Financial Statements – (continued)

employee computations.

Segment reporting results may be restated, when necessary, to reflect changes in organizational structure or allocation methodology.

Any changes in estimates and allocations that may affect the reported results of any business segment will not affect the consolidated financial position or results of operations of the Corporation as a whole.

Management uses certain methodologies to allocate income and expenses to the business lines.

The methodologies are periodically reviewed and revised.

Results may be restated, when necessary, to reflect changes in organizational structure or allocation methodology.

A funds transfer pricing (“FTP”) methodology is used to assign interest income and interest expense to each interest-earning asset and interest-bearing liability on a matched maturity funding basis.

The matched maturity funding concept considers the origination date and the earlier of the maturity date or the repricing date of a financial instrument to assign an FTP rate for loans and deposits originated.

Loans are assigned a FTP rate for funds used and deposits are assigned a FTP rate for funds provided.

Certain indirect expenses are allocated to segments.

These include indirect expenses such as technology, operations and other support functions.

Earnings Per Common Share (“EPS”)

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Share‑based awards that entitle holders to receive non-forfeitable dividends before vesting are considered participating securities (i.e.

nonvested restricted stock units), not subject to performance-based measures.

restricted stock units), not subject to performance-based measures.

These participating securities are included in the earnings allocation for computing basic earnings per share under this method.

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Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect on common shares outstanding, using the treasury stock method.

Notes to Consolidated Financial Statements – (continued)

Comprehensive Income

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Changes in fair value of derivatives, including accrued net settlements that do not qualify for hedge accounting, are reported in noninterest income.

Notes to Consolidated Financial Statements – (continued)

When a cash flow hedge is discontinued, but the hedged cash flows or forecasted transaction is still expected to occur, changes in value that were accumulated in other comprehensive income (loss) are amortized or accreted into earnings over the same periods that the hedged transactions will affect earnings.

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Accounting Standards Adopted in 2021

Financial Instruments - Credit Losses - ASC 326

ASU 2016-13 was issued in June 2016 and requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost, as well as unfunded commitments that are considered off-balance sheet credit exposures at the reporting date.

In addition, ASU 2016-13 amends the accounting for credit losses on available for sale debt securities and purchased

Notes to Consolidated Financial Statements – (continued)

financial assets with credit deterioration.

For available for sale debt securities with unrealized losses, ASC 326 requires credit losses to be recognized as an allowance rather than a reduction in the amortized cost of the securities.

As a result, improvements to estimated credit losses are recognized immediately in earnings rather than as interest income over time.

ASU 2016-13 provides for a modified retrospective transition, resulting in a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is effective.

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

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

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

This included assessing the adequacy of existing loan and loss data, assessing models for default and loss estimates, conducting limited “trial” runs and analytical reviews through December 31, 2019, and completing independent model validation and documentation of ACL processes and controls in the first quarter of 2020.

Upon adoption of ASC 326 on January 1, 2020, the ACL for loans (a contra-asset) increased by $ 6.5 million and the ACL for unfunded commitments (a liability) increased by $ 1.5 million, as compared to December 31, 2019.

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

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

See Note 13 for additional disclosure on regulatory capital.

Fair Value Measurement - ASC 820

Accounting Standards Update No.

2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), was issued in August 2018 to modify the disclosure requirements related to fair value.

ASU 2018-13 was effective for fiscal years beginning after December 15, 2019.

Certain provisions under ASU 2018-13 required prospective application, while other provisions required retrospective application to all periods presented in the consolidated financial statements upon adoption.

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

Compensation - Retirement Benefits - ASC 715

Accounting Standards Update No.

2018-14, “Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), was issued in August 2018 to modify the disclosure requirements associated with defined benefit pension plans and other postretirement plans.

ASU 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted.

The provisions under ASU 2018-14 are required to be applied retrospectively.

The Corporation adopted the provisions of ASU 2018-13 effective December 31, 2020 and the adoption did not have a material impact on the Corporation’s consolidated financial statements.

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

Accounting Standards Update No.

2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract” (“ASU 2018-15”), was issued in August 2018 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with those requirements that currently exist in GAAP for capitalizing implementation costs incurred to develop or obtain internal-use software.

Implementation costs would either be capitalized or expensed as incurred depending on the project stage.

All costs in the preliminary and post-implementation project stages are expensed as incurred, while certain costs within the application development stage are capitalized.

ASU 2018-15 was effective for fiscal years beginning after December 15, 2019.

Effective January 1, 2020, the Corporation adopted the provisions of ASU 2018-15 prospectively, as permitted, and the adoption did not have a material impact on the Corporation’s consolidated financial statements.

Notes to Consolidated Financial Statements – (continued)

Reference Rate Reform - ASC 848

Accounting Standards Update No.

2020-04, “Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), was issued in March 2020 to ease the potential burden in accounting for recognizing the effects of reference rate reform on financial reporting.

Such challenges include the accounting and operational implications for contract modifications and hedge accounting.

The provisions in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to certain contracts, including loan and debt agreements, hedging relationships and other transactions affected by reference rate reform.

These provisions apply to contract modifications that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

Qualifying modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification would be considered "minor" so that any existing unamortized deferred loan origination fees and costs would carry forward and continue to be amortized.

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

ASU 2020-04 is effective as of March 12, 2020, and applies to contract modifications and amendments made as of the beginning of the reporting period that includes or is subsequent to March 12, 2020, and applies through December 31, 2022.

In addition, ASU 2021-01, “Reference Rate Reform - Scope (“ASU 2021-01”), was issued in January 2021 to clarify certain optional expedients in ASC 848 related to contract modifications associated with derivatives hedge accounting.

The clarifications specify that the expedients apply to derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a result of reference rate reform.

ASU 2021-01 is effective immediately for all entities and the provisions can be applied to contract modification retrospectively as of March 12, 2020 or on a prospective basis to new modifications through December 31, 2022, the end of the effective period of this ASU.

The optional expedients in both ASU 2020-04 and ASU 2021-01 cannot be applied to contract modifications within the scope of ASC 848 that are made after December 31, 2022.

Effective October 1, 2020, the Corporation adopted the provisions of these ASUs on a prospective basis for all eligible contract modifications.

The adoption did not have a material impact on the Corporation’s consolidated financial statements.

Accounting Standards Pending Adoption

Income Taxes - ASC 745

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2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), was issued in December 2019 to simplify the accounting for income taxes.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

ASU 2019-12 was effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

Certain provisions under ASU 2019-12 require prospective application, some require modified retrospective application through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, while other provisions require retrospective application to all periods presented in the consolidated financial statements upon adoption.

The adoption of ASU 2019-12 is not expected to have a material impact on the Corporation’s consolidated financial statements.

The Corporation adopted the provisions of ASU 2019-12 effective January 1, 2021 and the adoption did not have a material impact on the Corporation’s consolidated financial statements.

Receivables - ASC 310

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

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

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

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

The Corporation adopted the provisions of ASU 2020-08 effective January 1, 2021 and the adoption did not have an impact on the Corporation’s consolidated financial statements.

Accounting Standards Pending Adoption

Business Combinations - ASC 805

Accounting Standards Update No.

2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), was issued in October 2021 to clarify the accounting for contract cost assets and contract liabilities acquired in a business combination.

Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination at fair value on the acquisition date.

The provisions of ASU 2021-08 clarify that contract cost assets and contract liabilities acquired in a business combination should be accounted for in accordance with ASC 606 as if the acquirer had originated the contracts.

ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

The provisions under ASU 2021-08 are required to be applied prospectively.

The adoption of ASU 2021-08 is not expected to have a material impact on the Corporation’s consolidated financial statements.

Notes to Consolidated Financial Statements – (continued)

Note 3 - Cash and Due from Banks

Cash and due from banks includes cash on hand, cash items in process of collection, cash on deposit at the Federal Reserve Bank of Boston (“FRB”) and other correspondent banks and cash pledged to derivative counterparties.

The Bank maintains certain average reserve balances to meet the requirements of the FRB.

Cash and due from banks includes cash on hand, cash items in process of collection, cash on deposit at the Federal Reserve Bank of Boston (“FRBB”) and other correspondent banks and cash pledged to derivative counterparties.

The Bank maintains certain average reserve balances to meet the requirements of the FRBB.

Some or all of these reserve requirements may be satisfied with vault cash.

Effective March 26, 2020, the FRB reduced the reserve requirement ratios to zero percent to eliminate the need for depository institutions, such as the Bank, to maintain balances in accounts at the FRB to satisfy reserve requirements.

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

As of December 31, 2020 and 2019, cash and due from banks included interest-bearing deposits in other banks of $ 138.4 million and $ 83.4 million, respectively.

Effective March 26, 2020, the FRBB reduced the reserve

Notes to Consolidated Financial Statements – (continued)

requirement ratios to zero percent to eliminate the need for depository institutions, such as the Bank, to maintain balances in accounts at the FRBB to satisfy reserve requirements.

As a result, there were no reserve balances included in cash and due from banks in the Consolidated Balance Sheets at December 31, 2021 and 2020.

Cash and due from banks included interest-bearing deposits in other banks of $ 128.3 million and $ 138.4 million, respectively, at December 31, 2021 and 2020.

Restricted cash and due from banks balances represent cash collateral pledged to derivative counterparties.

See Note 14 for additional disclosure regarding cash collateral pledged to derivative counterparties.

