What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-08 · 264 added, 611 removed, 1019 unchanged (46% of the section changed)

4 unchanged sentences

(Dollars in thousands, except par value)

September 30,

2022 December 31,

3 unchanged sentences

15,612 40,196

Available for sale debt securities, at fair value (amortized cost of $ 1,049,044 , net of allowance for credit losses on securities of $ 0 at September 30, 2021;

Available for sale debt securities, at fair value (amortized cost of $ 1,082,203 , net of allowance for credit losses on securities of $ 0 at March 31, 2022;

and amortized cost of $ 1,051,800 ;

29 unchanged sentences

authorized 60,000,000 shares;

17,363,457 shares issued and 17,320,449 shares outstanding at September 30, 2021 and 17,363,457 shares issued and 17,265,337 shares outstanding at December 31, 2020

17,363,457 shares issued and 17,331,555 shares outstanding at March 31, 2022 and 17,363,457 shares issued and 17,330,818 shares outstanding at December 31, 2021

Paid-in capital 127,355 126,511

2 unchanged sentences

Treasury stock, at cost;

43,008 shares at September 30, 2021 and 98,120 shares at December 31, 2020

31,902 shares at March 31, 2022 and 32,639 shares at December 31, 2021

( 1,092 ) ( 1,117 )

8 unchanged sentences

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

Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020

Three months ended March 31, 2022 2021

Interest income:

2 unchanged sentences

Interest on mortgage loans held for sale

298 468 1,144 1,193

Taxable interest on debt securities

3,683 4,870 10,366 16,181

Dividends on Federal Home Loan Bank stock

95 532 338 1,826

Other interest income

56 39 121 424

Total interest and dividend income

1 unchanged sentence

Interest expense:

2,789 5,532 9,413 21,180

Federal Home Loan Bank advances

872 3,354 3,253 13,501

Junior subordinated debentures

92 135 278 519

Other interest expense

Total interest expense

3,753 9,180 12,944 35,361

Net interest income 35,091 32,871

3 unchanged sentences

Wealth management revenues

10,455 8,954 30,778 26,248

Mortgage banking revenues

6,373 12,353 24,294 33,300

Card interchange fees

1,265 1,161 3,714 3,139

Service charges on deposit accounts

673 598 1,917 1,975

Loan related derivative income

728 1,264 2,370 3,818

Income from bank-owned life insurance

618 567 1,781 1,922

408 571 2,233 1,313

Total noninterest income

4 unchanged sentences

Outsourced services

3,294 3,160 9,711 8,944

Net occupancy

2,134 2,012 6,304 5,940

977 934 2,946 2,806

Legal, audit and professional fees

767 1,252 2,042 2,733

FDIC deposit insurance costs

482 392 1,201 1,488

Advertising and promotion

559 384 1,341 829

Amortization of intangibles

223 228 674 688

Debt prepayment penalties

Other expenses

1,922 2,090 6,025 7,023

Total noninterest expense

12 unchanged sentences

and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

(Dollars in thousands)

Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020

Three months ended March 31, 2022 2021

Net income $ 16,483 $ 20,471

5 unchanged sentences

Net change in defined benefit plan obligations

540 410 1,621 1,229

Total other comprehensive (loss) income, net of tax ( 3,000 ) ( 2,941 ) ( 10,737 ) 7,834

Total comprehensive income $ 15,751 $ 15,381 $ 45,945 $ 59,097

Total other comprehensive loss, net of tax ( 59,470 ) ( 12,615 )

Total comprehensive (loss) income ($ 42,987 ) $ 7,856

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

3 unchanged sentences

(Dollars and shares in thousands)

For the three months ended September 30, 2021 Common

Shares Outstanding Common

Stock Paid-in

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury Stock Total

Balance at June 30, 2021 17,320 $ 1,085 $ 125,442 $ 437,927 ($ 15,128 ) ($ 1,470 ) $ 547,856

— — — 18,751 — — 18,751

Total other comprehensive loss, net of tax — — — — ( 3,000 ) — ( 3,000 )

Cash dividends declared ($ 0.52 per share)

— — — ( 9,112 ) — — ( 9,112 )

Share-based compensation — — 823 — — — 823

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

— — — — — — —

Balance at September 30, 2021 17,320 $ 1,085 $ 126,265 $ 447,566 ($ 18,128 ) ($ 1,470 ) $ 555,318

For the nine months ended September 30, 2021 Common

For the three months ended March 31, 2022 Common

Shares Outstanding Common

12 unchanged sentences

1 — ( 44 ) — — 25 ( 19 )

Balance at September 30, 2021 17,320 $ 1,085 $ 126,265 $ 447,566 ($ 18,128 ) ($ 1,470 ) $ 555,318

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

Washington Trust Bancorp, Inc.

and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity (unaudited)

(Dollars and shares in thousands)

For the three months ended September 30, 2020 Common

Balance at March 31, 2022 17,332 $ 1,085 $ 127,355 $ 465,295 ($ 79,451 ) ($ 1,092 ) $ 513,192

For the three months ended March 31, 2021 Common

Shares Outstanding Common

4 unchanged sentences

Loss Treasury Stock Total

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

— — — 18,322 — — 18,322

Total other comprehensive loss, net of tax — — — — ( 2,941 ) — ( 2,941 )

Cash dividends declared ($ 0.51 per share)

— — — ( 8,935 ) — — ( 8,935 )

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

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

— — 1 — — — 1

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

For the nine months ended September 30, 2020 Common

Shares Outstanding Common

Stock Paid-in

Capital Retained

Earnings Accumulated

Comprehensive

(Loss) Income Treasury Stock Total

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 )

— — — 20,471 — — 20,471

Total other comprehensive income, net of tax — — — — 7,834 — 7,834

Total other comprehensive loss, net of tax — — — — ( 12,615 ) — ( 12,615 )

Cash dividends declared ($ 0.52 per share)

3 unchanged sentences

41 — ( 1,646 ) — — 1,395 ( 251 )

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

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

Balance at March 31, 2021 17,306 $ 1,085 $ 124,882 $ 429,598 ($ 20,006 ) ($ 1,960 ) $ 533,599

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

3 unchanged sentences

(Dollars in thousands)

Nine months ended September 30, 2021 2020

Three months ended March 31, 2022 2021

Cash flows from operating activities:

$ 16,483 $ 20,471

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

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Provision for credit losses

4 unchanged sentences

Share-based compensation

Tax benefit (expense) from stock option exercises and other equity awards 135 ( 70 )