Note 4 - Securities

Adoption of ASC 326

Effective January 1, 2020, the Corporation adopted the provisions of ASC 326 using the modified retrospective method.

Therefore, prior period comparative information has not been adjusted and continues to be reported under the GAAP in effect prior to the adoption of ASC 326.

There was no ACL on available for sale debt securities recognized upon the adoption of ASC 326.

Available for Sale Debt Securities

The following table presents the amortized cost, gross unrealized holding gains, gross unrealized holding losses, ACL on securities and fair value of securities by major security type and class of security:

The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses, ACL on securities and fair value of securities by major security type and class of security:

(Dollars in thousands)

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Total available for sale debt securities $ 1,051,800 $ 6,862 ($ 15,803 ) $ — $ 1,042,859

The following table presents the amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of securities by major security type and class of security:

(Dollars in thousands)

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

December 31, 2020 Amortized Cost Unrealized Gains Unrealized Losses Allowance for Credit Losses Fair Value

Available for Sale Debt Securities:

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Total available for sale debt securities $ 881,570 $ 15,570 ($ 2,569 ) $ — $ 894,571

Notes to Consolidated Financial Statements – (continued)

Accrued interest receivable on available for sale debt securities totaled $ 2.3 million and $ 2.4 million, respectively, as of December 31, 2021 and 2020.

At December 31, 2020 and 2019, securities with a fair value of $ 291.9 million and $ 431.9 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRB, certain public deposits and for other purposes.

At December 31, 2021 and 2020, securities with a fair value of $ 332.0 million and $ 291.9 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRBB, certain public deposits and for other purposes.

See Note 12 for additional discussion of FHLB borrowings.

Notes to Consolidated Financial Statements – (continued)

The schedule of maturities of available for sale debt securities is presented below.

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Management evaluates both qualitative and quantitative factors to assess whether an impairment exists.

Notes to Consolidated Financial Statements – (continued)

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

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53 $ 667,152 ($ 10,583 ) 34 $ 173,628 ($ 5,220 ) 87 $ 840,780 ($ 15,803 )

Notes to Consolidated Financial Statements – (continued)

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

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22 $ 171,139 ($ 672 ) 8 $ 22,597 ($ 1,897 ) 30 $ 193,736 ($ 2,569 )

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

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

Obligations of U.S.

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Individual Name Issuer Trust Preferred Debt Securities

Included in debt securities in an unrealized loss position at December 31, 2020 were five trust preferred securities issued by four individual companies in the banking sector.

Included in debt securities in an unrealized loss position at December 31, 2021 were three trust preferred securities issued by three individual companies in the banking sector.

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

Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the

Notes to Consolidated Financial Statements – (continued)

issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report, and other information.

As of December 31, 2020, there were two individual name issuer trust preferred debt securities with an amortized cost of $ 4.0 million and unrealized losses of $ 266 thousand that were rated below investment grade by Standard & Poors, Inc.

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

As of December 31, 2021, there were two individual name issuer trust preferred debt securities with an amortized cost of $ 4.0 million and unrealized losses of $ 129 thousand that were rated below investment grade by S&P.

We noted no additional downgrades to below investment grade between December 31, 2021 and the filing date of this report.

4 unchanged sentences

Corporate Bonds

At December 31, 2020, the Corporation had three corporate bond holdings with unrealized losses totaling $ 1.2 million.

At December 31, 2021, the Corporation had four corporate bond holdings with unrealized losses totaling $ 850 thousand.

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

The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at December 31, 2020.

The issuers of these securities continue to make timely interest payments and none of these securities were

Notes to Consolidated Financial Statements – (continued)

past due at December 31, 2021.

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

2 unchanged sentences

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

Therefore, no ACL on securities was recorded at December 31, 2020.

Therefore, no allowance for credit losses was recorded at December 31, 2021.

Note 5 - Loans

18 unchanged sentences

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

C&I also includes $ 199.8 million of PPP loans as of December 31, 2020.

C&I also includes $ 38.0 million and $ 199.8 million, respectively, of PPP loans as of December 31, 2021 and 2020.

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

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

(5) Includes net unamortized loan origination costs of $ 1.5 million and $ 5.3 million, respectively, at December 31, 2020 and 2019 and net unamortized premiums on purchased loans of $ 787 thousand and $ 995 thousand, respectively, at December 31, 2020 and 2019.

Accrued interest receivable on loans totaled $ 11.3 million and $ 11.0 million, respectively, as of December 31, 2020

Notes to Consolidated Financial Statements – (continued)

and December 31, 2019.

As of both December 31, 2020 and 2019, loans amounting to $ 2.1 billion were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB for the discount window.

(5) Includes net unamortized loan origination costs of $ 6.7 million and $ 1.5 million, respectively, at December 31, 2021 and 2020 and net unamortized premiums on loans purchased from and serviced by other financial institutions of $ 414 thousand and $ 787 thousand, respectively, at December 31, 2021 and 2020.

Loan balances exclude accrued interest receivable of $ 10.3 million and $ 11.3 million, respectively, as of December 31, 2021 and 2020.

As of December 31, 2021 and 2020, loans amounting to $ 2.2 billion and $ 2.1 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window.

See Note 12 for additional disclosure regarding borrowings.

As disclosed in Note 1, the Corporation has elected to account for eligible loan modifications under Section 4013 of the CARES Act, as amended by the CRRSA Act.

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

Interest income will continue to be recognized unless the loan is placed on nonaccrual status in accordance with the nonaccrual loans accounting policy disclosed in Note 1.

In 2020, we executed loan payment deferment modifications on 636 loans totaling $ 717.4 million.

As disclosed in Note 1, the Corporation elected to account for eligible loan modifications under Section 4013 of the CARES Act, as amended by the CRRSA Act.

Through December 31, 2021, we processed loan payment deferral modifications, or “deferments”, on 654 loans totaling $ 727.7 million, of which active deferments remain on 2 loans totaling $ 9.7 million.

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

See additional disclosure regarding TDRs below.

As of December 31, 2020, Washington Trust has active loan payment deferment modifications on 136 loans totaling $ 244.7 million.

Notes to Consolidated Financial Statements – (continued)

Concentrations of Credit Risk

19 unchanged sentences

Total loans $ 2,388 $ 3,253 $ 4,770 $ 10,411 $ 4,262,514 $ 4,272,925

Notes to Consolidated Financial Statements – (continued)

(Dollars in thousands) Days Past Due

13 unchanged sentences

Included in past due loans as of December 31, 2021 and 2020, were nonaccrual loans of $ 9.4 million and $ 8.5 million, respectively.

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

In addition, all loans 90 days or more past due at December 31, 2021 and 2020 were classified as nonaccrual.

Notes to Consolidated Financial Statements – (continued)

Nonaccrual Loans

11 unchanged sentences

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

For nonaccrual loans with a carrying value of $ 3.0 million as of December 31, 2020, no ACL was deemed necessary.

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

Nonaccrual loans of $ 4.7 million and $ 5.9 million, respectively, were current as to the payment of principal and interest at December 31, 2020 and December 31, 2019.

Nonaccrual loans of $ 4.8 million and $ 4.7 million, respectively, at December 31, 2021 and 2020 were current as to the payment of principal and interest.

In addition, no ACL was deemed necessary on nonaccrual loans with a carrying value of $ 4.2 million and $ 3.0 million, respectively, as of December 31, 2021 and 2020.

As of December 31, 2021 and 2020, nonaccrual loans secured by one- to four-family residential property amounting to $ 1.5 million and $ 3.4 million, respectively, were in process of foreclosure.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2021.

Notes to Consolidated Financial Statements – (continued)

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

The following table presents interest income recognized on nonaccrual loans:

(Dollars in thousands) Interest Income Recognized

Year ended December 31, 2020

Years Ended December 31, 2021 2020

Commercial real estate $ — $ —

5 unchanged sentences

Total consumer 53 35

Total $ 512 $ 416

Troubled Debt Restructurings

1 unchanged sentence

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

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

Notes to Consolidated Financial Statements – (continued)

The following table presents the recorded investment in TDRs and other pertinent information:

(Dollars in thousands)

5 unchanged sentences

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

Notes to Consolidated Financial Statements – (continued)

The following table presents loans modified as a TDR:

The following table presents TDRs occurring during the period indicated and the recorded investment pre- and post- modification:

(Dollars in thousands) Outstanding Recorded Investment

12 unchanged sentences

Total 2 23 $ 9,859 $ 15,458 $ 9,859 $ 15,458

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

The following table presents TDRs occurring during the period indicated by type of modification:

(Dollars in thousands)

7 unchanged sentences

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

Notes to Consolidated Financial Statements – (continued)

The following table presents information on TDRs modified within the previous 12 months for which there was a payment default:

8 unchanged sentences

Total — 5 $ — $ 2,267

Notes to Consolidated Financial Statements – (continued)

Individually Analyzed Loans

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

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

As of December 31, 2021, the carrying value of individually analyzed loans amounted to $ 21.1 million, of which $ 14.4 million were considered collateral dependent.

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

The following table presents the carrying value of collateral dependent individually analyzed loans as of December 31, 2020:

(Dollars in thousands) Carrying Value Related Allowance

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

(Dollars in thousands) December 31, 2021

December 31, 2020

Carrying Value Related Allowance Carrying Value Related Allowance

Commercial real estate (1)

$ 10,603 $ — $ 1,792 $ —

Commercial & industrial (2)

2 unchanged sentences

Residential real estate (3)

3,803 534 5,947 38

Home equity (3)

5 unchanged sentences

Notes to Consolidated Financial Statements – (continued)

Prior to January 1, 2020, impaired loans individually analyzed for impairment included nonaccrual loans and executed TDRs.