Tax benefit from stock option exercises and other equity awards 10 9

Income from bank-owned life insurance

5 unchanged sentences

( 95,644 ) ( 299,051 )

Decrease (increase) in operating lease right-of-use assets 2,003 ( 3,069 )

(Decrease) increase in operating lease liabilities ( 1,907 ) 3,151

Decrease (increase) in other assets 34,107 ( 67,262 )

(Decrease) increase in other liabilities ( 36,698 ) 62,634

Net cash provided by operating activities 106,920 18,178

(Increase) decrease in operating lease right-of-use assets ( 2,124 ) 760

Increase (decrease) in operating lease liabilities 2,160 ( 744 )

Decrease in other assets 21,289 30,504

(Decrease) in other liabilities ( 25,100 ) ( 35,544 )

Net cash provided by (used in) operating activities 38,562 ( 3,366 )

Cash flows from investing activities:

10 unchanged sentences

Net redemption of Federal Home Loan Bank stock 4,579 5,513

Net increase in loans ( 80,021 ) ( 332,850 )

Purchases of other equity investments ( 188 ) —

Net (increase) decrease in loans ( 8,700 ) 7,570

Purchases of loans

( 465 ) ( 1,539 )

Proceeds from the sale of property acquired through foreclosure or repossession

Purchases of premises and equipment

( 834 ) ( 911 )

Purchases of bank-owned life insurance

Proceeds from surrender of bank-owned life insurance

Net cash used in investing activities

6 unchanged sentences

( 287,000 ) ( 540,947 )

Proceeds from Payment Protection Program Lending Facility

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

Treasury stock purchased

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

4 unchanged sentences

48,484 34,579

Net increase in cash and cash equivalents 98,120 73,560

Net increase (decrease) in cash and cash equivalents 49,603 ( 31,525 )

Cash and cash equivalents at beginning of period

4 unchanged sentences

Loans charged off $ 36 $ 64

Loans transferred to property acquired through foreclosure or repossession — 28

Supplemental Disclosures:

4 unchanged sentences

Note 1 - Basis of Presentation

Washington Trust Bancorp, Inc.

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 financial institution founded in 1800, and Weston Securities Corporation (“WSC”).

The Bancorp’s subsidiaries include the Bank, a Rhode Island chartered financial institution founded in 1800, and Weston Securities Corporation.

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.

The Unaudited Consolidated Financial Statements include the accounts of the Bancorp and its subsidiaries (collectively the “Corporation” or “Washington Trust”).

The Unaudited Consolidated Financial Statements include the accounts of the Bancorp and its subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

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

These capital trusts are variable interest entities in which the Bancorp is not the primary beneficiary and, therefore, are not consolidated.

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 investment in the capital trusts, which is classified in other assets, and the junior subordinated debentures are included in the Unaudited Consolidated Balance Sheets.

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

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

Certain previously reported amounts have been reclassified to conform to the current year’s presentation.

The accounting and reporting policies of the Corporation conform to GAAP and to general practices of the banking industry.

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period.

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.

The Unaudited Consolidated Financial Statements of the Corporation presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP.

Management considers the ACL on loans to be a material estimate that is particularly susceptible to change.

The Unaudited Consolidated Financial Statements of the Corporation presented herein have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying Unaudited Consolidated Financial Statements have been included.

2 unchanged sentences

Note 2 - Recently Issued Accounting Pronouncements

Accounting Standards Adopted in 2021

Income Taxes - ASC 745

Accounting Standards Update No.

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.

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 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

Accounting Standards Update No.

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

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

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

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

ASU 2020-08 requires that at each reporting period, to the extent that the amortized cost of an individual callable debt security exceeds the amount

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

repayable by the issuer at the next call date, the excess premium shall be amortized to the next call date.

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

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

The 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

There were no recently issued accounting pronouncements, applicable to the Corporation, that are pending adoption as of September 30, 2021.

Note 3 - Cash and Due from Banks

The Bank maintains certain average reserve balances to meet the requirements of the Federal Reserve Bank of Boston (“FRB”).

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.

As a result, there were no reserve balances included in cash and due from banks in the Unaudited Consolidated Balance Sheets at September 30, 2021 and December 31, 2020.

Cash and due from banks included interest-bearing deposits in other banks of $ 260.3 million and $ 138.4 million, respectively, at September 30, 2021 and December 31, 2020.

Cash and due from banks balances also include cash collateral pledged to derivative counterparties.

See Note 10 for additional disclosure regarding cash collateral pledged to derivative counterparties.

Business Combinations - ASC 805

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.

Financial Instruments - Credit Losses - ASC 326

2022-02, “Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), was issued in March 2022 to provide updates on the accounting treatment for TDRs and related disclosures requirements, as well as modifying the disclosure requirement associated with the existing credit quality indicators “vintage” disclosure.

With respect to TDRs, ASU 2022-02 eliminates the recognition and measurement guidance for TDRs under current GAAP and instead requires that the Corporation evaluate whether the modification represents a new loan or a continuation of existing loan, consistent with the current GAAP treatment for other loan modifications.

In addition, ASU 2022-02 eliminates existing disclosure requirements on TDRs and replaces with enhanced disclosure requirements related to loan modifications made to borrowers, including those experiencing financial difficulty.

ASU 2022-02 also provides an update to the existing tabular vintage disclosure of credit quality indicators by requiring current period gross write-offs to be disclosed by year of origination for each loan segment.

ASU 2022-02 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 2022-02 should be applied on a prospective basis.

However, the Corporation has the option to use a modified retrospective transition method related to the change in accounting treatment for TDRs with a cumulative effect of the the change in accounting principle recognized in the opening balance of retained earnings as of the adoption date.

The Corporation is currently evaluating this ASU and has not yet determined the impact that the adoption of ASU 2022-02 will have on its consolidated financial statements.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 3 - Securities

Available for Sale Debt Securities

The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses, allowance for credit 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)

September 30, 2021 Amortized Cost Unrealized Gains Unrealized Losses Allowance for Credit Losses Fair Value

March 31, 2022 Amortized Cost Unrealized Gains Unrealized Losses ACL

Available for Sale Debt Securities:

12 unchanged sentences

(Dollars in thousands)

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

December 31, 2021 Amortized Cost Unrealized Gains Unrealized Losses ACL

Available for Sale Debt Securities:

11 unchanged sentences

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

Amortized cost of available for sale debt securities excludes accrued interest receivable of $ 2.2 million and $ 2.4 million, respectively, as of September 30, 2021 and December 31, 2020.

Accrued interest receivable is included in other assets in the

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Unaudited Consolidated Balance Sheets.

As of September 30, 2021 and December 31, 2020, debt securities with a fair value of $ 344.3 million and $ 291.9 million, respectively, were pledged as collateral for Federal Home Loan Bank of Boston (“FHLB”) borrowings, potential borrowings with the FRB’s discount window, certain public deposits and for other purposes.

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

Accrued interest receivable on available for sale debt securities totaled $ 2.2 million and $ 2.3 million, respectively, as of March 31, 2022 and December 31, 2021.

As of March 31, 2022 and December 31, 2021, securities with a fair value of $ 301.8 million and $ 332.0 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRBB, certain public deposits and for other purposes.

See Note 7 for additional disclosure on FHLB borrowings.

4 unchanged sentences

(Dollars in thousands)

September 30, 2021 Amortized Cost Fair Value

March 31, 2022 Amortized Cost Fair Value

Due in one year or less $ 139,387 $ 130,147

7 unchanged sentences

$ 1,082,203 $ 1,008,184

Included in the above table are debt securities with an amortized cost balance of $ 204.8 million and a fair value of $ 201.3 million at September 30, 2021 that are callable at the discretion of the issuers.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Included in the above table are debt securities with an amortized cost balance of $ 223.0 million and a fair value of $ 205.9 million at March 31, 2022 that are callable at the discretion of the issuers.

Final maturities of the callable securities range from 2 years to 15 years, with call features ranging from 1 month to 2 year.

5 unchanged sentences

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

There were no debt securities on nonaccrual status at September 30, 2021 and 2020 and, therefore there was no accrued interest related to debt securities reversed against interest income for the three and nine months ended September 30, 2021 and 2020.

The following tables summarize available for sale debt securities in an unrealized loss position, for which an allowance for credit losses on securities has not been recorded, segregated by length of time that the securities have been in a continuous unrealized loss position:

There were no debt securities on nonaccrual status at March 31, 2022 and 2021 and, therefore there was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2022 and 2021.

The following tables summarize available for sale debt securities in an unrealized loss position, for which an ACL on securities has not been recorded, segregated by length of time that the securities have been in a continuous unrealized loss position:

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

September 30, 2021 # Fair

March 31, 2022 # Fair

Value Unrealized

13 unchanged sentences

90 $ 575,502 ($ 39,973 ) 49 $ 350,279 ($ 34,966 ) 139 $ 925,781 ($ 74,939 )

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

22 unchanged sentences

government agency and U.S.

government-sponsored debt securities, including mortgage-backed securities, were primarily attributable to relative changes in interest rates since the time of purchase.

government-sponsored debt securities, including mortgage-

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

backed securities, were primarily attributable to relative changes in interest rates since the time of purchase.

The contractual cash flows for these securities are guaranteed by U.S.

1 unchanged sentence

government-sponsored enterprises.

The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at September 30, 2021.

The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at March 31, 2022.

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

1 unchanged sentence

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

Therefore, no allowance for credits losses on securities was recorded at September 30, 2021.

Therefore, no allowance for credits losses on securities was recorded at March 31, 2022.

Individual Name Issuer Trust Preferred Debt Securities

Included in debt securities in an unrealized loss position at September 30, 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.

Included in debt securities in an unrealized loss position at March 31, 2022 were three trust preferred securities issued by three individual companies in the banking sector.

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 September 30, 2021, there were two individual name issuer trust preferred debt securities with an amortized cost of $ 4.0 million and unrealized losses of $ 140 thousand that were rated below investment grade by Standard & Poors, Inc.

We noted no additional downgrades to below investment grade between September 30, 2021 and the filing date of this report.

As of March 31, 2022, there was one individual name issuer trust preferred debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 77 thousand that was rated below investment grade by S&P.

We noted no additional downgrades to below investment grade between March 31, 2022 and the filing date of this report.

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

1 unchanged sentence

Therefore, no allowance for credit losses on securities was recorded at September 30, 2021.

Therefore, no ACL on securities was recorded at March 31, 2022.

Corporate Bonds

At September 30, 2021, the Corporation had four corporate bond holdings with unrealized losses totaling $ 782 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 September 30, 2021.

At March 31, 2022, the Corporation had four corporate bond holdings with unrealized losses totaling $ 996 thousand.

Management believes the unrealized losses on these debt securities are primarily attributable

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

to changes in the investment spreads and interest rates and not changes in the credit quality of the issuers of the debt securities.

As of March 31, 2022, there was one corporate bond debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 50 thousand that was rated below investment grade by S&P.

We noted no additional downgrades to below investment grade between March 31, 2022 and the filing date of this report.

Based on the information available through the filing date of this report, all corporate bond 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 expects to recover the entire amortized cost basis of these securities.

Therefore, no allowance for credit losses was recorded at September 30, 2021.

Therefore, no ACL was recorded at March 31, 2022.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 4 - Loans

The following is a summary of loans:

(Dollars in thousands) September 30,

The following table presents a summary of loans:

(Dollars in thousands) March 31,

2022 December 31, 2021

12 unchanged sentences

$ 4,283,852 $ 4,272,925

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

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

Construction and development loans are made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings.

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

C&I also includes $ 77.4 million and $ 199.8 million, respectively, of PPP loans as of September 30, 2021 and December 31, 2020.

(2) 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 $ 12.5 million and $ 38.0 million, respectively, of PPP loans as of March 31, 2022 and December 31, 2021.

(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 $ 5.0 million and $ 1.5 million, respectively, at September 30, 2021 and December 31, 2020 and net unamortized premiums on purchased loans of $ 489 thousand and $ 787 thousand, respectively, at September 30, 2021 and December 31, 2020.

Loan balances exclude accrued interest receivable of $ 11.1 million and $ 11.3 million, respectively, as of September 30, 2021 and December 31, 2020.

Accrued interest receivable is included in other assets in the Unaudited Consolidated Balance Sheets.

As of September 30, 2021 and December 31, 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 FRB.

(5) Includes net unamortized loan origination costs of $ 8.3 million and $ 6.7 million, respectively, at March 31, 2022 and December 31, 2021 and net unamortized premiums on purchased loans of $ 389 thousand and $ 414 thousand, respectively, at March 31, 2022 and December 31, 2021.

Loan balances exclude accrued interest receivable of $ 10.6 million and $ 10.3 million, respectively, as of March 31, 2022 and December 31, 2021.

As of both March 31, 2022 and December 31, 2021, loans amounting to $ 2.2 billion were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window.