The following is a summary of impaired loans as of December 31, 2019:

(Dollars in thousands) Recorded Investment (1)

Unpaid Principal Related Allowance

No Related Allowance Recorded

Residential Real Estate:

Residential real estate $ 13,968 $ 14,803 $ —

1,471 1,472 —

Total consumer 1,559 1,560 —

Subtotal 15,527 16,363 —

With Related Allowance Recorded

Commercial real estate

$ 603 $ 926 $ —

Commercial & industrial

Total commercial 1,260 1,583 580

Residential Real Estate:

Residential real estate 687 714 95

Total consumer 310 309 293

Subtotal 2,257 2,606 968

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

Commercial $ 1,260 $ 1,583 $ 580

Residential real estate 14,655 15,517 95

Consumer 1,869 1,869 293

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

(1) The recorded investment in impaired loans consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs.

For accruing impaired loans (TDRs for which management has concluded that the collectability of the loan is not in doubt), the recorded investment also includes accrued interest.

Notes to Consolidated Financial Statements – (continued)

As required under the GAAP in effect prior to the adoption of ASC 326, the following table presents the average recorded investment balance of impaired loans and interest income recognized on impaired loans segregated by loan class:

(Dollars in thousands) Average Recorded Investment

Interest Income Recognized

Years ended December 31, 2019 2018 2019 2018

Commercial real estate

$ 864 $ 1,050 $ 1 $ —

Commercial & industrial

2,149 5,403 106 259

Total commercial

3,013 6,453 107 259

Residential real estate:

Residential real estate

11,575 9,645 473 393

1,466 1,182 58 52

Total consumer 1,534 1,251 60 57

Totals $ 16,122 $ 17,349 $ 640 $ 709

Credit Quality Indicators

2 unchanged sentences

This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10.

The loan rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics.

The loan risk rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics.

For non-impaired loans, the Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for loan losses.

4 unchanged sentences

Lesser stature loans have an acceptable level of credit quality, but may exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, performance or may be in an industry or of a loan type known to have a higher degree of risk.

These weaknesses may be mitigated by secondary sources of repayment, including SBA guarantees.

These weaknesses may be mitigated by secondary sources of repayment, including Small Business Administration (“SBA”) guarantees.

Special Mention - Loans with potential weaknesses that deserve management’s close attention.

6 unchanged sentences

The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectability.

A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but

Notes to Consolidated Financial Statements – (continued)

the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty.

A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty.

A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined.

“Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset.

The Corporation’s procedures call for loan ratings and classifications to be revised whenever information becomes available that indicates a change is warranted.

On a quarterly basis, management reviews the watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate and other selected loans.

Management’s review focuses on the current status of the loans and strategies to improve the credit.

The Corporation’s procedures call for loan risk ratings and classifications to be revised whenever information becomes available that indicates a change is warranted.

On a quarterly basis, management reviews a watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate, loans with active deferrals resulting from the COVID-19 pandemic, and other selected loans.

Management’s review focuses on the current status of the loans, the appropriateness of risk ratings and strategies to improve the credit.

An annual credit review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications.

2 unchanged sentences

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

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

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

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

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

Notes to Consolidated Financial Statements – (continued)

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

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

LTV is estimated based on such factors as geographic location, the original appraised value and changes in median home prices, and takes into consideration the age of the loan.

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

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2021:

25 unchanged sentences

Total Loans $ 1,293,402 $ 656,955 $ 564,863 $ 420,321 $ 318,804 $ 696,758 $ 310,068 $ 11,754 $ 4,272,925

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

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

Notes to Consolidated Financial Statements – (continued)

As required under the GAAP in effect prior to the adoption of ASC 326, the following table presents the commercial loan portfolio, segregated by category of credit quality indicator as of December 31, 2019:

(Dollars in thousands)

Pass Special Mention Classified

Commercial real estate

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2020:

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

2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Revolving Loans Converted to Term Loans Total

$ 283,341 $ 353,875 $ 260,917 $ 236,310 $ 136,490 $ 249,359 $ 10,333 $ 2,386 $ 1,533,011

Commercial & industrial

Special Mention

756 20,235 39,387 16,222 11,318 10,367 771 — 99,056

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

As required under the GAAP in effect prior to the adoption of ASC 326, the following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator as of December 31, 2019:

(Dollars in thousands)

As of December 31, 2019 Current Past Due

957 — — — — — — — 957

285,054 374,110 300,304 252,532 147,808 259,726 11,104 2,386 1,633,024

293,493 95,775 98,146 56,792 44,445 91,128 95,817 1,296 776,892

Special Mention

1,123 722 3,210 6,839 3,141 14,853 3,806 56 33,750

403 — — — — 6,363 — — 6,766

295,019 96,497 101,356 63,631 47,586 112,344 99,623 1,352 817,408

Residential Real Estate:

1 unchanged sentence

463,477 253,228 146,839 155,976 128,139 309,314 — — 1,456,973

Total consumer $ 308,222 $ 2,826

238 1,698 1,310 886 110 6,097 — — 10,339

Total residential real estate

463,715 254,926 148,149 156,862 128,249 315,411 — — 1,467,312

9,838 6,771 3,898 1,474 1,217 3,955 219,085 11,280 257,518

— 35 24 — — 186 310 1,112 1,667

Total home equity

9,838 6,806 3,922 1,474 1,217 4,141 219,395 12,392 259,185

5,214 2,241 1,237 1,544 548 7,850 308 1 18,943

19 1 — — 88 7 3 — 118

5,233 2,242 1,237 1,544 636 7,857 311 1 19,061

Total Loans $ 1,058,859 $ 734,581 $ 554,968 $ 476,043 $ 325,496 $ 699,479 $ 330,433 $ 16,131 $ 4,195,990

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

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

Notes to Consolidated Financial Statements – (continued)

Loan Servicing Activities

10 unchanged sentences

Amortization ( 2,507 ) — ( 2,507 )

Increase in impairment reserve — ( 154 ) ( 154 )

Balance at December 31, 2020 7,588 ( 154 ) 7,434

1 unchanged sentence

Amortization ( 3,438 ) — ( 3,438 )

Increase in impairment reserve — ( 154 ) ( 154 )

Decrease in impairment reserve — 154 154

Balance at December 31, 2021 $ 9,821 $ — $ 9,821

Notes to Consolidated Financial Statements – (continued)

The following table presents estimated aggregate amortization expense related to loan servicing assets:

16 unchanged sentences

Therefore, prior period comparative information has not been adjusted and continues to be reported under the GAAP in effect prior to the adoption of ASC 326.

As a result of adopting ASC 326, the Corporation increased the ACL on loans by $6.5 million on January 1, 2020.

The following table presents the activity in the ACL on loans for the year ended December 31, 2021:

3 unchanged sentences

$ 22,065 $ 12,228 $ 34,293 $ 8,042 $ 1,300 $ 471 $ 1,771 $ 44,106

Adoption of ASC 326 3,405 3,029 6,434 221 ( 106 ) ( 48 ) ( 154 ) 6,501

Charge-offs — ( 307 ) ( 307 ) ( 107 ) ( 183 ) ( 66 ) ( 249 ) ( 663 )

8 unchanged sentences

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

Adoption of ASC 326 3,405 3,029 6,434 221 ( 106 ) ( 48 ) ( 154 ) 6,501

Charge-offs ( 356 ) ( 586 ) ( 942 ) ( 99 ) ( 224 ) ( 52 ) ( 276 ) ( 1,317 )

14 unchanged sentences

Notes to Consolidated Financial Statements – (continued)

As required under the GAAP in effect prior to the adoption of ASC 326, the following table presents the Corporation’s loan portfolio and associated allowance for loan losses by portfolio segment and by impairment methodology as of December 31, 2019:

(Dollars in thousands) Loans Related

Loans Individually Evaluated for Impairment

Commercial real estate

Commercial & industrial

Total commercial 1,260 580

Residential Real Estate:

Residential real estate 14,654 95

Home equity 1,763 291

Total consumer 1,869 293

Subtotal 17,783 968

Loans Collectively Evaluated for Impairment

Commercial real estate

1,546,969 14,741

Commercial & industrial

584,632 3,341

Total commercial

2,131,601 18,082

Residential Real Estate:

Residential real estate 1,434,436 6,520

Home equity 289,111 1,099

Other 20,068 345

Total consumer 309,179 1,444

Subtotal 3,875,216 26,046

Total $ 3,892,999 $ 27,014

Note 7 - Premises and Equipment

9 unchanged sentences

Depreciation of premises and equipment amounted to $ 3.4 million, $ 3.2 million and $ 3.3 million, respectively, for the years ended December 31, 2021, 2020, and 2019.

Notes to Consolidated Financial Statements – (continued)

Note 8 - Leases

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

Operating lease ROU assets amounted to $ 29.5 million and $ 26.8 million, respectively, as of December 31, 2020 and 2019.

Operating lease right-of-use (“ROU”) assets amounted to $ 26.7 million and $ 29.5 million, respectively, as of December 31, 2021 and 2020.

Operating lease liabilities totaled $ 29.0 million and $ 31.7 million, respectively, as of December 31, 2021 and 2020.