See Note 7 for additional disclosure regarding borrowings.

Loan Modifications Under the CARES Act

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.

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 troubled debt restructurings (“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 described below.

Washington Trust has processed loan payment deferral modifications, or "deferments", on 654 loans totaling $ 728 million since the beginning of the second quarter of 2020, in response to the COVID-19 pandemic.

The majority of these deferments qualified as eligible loan modifications under Section 4013 of the CARES Act, as amended.

As of September 30, 2021, we had active deferments on five loans totaling $ 38.0 million, or 1 % of total loans excluding Paycheck Protection Program (“PPP”) loans.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The Corporation elected to account for eligible loan modifications under Section 4013 of the CARES Act, as amended by the CRRSA Act.

Eligible loan modifications from March 1, 2020 through January 1, 2022 made in response to the COVID-19 pandemic were not required to be classified as TDRs.

During this period of time, we processed loan payment deferral modifications, or “deferments”, on 654 loans totaling $ 727.7 million.

The vast majority of the deferments qualified as eligible loan modifications and were not classified as TDRs.

As of March 31, 2022, all of these loans have exited their payment deferral period.

Concentrations of Credit Risk

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The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy, as well as the health of the real estate economic sector in the Corporation’s market area.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Past Due Loans

Past due status is based on the contractual payment terms of the loan.

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

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

(Dollars in thousands) Days Past Due

September 30, 2021 30-59 60-89 Over 90 Total Past Due Current Total Loans

March 31, 2022 30-59 60-89 Over 90 Total Past Due Current Total Loans

Commercial real estate

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

Included in past due loans as of September 30, 2021 and December 31, 2020, were nonaccrual loans of $ 6.9 million and $ 8.5 million, respectively.

All loans 90 days or more past due at September 30, 2021 and December 31, 2020 were classified as nonaccrual.

Included in past due loans as of March 31, 2022 and December 31, 2021, were nonaccrual loans of $ 5.7 million and $ 9.4 million, respectively.

In addition, all loans 90 days or more past due at March 31, 2022 and December 31, 2021 were classified as nonaccrual.

Nonaccrual Loans

Loans, with the exception of certain well-secured loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest, or sooner if considered appropriate by management.

Well-secured loans are permitted to remain on accrual status provided

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

that full collection of principal and interest is assured and the loan is in the process of collection.

Well-secured loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection.

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

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Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible.

The following table presents the carrying value of nonaccrual loans:

(Dollars in thousands) Sep 30,

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Mar 31,

Commercial real estate

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

Nonaccrual loans of $ 4.0 million and $ 4.7 million, respectively, at September 30, 2021 and December 31, 2020 were current as to the payment of principal and interest.

No ACL was deemed necessary on nonaccrual loans with a carrying value of $ 4.0 million and $ 3.0 million, respectively, as of September 30, 2021 and December 31, 2020.

As of September 30, 2021 and December 31, 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 September 30, 2021.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

No ACL was deemed necessary on nonaccrual loans with carrying values of $ 4.2 million as of both March 31, 2022 and December 31, 2021.

Nonaccrual loans of $ 6.9 million and $ 4.8 million, respectively, at March 31, 2022 and December 31, 2021 were current as to the payment of principal and interest.

As of March 31, 2022 and December 31, 2021, nonaccrual loans secured by one- to four-family residential property amounting to $ 1.7 million and $ 1.5 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 March 31, 2022.

The following table presents interest income recognized on nonaccrual loans:

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020

(Dollars in thousands)

Three months ended March 31, 2022 2021

Commercial real estate

$ — $ — $ — $ —

Commercial & industrial

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Residential real estate

131 70 288 341

Total consumer 7 24

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

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

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

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

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Sep 30,

(Dollars in thousands) Mar 31,

Accruing TDRs

$ 16,540 $ 16,564

Nonaccrual TDRs

Total TDRs $ 9,779 $ 15,763

$ 19,329 $ 19,383

Specific reserves on TDRs included in the ACL on loans

Additional commitments to lend to borrowers with TDRs

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

(Dollars in thousands) Outstanding Recorded Investment

# of Loans Pre-Modifications Post-Modifications

Three months ended September 30, 2021 2020 2021 2020 2021 2020

Commercial real estate

— — $ — $ — $ — $ —

Commercial & industrial

Total commercial — — — — — —

Residential Real Estate:

Residential real estate

— 4 — 2,092 — 2,092

— 1 — 71 — 71

Total consumer — 1 $ — $ 71 $ — $ 71

Total — 5 $ — $ 2,163 $ — $ 2,163

(Dollars in thousands) Outstanding Recorded Investment

# of Loans Pre-Modifications Post-Modifications

Nine months ended September 30, 2021 2020 2021 2020 2021 2020

Commercial real estate

— 1 $ — $ 841 $ — $ 841

Commercial & industrial

— 2 — 460 — 460

Total commercial — 3 — 1,301 — 1,301

Residential Real Estate:

Residential real estate

— 10 — 5,604 — 5,604

— 4 — 873 — 873

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

Total — 17 $ — $ 7,778 $ — $ 7,778

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020

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

Payment deferral — 2,163 — 7,365

Maturity / amortization concession — — — —

Interest only payments — — — —

Combination (1)

Total $ — $ 2,163 $ — $ 7,778

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

During the three months ended March 31, 2022 and 2021, there were no loans modified in a TDR.

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

(Dollars in thousands) # of Loans Recorded Investment

Three months ended September 30, 2021 2020 2021 2020

TDRs with a Payment Default:

Residential real estate 1 1 $ 330 $ 903

Home equity — 1 — 47

Totals 1 2 $ 330 $ 950

(Dollars in thousands) # of Loans Recorded Investment

Nine months ended September 30, 2021 2020 2021 2020

Three months ended March 31, 2022 2021 2022 2021

TDRs with a Payment Default:

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

As of September 30, 2021, the carrying value of individually analyzed loans amounted to $ 15.5 million, of which $ 7.7 million were considered collateral dependent.

As of March 31, 2022, the carrying value of individually analyzed loans amounted to $ 21.0 million, of which $ 14.4 million were considered collateral dependent.

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.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) September 30, 2021 December 31, 2020

(Dollars in thousands) March 31, 2022 December 31, 2021

Carrying Value Related Allowance Carrying Value Related Allowance

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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 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.

The Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for credit losses on loans.

The loan risk rating system takes into consideration parameters

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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 Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for loan losses.

See Note 5 for additional information.

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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 Small Business Administration (“SBA”) guarantees.

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

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

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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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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 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.

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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.

Among these techniques is the periodic tracking of loans with an updated FICO score and an updated estimated 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.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of September 30, 2021:

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of March 31, 2022:

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

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Note 5 - Allowance for Credit Losses on Loans

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

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

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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Qualitative adjustments are made for differences in specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, that may not be reflected in historical loss rates.

In accordance with the ACL policy, the methodology is reviewed no less than annually.

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.

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

Effective January 1, 2021, the following econometric factors are utilized in the determination of the probability of default for each loan portfolio segment:

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

the NUR and national home price index (“HPI”) 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.

The following table presents the activity in the ACL on loans for the three months ended September 30, 2021:

(Dollars in thousands) Commercial Consumer

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

Beginning Balance $ 21,450 $ 11,717 $ 33,167 $ 6,877 $ 1,340 $ 495 $ 1,835 $ 41,879

Charge-offs — 2 2 ( 57 ) ( 183 ) ( 11 ) ( 194 ) ( 249 )

Recoveries — — — 5 73 3 76 81

Provision ( 613 ) ( 392 ) ( 1,005 ) 1,131 ( 112 ) ( 14 ) ( 126 ) —

Ending Balance $ 20,837 $ 11,327 $ 32,164 $ 7,956 $ 1,118 $ 473 $ 1,591 $ 41,711

The following table presents the activity in the ACL on loans for the nine months ended September 30, 2021:

(Dollars in thousands) Commercial Consumer

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

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

Charge-offs — ( 304 ) ( 304 ) ( 107 ) ( 183 ) ( 36 ) ( 219 ) ( 630 )

Recoveries — 3 3 85 79 19 98 186

Provision ( 1,228 ) ( 600 ) ( 1,828 ) ( 64 ) ( 78 ) 19 ( 59 ) ( 1,951 )

Ending Balance $ 20,837 $ 11,327 $ 32,164 $ 7,956 $ 1,118 $ 473 $ 1,591 $ 41,711

The following table presents the activity in the allowance for loan losses for the three months ended September 30, 2020:

The following table presents the activity in the ACL on loans for the three months ended March 31, 2022:

(Dollars in thousands) Commercial Consumer

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

Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 18,933 $ 10,832 $ 29,765 $ 7,860 $ 1,069 $ 394 $ 1,463 $ 39,088

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Ending Balance $ 18,460 $ 11,222 $ 29,682 $ 8,066 $ 1,098 $ 390 $ 1,488 $ 39,236

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table presents the activity in the allowance for loan losses for the nine months ended September 30, 2020:

The following table presents the activity in the ACL on loans for the three months ended March 31, 2021:

(Dollars in thousands) Commercial Consumer

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

Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 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 — ( 3 ) ( 3 ) ( 50 ) — ( 11 ) ( 11 ) ( 64 )

2 unchanged sentences

Ending Balance $ 21,297 $ 12,389 $ 33,686 $ 6,469 $ 1,431 $ 551 $ 1,982 $ 42,137

Note 7 - 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 right-of-use (“ROU”) assets amounted to $ 27.5 million and $ 29.5 million, respectively, as of September 30, 2021 and December 31, 2020.

Operating lease liabilities totaled $ 29.8 million and $ 31.7 million, respectively, as of September 30, 2021 and December 31, 2020.

As of September 30, 2021, there were three operating leases that had not yet commenced.

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

Rental expense for operating leases is recognized on a straight-line bas is over the lease term and amounted to $ 1.0 million and $ 3.1 million respectively, for the three and nine months ended September 30, 2021, compared to $ 1.0 million and $ 3.0 million, respectively, for the same periods in 2020.

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

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

Sep 30, 2021 Dec 31, 2020

Weighted average discount rate 3.35 % 3.34 %

Range of lease expiration dates 10 months - 19 years

7 months - 20 years

Range of lease renewal options

1 year - 5 years

Weighted average remaining lease term

13.0 years 13.4 years

The following table presents the undiscounted annual lease payments under the terms of the Corporation’s operating leases at September 30, 2021, including a reconciliation to the present value of operating lease liabilities recognized in the Unaudited Consolidated Balance Sheets:

(Dollars in thousands)

October 1, 2021 to December 31, 2021 $ 978

2026 and thereafter 22,099

Total operating lease payments (1)

interest 7,731

Present value of operating lease liabilities (2)

(1) Includes $ 1.4 million related to options to extend lease terms that are reasonably certain of being exercised.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020

Lease Expense:

Operating lease expense

$ 1,004 $ 1,005 $ 3,011 $ 2,915

Variable lease expense

Total lease expense (1)

$ 1,014 $ 1,019 $ 3,055 $ 2,956

Cash paid reducing operating lease liabilities

Note 6 - Deposits

The following table presents a summary of deposits:

(Dollars in thousands) Mar 31, 2022 Dec 31, 2021

Noninterest-bearing demand deposits $ 911,990 $ 945,229

Interest-bearing demand deposits 248,914 251,032

NOW accounts 893,603 867,138

Money market accounts 1,295,339 1,072,864

Savings accounts 566,461 555,177

Time deposits (1)

1,211,643 1,288,611

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

Note 8 - Federal Home Loan Bank Advances

Advances payable to the FHLB amounted to $ 222.6 million and $ 593.9 million, respectively, at September 30, 2021 and December 31, 2020.

As of September 30, 2021 and December 31, 2020, the Bank had access to a $ 40.0 million unused line of credit and also had remaining available borrowing capacity of $ 1.5 billion and $ 969.7 million, respectively, with the FHLB.

Total deposits $ 5,127,950 $ 4,980,051

(1) Includes wholesale brokered time deposit balances of $ 401,785 and $ 515,228 , respectively, as of March 31, 2022 and December 31, 2021.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 7 - Borrowings

Advances payable to the FHLB amounted to $ 55.0 million and $ 145.0 million, respectively, at March 31, 2022 and December 31, 2021.

As of March 31, 2022 and December 31, 2021, the Bank had access to a $ 40.0 million unused line of credit with the FHLB.

Additionally, the Bank had a $ 102.0 million standby letter of credit with the FHLB at March 31, 2022.

The Bank had remaining available borrowing capacity of $ 1.6 billion with the FHLB at both March 31, 2022 and December 31, 2021.