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

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 4.0 million, $ 3.8 million and $ 3.7 million, respectively, for the years ended December 31, 2020, 2019 and 2018.

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

As of December 31, 2021, there were two operating leases that had not yet commenced.

As of December 31, 2020, there were no operating leases that had not yet commenced.

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

4 unchanged sentences

Range of lease renewal options

1 year - 5 years

3 years - 5 years

1 year - 5 years

10 unchanged sentences

(2) Includes short-term operating lease liabilities of $ 3.1 million.

Notes to Consolidated Financial Statements – (continued)

The following table presents the components of total lease expense and operating cash flows:

7 unchanged sentences

Cash paid reducing operating lease liabilities $ 3,888 $ 3,791 $ 3,586

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

Notes to Consolidated Financial Statements – (continued)

(1) Included in net occupancy expenses in the Consolidated Statements of Income.

Note 9 - Goodwill and Intangible Assets

6 unchanged sentences

The balance of goodwill in the Commercial Banking segment arose from the acquisition of First Financial Corp.

The balance of goodwill in the Wealth Management Services segment arose from the 2005 acquisition of Weston Financial and the 2015 acquisition of Halsey.

The balance of goodwill in the Wealth Management Services segment arose from the 2005 acquisition of Weston Financial Group, Inc.

(“Weston”) and the 2015 acquisition of Halsey Associates, Inc.

The following table presents the components of intangible assets:

4 unchanged sentences

Net amount $ 5,414 $ 6,305

The balance of intangible assets at December 31, 2020 includes wealth management advisory contracts resulting from the 2005 acquisition of Weston Financial and the 2015 acquisition of Halsey.

The wealth management advisory contracts resulting from the Weston Financial acquisition are being amortized over a 20 -year life using a declining balance method, based on expected attrition for the current customer base derived from historical runoff data.

The balance of intangible assets at December 31, 2021 includes wealth management advisory contracts resulting from the 2005 acquisition of Weston and the 2015 acquisition of Halsey.

The wealth management advisory contracts resulting from the Weston acquisition are being amortized over a 20 -year life using a declining balance method, based on expected attrition for the current customer base derived from historical runoff data.

The wealth management advisory contracts resulting from the acquisition of Halsey are being amortized on a straight-line basis over a 15 -year life.

Amortization expense for the years ended December 31, 2021, 2020, and 2019, amounted to $ 890 thousand, $ 914 thousand and $ 943 thousand, respectively.

Notes to Consolidated Financial Statements – (continued)

The following table presents estimated annual amortization expense for intangible assets at December 31, 2021:

2 unchanged sentences

2027 and thereafter 1,707

Notes to Consolidated Financial Statements – (continued)

Note 10 - Income Taxes

The following table presents the components of income tax expense:

The following table presents the components of income tax expense (benefit):

(Dollars in thousands)

5 unchanged sentences

19,162 22,461 20,552

Deferred Tax (Benefit) Expense:

Deferred Tax Expense (Benefit):

1,822 ( 2,375 ) ( 1,294 )

333 ( 755 ) ( 197 )

Total deferred tax (benefit) expense ( 3,130 ) ( 1,491 ) ( 63 )

Total deferred tax expense (benefit) 2,155 ( 3,130 ) ( 1,491 )

Total income tax expense $ 21,317 $ 19,331 $ 19,061

10 unchanged sentences

( 614 ) ( 0.6 ) ( 523 ) ( 0.6 ) ( 494 ) ( 0.6 )

Investment in low-income housing limited partnership ( 118 ) ( 0.1 ) — — — —

Federal tax credits

Share-based compensation

( 159 ) ( 0.2 ) 92 0.1 ( 221 ) ( 0.3 )

Investment in low-income housing limited partnership ( 117 ) ( 0.1 ) ( 118 ) ( 0.1 ) — —

Dividends received deduction

( 28 ) — ( 28 ) — ( 36 ) —

Change in fair value of contingent consideration

— — — — ( 39 ) ( 0.1 )

Share-based compensation

Federal tax credits

— — ( 93 ) ( 0.1 ) ( 364 ) ( 0.4 )

9 unchanged sentences

Deferred compensation

Net unrealized losses on available for sale debt securities 2,146 —

Deferred loan origination fees

Defined benefit pension obligations

Share-based compensation

Cash flow hedges 1,268 457

Defined benefit pension obligations

Deferred tax assets

5 unchanged sentences

( 4,982 ) ( 4,321 )

Net unrealized gains on available for sale debt securities

( 3,120 ) ( 991 )

Loan servicing rights

3 unchanged sentences

Depreciation of premises and equipment ( 1,237 ) ( 1,215 )

Net unrealized gains on available for sale debt securities

( 1,427 ) ( 1,253 )

9 unchanged sentences

federal income and state tax examinations by tax authorities for years before 2018.

Notes to Consolidated Financial Statements – (continued)

Note 11 - Deposits

11 unchanged sentences

(1) Includes wholesale brokered time deposit balances of $ 515,228 and $ 591,541 , respectively, as of December 31, 2021 and December 31, 2020.

Notes to Consolidated Financial Statements – (continued)

The following table presents scheduled maturities of time certificates of deposit:

8 unchanged sentences

Balance at December 31, 2021 $ 1,288,611 0.66 %

The following table presents the amount of time certificates of deposit in denominations of $100 thousand or more at December 31, 2020, maturing during the periods indicated:

(Dollars in thousands)

January 1, 2021 to March 31, 2021 $ 131,277

April 1, 2021 to June 30, 2021 77,811

July 1, 2021 to December 31, 2021 75,982

January 1, 2022 and beyond 126,977

Balance at December 31, 2020 $ 412,047

Time certificates of deposit in denominations of $250 thousand or more totaled $ 184.3 million and $ 134.9 million, respectively, at December 31, 2021 and 2020.

1 unchanged sentence

Federal Home Loan Bank Advances

Advances payable to FHLB amounted to $ 593.9 million and $ 1.1 billion, respectively, at December 31, 2020 and 2019.

Advances payable to FHLB amounted to $ 145.0 million and $ 593.9 million, respectively, at December 31, 2021 and 2020.

As of December 31, 2021 and 2020, the Bank had access to a $ 40.0 million unused line of credit and also had remaining available borrowing capacity of $ 1.6 billion and $ 969.7 million, respectively with the FHLB.

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

As of December 31, 2020 and 2019, the Bank had access to a $ 40.0 million unused line of credit with the FHLB and also had remaining available borrowing capacity of $ 969.7 million and $ 535.0 million, respectively.

Notes to Consolidated Financial Statements – (continued)

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of December 31, 2021:

3 unchanged sentences

2023 35,000 0.45

2023 856 5.12

2024 35,900 2.52

2025 2,751 5.03

2027 and thereafter — —

Total $ 145,000 0.38 %

Notes to Consolidated Financial Statements – (continued)

Advances payable to FHLB include short-term advances with original maturity due dates of one year or less.

The following table presents certain information concerning short-term FHLB advances:

(Dollars in thousands)

As of and for the years ended December 31, 2020 2019 2018

Average amount outstanding during the period $ 690,366 $ 718,722 $ 484,090

Amount outstanding at end of period 354,000 897,000 630,000

Highest month end balance during period 985,500 897,000 630,000

Weighted-average interest rate at end of period 0.39 % 2.06 % 2.67 %

Weighted-average interest rate during the period 1.39 2.59 2.23

Junior Subordinated Debentures

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Stock Repurchase Program

On December 1, 2020, the Bancorp’s Board of Directors adopted a new Stock Repurchase Program (the “2020 Repurchase Program”).

The 2020 Repurchase Program authorizes the repurchase of up to 850,000 shares, or approximately 5 %, of the Corporation’s outstanding common stock.

The Corporation’s Stock Repurchase Program adopted on November 10, 2021 (the “2021 Repurchase Program”) authorizes the repurchase of up to 850,000 shares, or approximately 5 %, of the Corporation’s outstanding common stock.

This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations.

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

The 2020 Repurchase Program expires on October 31, 2021 and may be modified, suspended, or discontinued at any time.

The 2021 Repurchase Program expires on December 31, 2022 and may be modified, suspended, or discontinued at any time.

As of December 31, 2021, no shares have been repurchased under the 2021 Repurchase Program.

The Corporation’s 2019 Stock Repurchase Program (the “2019 Repurchase Program”) authorized the repurchase of up to 850,000 shares, or approximately 5 %, of the Corporation’s outstanding common stock.

The 2019 Repurchase Program expired October 31, 2020.

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

The 2020 Repurchase Program expired on October 31, 2021 and no shares were repurchased under this program.

The primary source of liquidity for the Bancorp is dividends received from the Bank.

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Generally, the Bank has the ability to pay dividends to the Bancorp subject to minimum regulatory capital requirements.

The FDIC and the FRB have the authority to use their enforcement powers to prohibit a bank or bank holding company, respectively, from paying dividends if, in their opinion, the payment of dividends would constitute an unsafe or unsound practice.

The FDIC and the FRBB have the authority to use their enforcement powers to prohibit a bank or bank holding company, respectively, from paying dividends if, in their opinion, the payment of dividends would constitute an unsafe or unsound practice.

Dividends paid by the Bank to the Bancorp amounted to $ 45.7 million and $ 43.1 million, respectively, for the years ended December 31, 2021 and 2020.

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Regulatory Capital Requirements

The Bancorp and the Bank are subject to various regulatory capital requirements administered by the FRB and the FDIC, respectively.