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

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of September 30, 2021:

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of March 31, 2022:

(Dollars in thousands) Scheduled

Maturity Weighted

October 1, 2021 to December 31, 2021 $ 142,450 0.39 %

2023 35,000 0.45

April 1, 2022 to December 31, 2022 $ 20,000 0.65 %

2023 35,000 0.45

2027 and thereafter — —

Balance at September 30, 2021 $ 222,592 0.84 %

Balance at March 31, 2022 $ 55,000 0.52 %

Note 8 - Shareholders' Equity

Stock Repurchase Program

The Corporation’s Stock Repurchase Program adopted on December 1, 2020 (the “2020 Repurchase Program”) authorizes the repurchase of up to 850,000 shares, or approximately 5 %, of the Corporation’s outstanding common stock.

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 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 expired on October 31, 2021 and no shares were repurchased under this program.

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

As of March 31, 2022, no shares have been repurchased under the 2021 Repurchase Program.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Regulatory Capital Requirements

Capital levels at September 30, 2021 exceeded the regulatory minimum levels to be considered “well capitalized.”

Capital levels at March 31, 2022 exceeded the regulatory minimum levels to be considered “well capitalized.”

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

1 unchanged sentence

Amount Ratio Amount Ratio Amount Ratio

September 30, 2021

March 31, 2022

Total Capital (to Risk-Weighted Assets):

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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 September 30, 2021 and December 31, 2020.

The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at March 31, 2022 and December 31, 2021.

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 September 30, 2021 and December 31, 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 FRB’s capital adequacy guidelines.

In accordance with regulatory capital rules, the Corporation elected the option to delay the estimated impact of Accounting Standards Codification (“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 September 30, 2021 and December 31, 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

At both March 31, 2022 and December 31, 2021, $ 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 capital adequacy guidelines of the Board of Governors of the Federal Reserve System.

In accordance with regulatory capital rules, the Corporation elected the 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 exclude the full 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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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.

relative to the incurred loss methodology during the two-year deferral period.

The cumulative difference at the end of the deferral period is being phased-in to regulatory capital over the three-year transition period, which began January 1, 2022.

Note 9 - Derivative Financial Instruments

11 unchanged sentences

Cash Flow Hedging Instruments

As of September 30, 2021 and December 31, 2020, the Corporation had 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 on borrowings mature in December of 2021 and December of 2023.

As of September 30, 2021, the Corporation had an interest rate swap contract with a total notional amount 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 of 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.

As of March 31, 2022 and December 31, 2021, the Corporation had an interest rate swap contract with a total notional amount of $ 20.0 million that was designated as a cash flow hedge to hedge the interest rate risk associated with short-term variable rate FHLB advances.

The interest rate swap on borrowings matures in December 2023.

As of March 31, 2022 and December 31, 2021, the Corporation had an interest rate swap contract with a total notional amount 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 matures in May 2026.

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

Loan Related Derivative Contracts

5 unchanged sentences

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

As of September 30, 2021 and December 31, 2020, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $ 998.5 million and $ 991.0 million, respectively, and equal amounts of “mirror” swap contracts with third party financial institutions.

As of March 31, 2022 and December 31, 2021, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $ 979.4 million and $ 1.0 billion, 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.

4 unchanged sentences

Under a risk participation-out agreement, a derivative asset, the Corporation participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank.

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

Under a risk participation-in agreement, a derivative liability, the Corporation assumes, or participates in, a portion of the

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

As of September 30, 2021, the notional amounts of risk participation-out agreements and risk participation-in agreements were $ 74.6 million and $ 147.4 million, respectively, compared to $ 61.6 million and $ 92.7 million, respectively, as of December 31, 2020.

credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank.

As of March 31, 2022, the notional amounts of risk participation-out agreements and risk participation-in agreements were $ 73.8 million and $ 162.8 million, respectively, compared to $ 74.2 million and $ 163.2 million, respectively, as of December 31, 2021.

Mortgage Loan Commitments

3 unchanged sentences

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

As of September 30, 2021, the notional amounts of interest rate lock commitments and forward sale commitments were $ 97.9 million and $ 195.1 million, respectively, compared to $ 167.7 million and $ 279.7 million, respectively, as of December 31, 2020.

As of March 31, 2022, the notional amounts of interest rate lock commitments and forward sale commitments were $ 40.1 million and $ 67.6 million, respectively, compared to $ 49.8 million and $ 103.6 million, respectively, as of December 31, 2021.

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

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Fair Value Fair Value

Balance Sheet Location Sep 30, 2021 Dec 31, 2020 Balance Sheet Location Sep 30, 2021 Dec 31, 2020

Balance Sheet Location Mar 31, 2022 Dec 31, 2021 Balance Sheet Location Mar 31, 2022 Dec 31, 2021

Derivatives Designated as Cash Flow Hedging Instruments:

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

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

(Dollars in thousands) Gain (Loss) Recognized in

Other Comprehensive Income, Net of Tax

Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020

Other Comprehensive Income (Loss), Net of Tax

Three months ended March 31, 2022 2021

Derivatives Designated as Cash Flow Hedging Instruments:

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($ 10,335 ) $ 297

Interest rate caps

Interest rate floors

— ( 85 ) — 150

Total ($ 10,335 ) $ 297

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 16 for additional disclosure pertaining to the amounts and location of reclassifications from accumulated other comprehensive income into earnings.

The following table presents the effect of derivative instruments in the Corporation’s Unaudited Consolidated Statements of Income:

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

(Dollars in thousands) Amount of Gain (Loss)

Recognized in Income on Derivatives

Three Months Nine Months

Periods ended September 30, Statement of Income Location 2021 2020 2021 2020

Three months ended March 31, Statement of Income Location 2022 2021

Derivatives not Designated as Hedging Instruments:

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Fair value measurements are determined based on the assumptions the market participants would use in pricing the asset or liability.

In addition, GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable.

In addition, GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information, or “inputs”, are observable or unobservable.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Corporation’s market assumptions.

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

(Dollars in thousands) September 30,

(Dollars in thousands) March 31,

2022 December 31,

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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 Unaudited Consolidated Statements of Income.

Changes in fair value amounted to an increase to mortgage banking revenues of $ 372 thousand for the three months ended September 30, 2021 and a decrease to mortgage banking revenues of $ 1.1 million for the nine months ended September 30, 2021.

This compared to increases to mortgage banking revenues of $ 1.1 million and $ 2.2 million, respectively, in the three and nine months ended September 30, 2020.

There were no mortgage loans held for sale 90 days or more past due as of September 30, 2021 and December 31, 2020.

Changes in fair value amounted to a decrease to mortgage banking revenues of $ 1.1 million and $ 1.5 million, respectively, for the three months ended March 31, 2022 and 2021.

There were no mortgage loans held for sale 90 days or more past due as of March 31, 2022 and December 31, 2021.

Valuation Techniques

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such items are classified as Level 1.

There were no Level 1 debt securities held at September 30, 2021 and December 31, 2020.

There were no Level 1 debt securities held at March 31, 2022 and December 31, 2021.

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

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

There were no Level 3 debt securities held at September 30, 2021 and December 31, 2020.

There were no Level 3 debt securities held at March 31, 2022 and December 31, 2021.

Mortgage Loans Held for Sale

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Collateral dependent individually analyzed loans are categorized as Level 3.

Loan Servicing Rights

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

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

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

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

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

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

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

Loan servicing rights are categorized as Level 3.

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

Interest rate swaps 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.

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However, the credit valuation adjustments utilize Level 3 inputs.

As of September 30, 2021 and December 31, 2020, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.

As of March 31, 2022 and December 31, 2021, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.

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

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(Level 2) Significant Unobservable Inputs

September 30, 2021

March 31, 2022

Available for sale debt securities:

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Items Recorded at Fair Value on a Nonrecurring Basis

The following table presents the carrying value of assets held at September 30, 2021, which were written down to fair value during the nine months ended September 30, 2021:

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

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Collateral dependent individually analyzed loans $ 3,563 $ — $ — $ 3,563

Total assets at fair value on a nonrecurring basis $ 3,563 $ — $ — $ 3,563

There were no assets written down to fair value during the three months ended March 31, 2022.

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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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:

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

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Collateral dependent individually analyzed loans $ 1,720 $ — $ — $ 1,720

Loan servicing rights 7,434 — — 7,434

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

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 Range of Inputs Utilized

(Weighted Average)

September 30, 2021

Collateral dependent individually analyzed loans $ 3,563 Appraisals of collateral Discount for costs to sell 0 % - 14 % ( 11 %)

Appraisal adjustments 0 % - 100 % ( 15 %)

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

The following table presents 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

(Weighted Average)

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Appraisal adjustments 100 %

Loan servicing rights

7,434 Discounted cash flow Discount rates 10 % - 14 % ( 10 %)

Prepayment rates 18 % - 42 % ( 21 %)

Valuation of Financial Instruments

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

The Corporation considers cash and cash equivalents, accrued interest receivable and accrued interest payable as level 1 measurements within the fair value hierarchy.

The Corporation considers FHLB stock, bank-owned life insurance and non-maturity deposits as level 2 measurements.

(Dollars in thousands)

September 30, 2021 Carrying Amount Total

March 31, 2022 Carrying Amount Total

Fair Value Quoted Prices in Active Markets for Identical Assets

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Junior subordinated debentures 22,681 18,665 — 18,665 —

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands)

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 11 - Revenue from Contracts with Customers

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

For the three months ended September 30, 2021 2020

For the three months ended March 31, 2022 2021

(Dollars in thousands) Revenue (1)

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Loan related derivative income

728 — 1,264 —

Income from bank-owned life insurance

2 unchanged sentences

Total revenues $ 52,250 $ 12,649 $ 58,845 $ 12,882

(1) As reported in the Consolidated Statements of Income.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

For the nine months ended September 30, 2021 2020

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

Revenue (1) ASC 606 Revenue (2)

Net interest income $ 103,695 $ — $ 95,201 $ —

Noninterest income:

Asset-based wealth management revenues

29,798 29,798 25,297 25,297

Transaction-based wealth management revenues

980 980 951 951

Total wealth management revenues

30,778 30,778 26,248 26,248

Mortgage banking revenues

24,294 — 33,300 —

Card interchange fees

3,714 3,714 3,139 3,139

Service charges on deposit accounts

1,917 1,917 1,975 1,975

Loan related derivative income

2,370 — 3,818 —

Income from bank-owned life insurance

1,781 — 1,922 —

2,233 1,834 1,313 1,026

Total noninterest income 67,087 38,243 71,715 32,388

Total revenues $ 170,782 $ 38,243 $ 166,916 $ 32,388

(1) As reported in the Consolidated Statements of Income.

(1) As reported in the Unaudited Consolidated Statements of Income.

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

The Corporation recognizes revenue that is transactional in nature and such revenue is earned at a point in time.

Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), automated teller machine (“ATM”) fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees.

Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees.

Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

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Fee revenue from service charges on deposit accounts represent service charges assessed to customers who hold deposit accounts at the Bank.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020

(Dollars in thousands)

Three months ended March 31, 2022 2021

Revenue recognized at a point in time:

4 unchanged sentences

Wealth management revenues

10,455 8,954 30,778 26,248

Service charges on deposit accounts

142 151 401 487

63 50 156 131

Total revenues from contracts in scope of Topic 606 $ 12,649 $ 12,882

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

Receivables amounted to

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

$ 4.8 million at both September 30, 2021 and December 31, 2020 and were included in other assets in the Unaudited Consolidated Balance Sheets.

Receivables amounted to $ 4.9 million and $ 6.6 million, respectively, at March 31, 2022 and December 31, 2021 and were included in other assets in the Unaudited Consolidated Balance Sheets.

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

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

The balances of contract liabilities were insignificant at both September 30, 2021 and December 31, 2020 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.

The balances of contract liabilities were insignificant at both March 31, 2022 and December 31, 2021 and were included in other liabilities in the Unaudited 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 $ 1.6 million at September 30, 2021, compared to $ 1.5 million at December 31, 2020 and were included in other assets in the Unaudited Consolidated Balance Sheets.

The carrying value of contract cost assets amounted to $ 2.0 million at March 31, 2022, compared to $ 1.9 million at December 31, 2021 and were included in other assets in the Unaudited Consolidated Balance Sheets.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 12 - Defined Benefit Pension Plans

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Pension Plan Non-Qualified Retirement Plans

Three Months Nine Months Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020 2021 2020 2021 2020

Three months ended March 31, 2022 2021 2022 2021

Net Periodic Benefit Cost:

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Qualified Pension Plan Non-Qualified Retirement Plans

For the nine months ended September 30, 2021 2020 2021 2020

For the three months ended March 31, 2022 2021 2022 2021

Measurement date Dec 31, 2021 Dec 31, 2020 Dec 31, 2021 Dec 31, 2020

9 unchanged sentences

3.75 3.75 3.75 3.75

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 13 - Share-Based Compensation Arrangements

During the nine months ended September 30, 2021, the Corporation granted performance share unit awards and nonvested share unit awards.