The Bancorp and the Bank are subject to various regulatory capital requirements administered by the FRBB and the FDIC, respectively.

Regulatory authorities can initiate certain mandatory actions if the Bancorp or the Bank fail to meet minimum capital requirements, which could have a direct material effect on the Corporation’s financial statements.

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

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

The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at December 31, 2021 and 2020.

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

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

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

At both December 31, 2021 and 2020, $ 22.0 million in trust preferred securities were included in the Tier 1 capital of the Corporation for regulatory capital reporting purposes pursuant to the FRBB’s capital adequacy guidelines.

Notes to Consolidated Financial Statements – (continued)

As discussed in Note 2, in accordance with regulatory capital rules, the Corporation elected an option to delay the estimated impact of ASC 326 on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024.

As a result, capital ratios and amounts as of December 31, 2020 exclude the impact of the increased ACL on loans and unfunded loan commitments attributed to the adoption of ASC 326, adjusted for an approximation of the after-tax provision for credit losses attributable to ASC 326 relative to the incurred loss methodology during the deferral period.

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

In accordance with regulatory capital rules, the Corporation elected an option to delay the estimated impact of ASC 326 on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024.

As a result, capital ratios and amounts as of December 31, 2021 and 2020 exclude the impact of the increased ACL on loans and unfunded loan commitments attributed to the adoption of ASC 326, which was effective January 1, 2020, adjusted for an approximation of the after-tax provision for credit losses attributable to ASC 326 relative to the incurred loss methodology during the deferral period.

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

Note 14 - Derivative Financial Instruments

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Cash Flow Hedging Instruments

As of December 31, 2020, the Bancorp had no interest rate cap contracts.

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

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

During 2020, both of the interest rate cap contracts matured.

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

The interest rate swaps mature in 2021 and 2023.

As of December 31, 2020, the Bank had no interest rate floor contracts.

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

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

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

During 2020, the three interest rate floor contracts matured.

As of December 31, 2021 and 2020, the Corporation had interest rate swap contracts with total notional amounts of $ 20.0 million and $ 60.0 million, respectively, that were designated as cash flow hedges to hedge the interest rate risk associated with short-term variable rate FHLB advances.

One of the interest rate swaps on borrowings matured in December 2021 and the remaining matures in December 2023.

As of December 31, 2021, the Corporation had an interest rate swap contract with a total notional of $ 300.0 million that was designated as a cash flow hedge to hedge the interest rate risk associated with a pool of variable rate commercial loans.

The interest rate swap on loans was executed in the second quarter of 2021 and matures in May 2026.

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

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Interest Rate Swap Contracts with Customers

The Corporation has entered into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk.

The Corporation enters into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk.

The interest rate swap contracts with commercial loan borrowers allow them to convert variable-rate loan payments to fixed-rate loan payments.

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

Notes to Consolidated Financial Statements – (continued)

As of December 31, 2020 and 2019, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $ 991.0 million and $ 813.5 million, respectively, and equal amounts of “mirror” swap contracts with third-party financial institutions.

As of December 31, 2021 and 2020, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $ 1.0 billion and $ 991.0 million, respectively, and equal amounts of “mirror” swap contracts with third-party financial institutions.

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

Notes to Consolidated Financial Statements – (continued)

Risk Participation Agreements

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Notes to Consolidated Financial Statements – (continued)

The following table presents the fair values of derivative instruments in the Corporation’s Consolidated Balance Sheets:

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

(Dollars in thousands) Derivative Assets Derivative Liabilities

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Interest rate risk management contracts:

Interest rate caps Other assets $ — $ — Other liabilities $ — $ —

Interest rate swaps Other assets $ 182 $ — Other liabilities $ 5,301 $ 1,958

Interest rate floors Other assets — 3 Other liabilities — —

Derivatives not Designated as Hedging Instruments:

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Washington Trust may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.

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

The following table presents the effect of derivative instruments in the Consolidated Statements of Changes in Shareholders’ Equity and Consolidated Statements of Income:

(Dollars in thousands) (Gain) Loss Recognized in Other Comprehensive Income, Net of Tax

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Total ($ 2,566 ) ($ 654 ) ($ 984 )

Interest rate cap and interest rate floor contracts designated as cash flow hedges matured in 2020.

For derivatives designated as cash flow hedging instruments, see Note 20 for additional disclosure pertaining to the amounts and location of reclassifications from accumulated other comprehensive income (loss) into earnings.

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Items recorded at fair value on a recurring basis include securities available for sale, mortgage loans held for sale and derivatives.

Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent individually analyzed / impaired loans, property acquired through foreclosure or repossession and mortgage servicing rights.

Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent individually analyzed loans, property acquired through foreclosure or repossession and mortgage servicing rights.

These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets.

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The Corporation has elected the fair value option for mortgage loans held for sale to better match changes in fair value of the loans with changes in the fair value of the forward sale commitment contracts used to economically hedge them.

Notes to Consolidated Financial Statements – (continued)

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

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Difference between fair value and principal balance $ 995 $ 2,301

Changes in fair value of mortgage loans held for sale accounted for under the fair value option election (“fair value option adjustments”) are included in mortgage banking revenues in the Consolidated Statements of Income.

Fair value option adjustments amounted to $ 1.6 million and $ 167 thousand, respectively, in 2020 and 2019.

Notes to Consolidated Financial Statements – (continued)

Changes in fair value of mortgage loans held for sale accounted for under the fair value option election are included in mortgage banking revenues in the Consolidated Statements of Income.

Changes in fair value amounted to a decrease to mortgage banking revenues of $ 1.3 million in 2021, compared to an increase to mortgage banking revenues of $ 1.6 million in 2020.

There were no mortgage loans held for sale 90 days or more past due as of December 31, 2021 and 2020.

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The fair value of mortgage loans held for sale is estimated based on current market prices for similar loans in the secondary market and therefore are classified as Level 2 assets.

Collateral Dependent Individually Analyzed / Impaired Loans

The fair value of collateral dependent loans that are individually analyzed or were previously deemed impaired is determined based upon the appraised fair value of the underlying collateral.

Collateral Dependent Individually Analyzed Loans

The fair value of collateral dependent individually analyzed loans is determined based upon the appraised fair value of the underlying collateral.

Such collateral primarily consists of real estate and, to a lesser extent, other business assets.

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Internal valuations may be utilized to determine the fair value of other business assets.

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

Collateral dependent individually analyzed loans are categorized as Level 3.

Loan Servicing Rights

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Loan servicing rights are categorized as Level 3.

Notes to Consolidated Financial Statements – (continued)

Property Acquired Through Foreclosure or Repossession

Property acquired through foreclosure or repossession included in other assets in the Consolidated Balance Sheets is adjusted to fair value less costs to sell upon transfer out of loans through a charge to ACL on loans.

Subsequently, it is carried at the lower of carrying value or fair value less costs to sell.

Such subsequent valuation charges are charged through earnings.

Fair value is generally based upon appraised values of the collateral.

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

Interest rate caps, swaps and floors are traded in over-the-counter markets where quoted market prices are not readily available.

Fair value measurements are determined using independent pricing models that utilize primarily market observable inputs, such as swap rates of different maturities and LIBOR rates.

Interest rate swaps, caps and floors are traded in over-the-counter markets where quoted market prices are not readily available.

Fair value measurements are determined using independent valuation software, which utilizes the present value of future cash flows discounted using market observable inputs such as forward rate assumptions.

The Corporation evaluates the credit risk of its counterparties, as well as that of the Corporation.

Accordingly, factors such as the likelihood of default by the Corporation and its counterparties, its net exposures and remaining contractual life are considered in determining if any fair value adjustments related to credit risk are required.

Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position, if any.

Counterparty exposure is

Notes to Consolidated Financial Statements – (continued)

evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position, if any.

The Corporation has determined that the majority of the inputs used to value its derivative positions fall within Level 2 of the fair value hierarchy.

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As a result, the Corporation has classified its interest rate lock commitments as Level 2.

Notes to Consolidated Financial Statements – (continued)

Items Recorded at Fair Value on a Recurring Basis

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Total liabilities at fair value on a recurring basis $ 38,536 $ — $ 38,536 $ —

Notes to Consolidated Financial Statements – (continued)

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

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Total liabilities at fair value on a recurring basis $ 81,123 $ — $ 81,123 $ —

Notes to Consolidated Financial Statements – (continued)

Items Recorded at Fair Value on a Nonrecurring Basis

During 2021, two collateral dependent individually analyzed loans were written down to fair value.

One loan with a carrying value of $ 3.1 million was paid in full in the fourth quarter of 2021.

The second loan with a carrying value of $ 533 thousand was fully reserved for as of December 31, 2021.

The following table presents the carrying value of assets held at December 31, 2020, which were written down to fair value during the year ended December 31, 2020:

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Total assets at fair value on a nonrecurring basis $ 9,154 $ — $ — $ 9,154

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

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

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

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

Property acquired through foreclosure or repossession 1,109 — — 1,109

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

Notes to Consolidated Financial Statements – (continued)

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

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

December 31, 2021

Collateral dependent individually analyzed loans $ — Appraisals of collateral Discount for costs to sell 14 %

Appraisal adjustments 100 %

Notes to Consolidated Financial Statements – (continued)

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

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Prepayment rates 18 % - 42 % ( 21 %)

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

December 31, 2019

Collateral dependent impaired loans

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

Appraisal adjustments 0 % - 100 % ( 67 %)

Property acquired through foreclosure or repossession

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

Appraisal adjustments 22 %

Valuation of Financial Instruments

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Junior subordinated debentures 22,681 20,181 — 20,181 —

Notes to Consolidated Financial Statements – (continued)

(Dollars in thousands) Carrying Amount Total

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Financial Assets:

Loans, net of allowance for loan losses $ 3,865,985 $ 3,869,192 $ — $ — $ 3,869,192

Loans, net of allowance for credit losses on loans $ 4,151,884 $ 4,114,628 $ — $ — $ 4,114,628

Financial Liabilities:

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Junior subordinated debentures 22,681 19,422 — 19,422 —

Notes to Consolidated Financial Statements – (continued)

Note 16 - Revenue from Contracts with Customers

The following table summarizes total revenues as presented in the Consolidated Statements of Income and the related amounts which are from contracts with customers within the scope of ASC 606.

The following table summarizes total revenues as presented in the Consolidated Statements of Income and the related amounts that are from contracts with customers within the scope of ASC 606.

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

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(2) Revenue from contracts with customers in scope of ASC 606.

Notes to Consolidated Financial Statements – (continued)

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

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

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

The balances of

Notes to Consolidated Financial Statements – (continued)

contract liabilities were insignificant at both December 31, 2021 and 2020 and were included in other liabilities in the Consolidated Balance Sheets.

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

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

The carrying value of contract cost assets amounted to $ 1.5 million at December 31, 2020, compared to $ 905 thousand at December 31, 2019 and were included in other assets in the Consolidated Balance Sheets.

The carrying value of contract cost assets amounted to $ 1.9 million and $ 1.5 million, respectively, at December 31, 2021 and 2020 and were included in other assets in the Consolidated Balance Sheets.

The amortization of contract cost assets is recorded within salaries and employee benefits expense Consolidated Statements of Income.

Note 17 - Employee Benefits

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Washington Trust evaluates these assumptions annually.

Notes to Consolidated Financial Statements – (continued)

The following table presents the plans’ projected benefit obligations, fair value of plan assets and funded (unfunded) status:

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2,004 2,505 337 465

Actuarial loss 10,378 10,453 1,803 2,028

Actuarial (gain) loss ( 4,011 ) 10,378 102 1,803

Benefits paid

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As of December 31, 2021 and 2020, the funded status of the qualified defined benefit pension plan amounted to $ 13.6 million and $ 7.2 million, respectively, and was included in other assets in the Consolidated Balance Sheets.

The unfunded status of the non-qualified defined benefit retirement plans was $ 18.0 million and $ 16.4 million, respectively, at December 31, 2020 and December 31, 2019 and was included in other liabilities in the Consolidated Balance Sheets.

The unfunded status of the non-qualified defined benefit retirement plans was $ 17.7 million and $ 18.0 million,

Notes to Consolidated Financial Statements – (continued)

respectively, at December 31, 2021 and December 31, 2020 and was included in other liabilities in the Consolidated Balance Sheets.

The non-qualified retirement plans provide for the designation of assets in rabbi trusts.

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Net actuarial loss included in AOCI, pre-tax $ 3,920 $ 12,051 $ 8,027 $ 8,648

The accumulated benefit obligation for the qualified pension plan was $ 87.9 million and $ 76.6 million at December 31, 2020 and 2019, respectively.

The accumulated benefit obligation for the non-qualified retirement plans amounted to $ 16.4 million and $ 14.9 million at December 31, 2020 and 2019, respectively.

Notes to Consolidated Financial Statements – (continued)

The accumulated benefit obligation for the qualified pension plan was $ 85.2 million and $ 87.9 million, respectively, at December 31, 2021 and 2020.

The accumulated benefit obligation for the non-qualified retirement plans amounted to $ 16.4 million at both December 31, 2021 and 2020.

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

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Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (on a pre-tax basis):

Net loss (gain)

1,708 890 ( 4,342 ) 1,244 1,620 ( 663 )

Net (gain) loss ( 8,132 ) 1,708 890 ( 621 ) 1,244 1,620

Prior service credit

— 16 23 — — 1

Recognized in other comprehensive income (loss)

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(2) Included in other expenses in the Consolidated Statements of Income.

Notes to Consolidated Financial Statements – (continued)

The following table presents the measurement date and weighted-average assumptions used to determine benefit obligations at December 31, 2021 and 2020:

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The expected long-term rate of return on plan assets is based on what the Corporation believes is realistically achievable based on the types of assets held by the plan and the plan’s investment practices.

The assumption is updated annually, taking into account the asset allocation, historical asset return trends on the types of assets held and

Notes to Consolidated Financial Statements – (continued)

the current and expected economic conditions.

The assumption is updated annually, taking into account the asset allocation, historical asset return trends on the types of assets held and the current and expected economic conditions.

Future decreases in the long-term rate of return assumption on plan assets would increase pension costs and, in general, may increase the requirement to make funding contributions to the plans.

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This approach provides a more precise measurement of service and interest cost by improving the correlation between projected benefit cash flows and their corresponding spot rates.

Notes to Consolidated Financial Statements – (continued)

The following tables present the fair values of the qualified pension plan’s assets:

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This category includes cash and cash equivalents, as well as common stocks and mutual funds which are exchange-traded.

Notes to Consolidated Financial Statements – (continued)

Level 2 securities in the qualified pension plan include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose values are determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

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As of December 31, 2021 and 2020, the qualified pension plan did not have any securities in the Level 3 category.

Notes to Consolidated Financial Statements – (continued)

The following table presents the asset allocations of the qualified pension plan, by asset category:

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The fair value of equity securities of any one issuer will not be permitted to exceed 10 % of the total fair value of equity securities of the Pension Trust.

Notes to Consolidated Financial Statements – (continued)

Contributions

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In addition, the Corporation expects to contribute $ 905 thousand in benefit payments to the non-qualified retirement plans in 2022.

Notes to Consolidated Financial Statements – (continued)

Estimated Future Benefit Payments

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The plan is funded primarily through pre-tax contributions made by the participants.

The assets and liabilities of the Deferred Compensation Plan are recorded at fair value in the Corporation’s Consolidated Balance Sheets.

The assets and liabilities of the Deferred Compensation Plan are recorded at fair value in the Consolidated Balance Sheets.

The participants in the plan bear the risk of market fluctuations of the underlying assets.

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The 2013 Stock Option and Incentive Plan (the “2013 Plan”) was approved by shareholders on April 23, 2013.

Under the 2013 Plan, the maximum number of shares of the Bancorp’s common stock to be issued is 1,748,250 .

The 2013 Plan permits the granting of stock options and other equity incentives to officers, employees, directors and other key persons.

Vesting of stock options and share awards may accelerate or may be subject to proportional vesting if there is a change in control, disability, retirement or death (as defined in the 2013 Plan).

The following table presents share-based compensation expense and the related income tax benefits recognized in the Consolidated Statements of Income for stock options, nonvested share units and nonvested performance share units:

The following table presents share-based compensation expense and the related income tax benefits recognized in the Consolidated Statements of Income for stock options, restricted stock units and performance share units:

(Dollars in thousands)

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$ 978 $ 801 $ 982

(1) Includes $ 103 thousand of excess tax expenses recognized upon the settlement of share-based compensation awards in 2020.

(1) Includes $ 182 thousand and $ 248 thousand, respectively, of excess tax benefits recognized upon the settlement of share-based compensation awards in 2021 and 2019.

As of December 31, 2020, there was $ 5.2 million of total unrecognized compensation cost related to share-based compensation arrangements, including stock options, nonvested share units and nonvested performance share units granted under the Plans.

Includes $ 103 thousand of excess tax expenses recognized upon the settlement of share-based compensation awards in 2020.

As of December 31, 2021, there was $ 5.1 million of total unrecognized compensation cost related to share-based compensation arrangements, including stock options, restricted stock units and performance share units granted under the Plans.

That cost is expected to be recognized over a weighted average period of 1.9 years.

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Notes to Consolidated Financial Statements – (continued)

The following table presents a summary of the status of Washington Trust’s stock options outstanding as of and for the year ended December 31, 2020:

The following table presents a summary of stock options outstanding as of and for the year ended December 31, 2021:

Number of Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (000’s)

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The total intrinsic value of stock options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 897 thousand, $ 46 thousand and $ 580 thousand, respectively.

Nonvested Share Units

In 2020, 2019 and 2018, the Corporation granted to directors and certain key employees 27,385 , 26,070 and 13,430 share units, respectively, with 3 - to 5 -year cliff vesting.

Notes to Consolidated Financial Statements – (continued)

The following table presents a summary of the status of Washington Trust’s nonvested share units as of and for the year ended December 31, 2020:

Restricted Stock Units

In 2021, 2020 and 2019, the Corporation granted to directors and certain key employees 19,185 , 27,385 and 26,070 restricted stock units, respectively, with 3 -year cliff vesting.

The following table presents a summary of restricted stock units as of and for the year ended December 31, 2021:

Number of Shares Weighted Average Grant Date Fair Value

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End of period 66,285 $ 45.41

Nonvested Performance Share Units

The Corporation granted performance share units to certain key employees providing the opportunity to earn shares of common stock over a 3 - to 5 -year performance period.

Notes to Consolidated Financial Statements – (continued)

Performance Share Units

The Corporation granted performance share units to certain key employees providing the opportunity to earn shares of common stock over a 3 -year to 5 -year performance period.

The number of shares vested and earned will be contingent upon the Corporation’s attainment of certain performance measures as detailed in the performance share award agreements.

The following table presents a summary of the performance share unit awards as of December 31, 2020:

The following table presents a summary of outstanding performance share unit awards as of December 31, 2021:

Grant Date Fair Value per Share Weighted Average Current Performance Assumption Expected Number of Shares

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2019 52.84 118 % 36,960

2018 54.25 140 % 5,824

Total 159,572

The following table presents a summary of the status of Washington Trust’s performance share units as of and for the year ended December 31, 2020:

The following table presents a summary of performance share units as of and for the year ended December 31, 2021:

Number of Shares Weighted Average Grant Date Fair Value

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Note 19 - Business Segments

Washington Trust segregates financial information in assessing its results among its Commercial Banking and Wealth Management Services operating segments.

The amounts in the Corporate unit include activity not related to the segments.

The Corporation manages its operations through two reportable business segments, consisting of Commercial Banking and Wealth Management Services.

In the fourth quarter of 2021 the Corporation re-assessed its reportable business segments and related allocation methodology in connection with the implementation of a new budgeting and profitability system in the same period.

Management determined it was appropriate to allocate activity previously reported in the Corporate Unit to the Commercial Banking and Wealth Management Services operating segments.

The Corporate Unit had included activities related to the Treasury function, which is responsible for managing the investment portfolio and wholesale funding needs, as well as certain administrative and executive expenses that were not previously allocated to the operating segments.

The prior year segment information contained within this report has been restated to reflect this change to reportable business segments and related allocation methodology.

Commercial Banking

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cash management activities;

and direct banking activities, which include the operation of ATMs, telephone banking, internet banking and mobile banking services and customer support and sales.

banking activities, including customer support and the operation of ATMs, telephone banking, internet banking and mobile banking services;

as well as investment portfolio and wholesale funding activities.

Wealth Management Services

Wealth Management Services includes investment management;

The Wealth Management Services segment includes investment management;

holistic financial planning services;

2 unchanged sentences

and institutional trust services, including custody and fiduciary services.

Corporate includes the Treasury Unit, which is responsible for managing the wholesale investment portfolio and wholesale funding needs.

It also includes income from BOLI, as well as administrative and executive expenses not allocated to the operating segments and the residual impact of methodology allocations such as FTP offsets.

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

The following tables present the statement of operations and total assets for Washington Trust’s reportable business segments.

(Dollars in thousands)

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Banking Wealth

Services Corporate Consolidated

Services Consolidated

Net interest income (expense) $ 141,493 ($ 58 ) $ 141,435

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Total noninterest expenses 103,856 31,608 135,464

Income (loss) before income taxes 98,052 6,534 ( 15,426 ) 89,160

Income tax expense (benefit) 21,216 1,746 ( 3,631 ) 19,331

Net income (loss) $ 76,836 $ 4,788 ($ 11,795 ) $ 69,829

Income before income taxes 87,207 10,980 98,187

Income tax expense 18,575 2,742 21,317

Net income $ 68,632 $ 8,238 $ 76,870

Total assets at period end $ 5,776,754 $ 74,373 $ 5,851,127

4 unchanged sentences

Banking Wealth

Services Corporate Consolidated

Services Consolidated

Net interest income (expense) $ 127,545 ($ 101 ) $ 127,444

14 unchanged sentences

Banking Wealth

Services Corporate Consolidated

Services Consolidated

Net interest income (expense) $ 133,762 ($ 348 ) $ 133,414

16 unchanged sentences

Year ended December 31, 2021 Pre-tax Amounts Income Taxes Net of Tax

Securities available for sale:

Available for Sale Debt Securities:

Changes in fair value of available for sale debt securities

5 unchanged sentences

( 3,067 ) ( 736 ) ( 2,331 )

Net cash flow hedge losses reclassified into earnings (1)

Net gains on cash flow hedges reclassified into earnings (1)

( 310 ) ( 75 ) ( 235 )

5 unchanged sentences

2,844 683 2,161

Amortization of net prior service credits (2)

Net change in defined benefit plan obligations 8,752 2,100 6,652

Total other comprehensive income $ 4,965 $ 1,119 $ 3,846

Total other comprehensive loss ($ 16,567 ) ($ 3,977 ) ($ 12,590 )

(1) The pre-tax amounts are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Consolidated Statements of Income.

2 unchanged sentences

Year ended December 31, 2020 Pre-tax Amounts Income Taxes Net of Tax

Securities available for sale:

Available for Sale Debt Securities:

Changes in fair value of available for sale debt securities

$ 8,784 $ 2,129 $ 6,655

Net losses on securities reclassified into earnings (1)

Net (gains) losses on securities reclassified into earnings — — —

Net change in fair value of available for sale debt securities 8,784 2,129 6,655

2 unchanged sentences

( 2,003 ) ( 482 ) ( 1,521 )

Net cash flow hedge losses reclassified into earnings (2)

Net losses on cash flow hedges reclassified into earnings (1)

1,136 269 867

Net change in the fair value of cash flow hedges ( 867 ) ( 213 ) ( 654 )

4 unchanged sentences

2,141 400 1,741

Amortization of net prior service credits (3)

( 16 ) ( 4 ) ( 12 )

Net change in defined benefit plan obligations ( 2,952 ) ( 797 ) ( 2,155 )

Total other comprehensive loss $ 22,316 $ 5,244 $ 17,072

(1) The pre-tax amount is reported as net realized losses on securities in the Consolidated Statements of Income.

Total other comprehensive income $ 4,965 $ 1,119 $ 3,846

(1) The pre-tax amounts are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Consolidated Statements of Income.

3 unchanged sentences

Year ended December 31, 2019 Pre-tax Amounts Income Taxes Net of Tax

Securities available for sale:

Available for Sale Debt Securities:

Changes in fair value of available for sale debt securities

$ 26,074 $ 6,127 $ 19,947

Net (gains) losses on securities reclassified into earnings

Net losses on securities reclassified into earnings (1)

Net change in fair value of available for sale debt securities 26,127 6,139 19,988

1 unchanged sentence

Changes in fair value of cash flow hedges

Net cash flow hedge losses reclassified into earnings (1)

( 1,444 ) ( 339 ) ( 1,105 )

Net losses on cash flow hedges reclassified into earnings (2)

Net change in the fair value of cash flow hedges ( 1,285 ) ( 301 ) ( 984 )

8 unchanged sentences

Total other comprehensive income $ 22,316 $ 5,244 $ 17,072

(1) The pre-tax amount is reported as net realized losses on securities in the Consolidated Statements of Income.

(2) The pre-tax amounts are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Consolidated Statements of Income.

1 unchanged sentence

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

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

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

Balance at December 31, 2020 $ 9,881 ($ 1,447 ) ($ 15,825 ) ($ 7,391 )

Other comprehensive income (loss) before reclassifications

6,655 ( 1,521 ) ( 3,896 ) 1,238

Other comprehensive (loss) income before reclassifications ( 16,676 ) ( 2,331 ) 4,491 ( 14,516 )

Amounts reclassified from accumulated other comprehensive income

— ( 235 ) 2,161 1,926

Net other comprehensive income (loss)

6,655 ( 654 ) ( 2,155 ) 3,846

Net other comprehensive (loss) income ( 16,676 ) ( 2,566 ) 6,652 ( 12,590 )

Balance at December 31, 2021 ($ 6,795 ) ($ 4,013 ) ($ 9,173 ) ($ 19,981 )

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

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

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

5 unchanged sentences

Notes to Consolidated Financial Statements – (continued)

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

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

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

Other comprehensive (loss) income before reclassifications ( 9,228 ) 488 2,369 ( 6,371 )

Other comprehensive income (loss) before reclassifications 19,947 ( 1,105 ) ( 2,838 ) 16,004

Amounts reclassified from accumulated other comprehensive income

41 121 906 1,068

Net other comprehensive (loss) income ( 9,228 ) 619 3,810 ( 4,799 )

Net other comprehensive income (loss) 19,988 ( 984 ) ( 1,932 ) 17,072

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

21 unchanged sentences

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 100,150 , 223,506 and 100,643 , respectively, for the years ended December 31, 2021, 2020 and 2019.

Notes to Consolidated Financial Statements – (continued)

Note 22 - Commitments and Contingencies

Adoption of ASC 326

As disclosed in Note 2, ASC 326 requires the measurement of expected lifetime credit losses for unfunded commitments that are considered off-balance sheet credit exposures.

The Corporation adopted the provisions of ASC 326 effective January 1, 2020 using the modified retrospective method.

Therefore, the prior period comparative information has not been adjusted and continues to be reported under the GAAP in effect prior to the adoption of ASC 326.

As a result of adopting ASC 326, the Corporation recognized an increase in the ACL on unfunded commitments of $ 1.5 million on January 1, 2020.

Financial Instruments with Off-Balance Risk

1 unchanged sentence

These financial instruments include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts.

These instruments involve, to varying

Notes to Consolidated Financial Statements – (continued)

degrees, elements of credit risk in excess of the amount recognized in the Corporation’s Consolidated Balance Sheets.

These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Balance Sheets.

The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

12 unchanged sentences

Most standby letters of credit extend for one year.

The maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered totaled $ 11.7 million and $ 13.7 million, respectively, as of December 31, 2020 and December 31, 2019.

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

The maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $ 11.8 million and $ 11.7 million, respectively, as of December 31, 2021 and 2020.

At December 31, 2021 and 2020, there were no liabilities to beneficiaries resulting from standby letters of credit.

Fee income on standby letters of credit was insignificant for the years ended December 31, 2021, 2020 and 2019.

10 unchanged sentences

The interest rate swaps with other counterparties are generally subject to bilateral collateralization terms.

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

Notes to Consolidated Financial Statements – (continued)

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

(Dollars in thousands)

25 unchanged sentences

See Note 14 for additional disclosure pertaining to derivative financial instruments.

The ACL on unfunded commitments amounted to $ 2.4 million at December 31, 2020, compared to $ 293 thousand at December 31, 2019.

ACL on Unfunded Commitments

Unfunded commitments for home equity lines of credit and commercial demand loans are considered unconditionally cancellable for regulatory capital purposes and, therefore, are excluded from the calculation to estimate the ACL on unfunded commitments.

For each portfolio, estimated loss rates and funding factors are applied to the corresponding balance of unfunded commitments.

For each portfolio, the estimated loss rates applied to unfunded commitments are the same quantitative and qualitative loss rates applied to the corresponding on-balance sheet amounts in determining the ACL on loans.

The activity in the ACL on unfunded commitments for the year ended December 31, 2021 is presented below:

2 unchanged sentences

Beginning Balance $ 907 $ 1,402 $ 2,309 $ 54 $ — $ 19 $ 19 $ 2,382

Provision 360 ( 586 ) ( 226 ) 8 — ( 3 ) ( 3 ) ( 221 )

Ending Balance $ 1,267 $ 816 $ 2,083 $ 62 $ — $ 16 $ 16 $ 2,161

Notes to Consolidated Financial Statements – (continued)

The activity in the ACL on unfunded commitments for the year ended December 31, 2020 is presented below:

(Dollars in thousands) Commercial Consumer

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

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

Adoption of ASC 326 817 626 1,443 34 — 6 6 1,483

8 unchanged sentences

In the event of a breach of these representations and warranties, Washington Trust may be required to either repurchase the residential real estate mortgage loan (generally at unpaid principal balance plus accrued interest) with the identified defects or indemnify (“make-whole”) the investor for its losses.

Notes to Consolidated Financial Statements – (continued)

In the case of a repurchase, the Corporation will bear any subsequent credit loss on the residential real estate mortgage loan.

1 unchanged sentence

As of December 31, 2021 and 2020, the carrying value of loans repurchased due to representation and warranty claims was $ 1.4 million and $ 1.1 million, respectively.

Washington Trust has recorded a reserve for its exposure to losses for premium recapture and the obligation to repurchase previously sold residential real estate mortgage loans.

The reserve balance amounted to $ 300 thousand and $ 170 thousand at December 31, 2020 and 2019, respectively, and is included in other liabilities in the Consolidated Balance Sheets.

Washington Trust has recorded an estimated liability for its exposure to losses for premium recapture and the obligation to repurchase previously sold residential real estate mortgage loans.

The liability balance amounted to $ 275 thousand and $ 300 thousand at December 31, 2021 and 2020, respectively, and is included in other liabilities in the Consolidated Balance Sheets.

Any change in the estimate is recorded in mortgage banking revenues in the Consolidated Statements of Income.

Notes to Consolidated Financial Statements – (continued)

Note 23 - Parent Company Financial Statements

17 unchanged sentences

authorized 60,000,000 shares;

17,363,457 shares issued and 17,265,337 shares outstanding at December 31, 2020 and 17,363,455 shares issued and outstanding at December 31, 2019

17,363,457 shares issued and 17,330,818 shares outstanding at December 31, 2021 and 17,363,457 shares issued and 17,265,337 shares outstanding at December 31, 2020

Paid-in capital 126,511 125,610

2 unchanged sentences

Treasury stock, at cost;

98,120 shares at December 31, 2020

32,639 shares at December 31, 2021 and 98,120 shares at December 31, 2020

( 1,117 ) ( 3,355 )

Total shareholders’ equity 564,808 534,195

Total liabilities and shareholders’ equity $ 597,608 $ 566,508

Notes to Consolidated Financial Statements – (continued)

Statements of Income (Dollars in thousands)

3 unchanged sentences

Non-bank 11 17 27

Other income (losses) ( 102 ) — —

Total income 45,641 43,156 36,823

1 unchanged sentence

Legal and professional fees 217 210 147

Change in fair value of contingent consideration — — ( 187 )

Other 349 337 324

Other expenses 405 349 337

Total expenses 992 1,200 1,464

1 unchanged sentence

Income tax benefit 230 248 301

Income before equity in undistributed earnings of subsidiaries 42,204 35,660 31,509

Equity in undistributed earnings of subsidiaries:

Income before equity in undistributed earnings (losses) of subsidiaries 44,879 42,204 35,660

Equity in undistributed earnings (losses) of subsidiaries:

Bank 32,045 27,603 33,445

1 unchanged sentence

Net income $ 76,870 $ 69,829 $ 69,118

Notes to Consolidated Financial Statements – (continued)

Statements of Cash Flows (Dollars in thousands)

3 unchanged sentences

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

Equity in undistributed earnings of subsidiaries:

Equity in undistributed (earnings) losses of subsidiaries:

Bank ( 32,045 ) ( 27,603 ) ( 33,445 )

Non-bank 54 ( 22 ) ( 13 )

(Increase) decrease in dividend receivable ( 2,261 ) ( 1,813 ) 8

Tax benefit (expense) from stock option exercises and other equity awards 182 ( 103 ) 248

Deferred income tax benefit ( 24 ) — —

Increase in dividend receivable ( 1,128 ) ( 2,261 ) ( 1,813 )

Decrease (increase) in other assets 50 109 ( 43 )

(Decrease) increase in accrued expenses and other liabilities ( 31 ) ( 15 ) 17

Change in fair value of contingent consideration liability — — ( 187 )

Tax (expense) benefit from stock option exercises and other equity awards ( 103 ) 248 496

Increase (decrease) in accrued expenses and other liabilities 31 ( 31 ) ( 15 )

Other, net ( 182 ) 193 ( 195 )

Net cash provided by operating activities 43,808 40,111 33,842

Cash flows from investing activities:

Purchases of other equity investments, net ( 650 ) — —

Net cash used in investing activities ( 650 ) — —

Cash flows from financing activities:

Payment of contingent consideration liability — — ( 1,217 )

Treasury stock purchased — ( 4,322 ) —

2 unchanged sentences

Net cash used in financing activities ( 36,526 ) ( 40,291 ) ( 33,916 )

Net (decrease) increase in cash ( 180 ) ( 74 ) 248

Net increase (decrease) in cash 6,632 ( 180 ) ( 74 )

Cash at beginning of year 1,658 1,838 1,912

Cash at end of year $ 8,290 $ 1,658 $ 1,838

Notes to Consolidated Financial Statements – (continued)

Note 24 - Selected Quarterly Consolidated Financial Data (Unaudited)

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

2020 First Quarter Second Quarter Third Quarter Fourth Quarter

Interest and dividend income $ 47,116 $ 42,612 $ 40,834 $ 39,374

Interest expense 14,514 11,667 9,180 7,131

Net interest income 32,602 30,945 31,654 32,243

Provision for credit losses 7,036 2,200 1,325 1,781

Net interest income after provision for credit losses 25,566 28,745 30,329 30,462

Noninterest income 19,927 26,320 25,468 27,727

Noninterest expense 30,453 28,478 32,344 34,109

Income before income taxes 15,040 26,587 23,453 24,080

Income tax expense 3,139 5,547 5,131 5,514

Net income $ 11,901 $ 21,040 $ 18,322 $ 18,566

Net income available to common shareholders $ 11,869 $ 21,000 $ 18,285 $ 18,524

Weighted average common shares outstanding - basic 17,345 17,257 17,260 17,264

Weighted average common shares outstanding - diluted 17,441 17,292 17,317 17,360

Per share information:

Basic earnings per common share $ 0.68 $ 1.22 $ 1.06 $ 1.07

Diluted earnings per common share $ 0.68 $ 1.21 $ 1.06 $ 1.07

Cash dividends declared per share $ 0.51 $ 0.51 $ 0.51 $ 0.52

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

2019 First Quarter Second Quarter Third Quarter Fourth Quarter

Interest and dividend income $ 50,194 $ 50,559 $ 49,527 $ 47,383

Interest expense 15,610 16,701 16,549 15,389

Net interest income 34,584 33,858 32,978 31,994

Provision for loan losses 650 525 400 —

Net interest income after provision for loan losses 33,934 33,333 32,578 31,994

Noninterest income 15,367 16,753 18,342 16,618

Noninterest expense 26,964 28,151 26,870 28,755

Income before income taxes 22,337 21,935 24,050 19,857

Income tax expense 4,842 4,662 5,236 4,321

Net income $ 17,495 $ 17,273 $ 18,814 $ 15,536

Net income available to common shareholders $ 17,461 $ 17,238 $ 18,778 $ 15,502

Weighted average common shares outstanding - basic 17,304 17,330 17,338 17,351

Weighted average common shares outstanding - diluted 17,401 17,405 17,414 17,436

Per share information:

Basic earnings per common share $ 1.01 $ 0.99 $ 1.08 $ 0.89

Diluted earnings per common share $ 1.00 $ 0.99 $ 1.08 $ 0.89

Cash dividends declared per share $ 0.47 $ 0.51 $ 0.51 $ 0.51

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data