Performance share unit awards were granted to certain key employees providing the opportunity to earn shares of common stock over a 3 -year performance period.

The weighted average fair value of the performance share unit awards was $ 46.15 .

The number of shares to be vested will be contingent upon the Corporation’s attainment of certain performance measures as detailed in the performance share award agreements.

During the three months ended March 31, 2022, the Corporation granted performance share unit and restricted stock unit awards.

Performance share units were granted to certain key employees providing them the opportunity to earn shares of common stock over a 3 -year performance period.

The weighted average fair value of the performance share units was $ 59.31 .

The number of shares to be vested will be contingent upon the Corporation’s attainment of certain performance measures as detailed in the performance share unit award agreements.

Based on the most recent performance assumption available, it is estimated that 42,728 shares will be earned.

In addition, the Corporation granted to certain key employees and non-executive directors 8,360 nonvested share units with 3 -year cliff vesting.

The weighted average grant date fair value of the nonvested share units was $ 50.81 .

In addition, the Corporation granted to certain key employees 3,157 restricted stock units with 3 -year cliff vesting.

The weighted average grant date fair value of the restricted stock units was $ 59.31 .

Note 14 - Business Segments

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

The Corporate unit includes activity not allocated to the operating segments.

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.

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

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 employee computations.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Commercial Banking

The Commercial Banking operating segment includes commercial, residential and consumer lending activities;

The Commercial Banking segment includes commercial, residential and consumer lending activities;

mortgage banking activities;

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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

The Wealth Management Services operating segment 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 bank-owned life insurance (“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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

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

Three months ended September 30, 2021 2020 2021 2020 2021 2020 2021 2020

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

Three months ended March 31, 2022 2021 2022 2021 2022 2021

Net interest income (expense) $ 35,108 $ 32,885 ($ 17 ) ($ 14 ) $ 35,091 $ 32,871

1 unchanged sentence

Net interest income (expense) after provision for credit losses 35,008 34,885 ( 17 ) ( 14 ) 34,991 34,871

35,732 31,778 ( 25 ) ( 24 ) 363 ( 1,425 ) 36,070 30,329

Noninterest income 6,512 14,990 10,647 10,984 17,159 25,974

1 unchanged sentence

Depreciation and amortization expense 711 677 344 377 1,055 1,054

718 601 341 350 46 38 1,105 989

Other noninterest expenses 22,611 26,564 7,553 7,095 30,164 33,659

20,108 20,273 7,190 7,178 4,117 3,904 31,415 31,355

Total noninterest expenses 23,322 27,241 7,897 7,472 31,219 34,713

Income (loss) before income taxes

24,346 26,844 2,899 1,402 ( 3,175 ) ( 4,793 ) 24,070 23,453

Income tax expense (benefit) 5,394 5,828 710 403 ( 785 ) ( 1,100 ) 5,319 5,131

Net income (loss) $ 18,952 $ 21,016 $ 2,189 $ 999 ($ 2,390 ) ($ 3,693 ) $ 18,751 $ 18,322

Total assets at period end $ 4,520,169 $ 4,588,419 $ 75,438 $ 74,942 $ 1,407,036 $ 1,186,431 $ 6,002,643 $ 5,849,792

Expenditures for long-lived assets

309 360 13 20 16 26 338 406

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

Nine months ended September 30, 2021 2020 2021 2020 2021 2020 2021 2020

Net interest income (expense) $ 105,579 $ 94,692 ($ 72 ) ($ 117 ) ($ 1,812 ) $ 626 $ 103,695 $ 95,201

Provision for credit losses ( 2,000 ) 10,561 — — — — ( 2,000 ) 10,561

Net interest income (expense) after provision for loan losses

107,579 84,131 ( 72 ) ( 117 ) ( 1,812 ) 626 105,695 84,640

Noninterest income 33,510 43,515 31,778 26,248 1,799 1,952 67,087 71,715

Noninterest expenses:

Depreciation and amortization expense

2,040 1,832 1,044 1,058 139 116 3,223 3,006

Other noninterest expenses

60,093 56,571 20,594 20,408 16,335 11,290 97,022 88,269

Total noninterest expenses

62,133 58,403 21,638 21,466 16,474 11,406 100,245 91,275

Income (loss) before income taxes

78,956 69,243 10,068 4,665 ( 16,487 ) ( 8,828 ) 72,537 65,080

Income tax expense (benefit) 17,275 14,769 2,412 1,216 ( 3,832 ) ( 2,168 ) 15,855 13,817

Net income (loss) $ 61,681 $ 54,474 $ 7,656 $ 3,449 ($ 12,655 ) ($ 6,660 ) $ 56,682 $ 51,263

Income before income taxes 18,198 22,634 2,733 3,498 20,931 26,132

Income tax expense 3,797 4,835 651 826 4,448 5,661

Net income $ 14,401 $ 17,799 $ 2,082 $ 2,672 $ 16,483 $ 20,471

Total assets at period end $ 5,773,796 $ 5,646,209 $ 74,203 $ 73,180 $ 5,847,999 $ 5,719,389

Expenditures for long-lived assets 730 835 104 76 834 911

2,026 1,147 87 86 53 98 2,166 1,331

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 15 - Other Comprehensive Income (Loss)

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

Three months ended September 30, 2021 2020

Three months ended March 31, 2022 2021

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

5 unchanged sentences

( 13,201 ) ( 3,168 ) ( 10,033 ) 109 26 83

Net cash flow hedge (losses) gains reclassified into earnings (1) (2)

Net cash flow hedge (gains) losses reclassified into earnings (1)

( 399 ) ( 97 ) ( 302 ) 281 67 214

4 unchanged sentences

Total other comprehensive loss ($ 78,250 ) ($ 18,780 ) ($ 59,470 ) ($ 16,590 ) ($ 3,975 ) ($ 12,615 )

(1) The pre-tax amounts for the three months ended September 30, 2021 are included in interest expense on FHLB advances and interest and fees on loans in the Unaudited Consolidated Statements of Income.

(2) The pre-tax amounts for the three months ended September 30, 2020 are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Unaudited Consolidated Statements of Income.

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

Nine months ended September 30, 2021 2020

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

Securities available for sale:

Changes in fair value of available for sale debt securities

($ 16,212 ) ($ 3,890 ) ($ 12,322 ) $ 9,794 $ 2,301 $ 7,493

Cash flow hedges:

Change in fair value of cash flow hedges

( 21 ) ( 5 ) ( 16 ) ( 1,994 ) ( 473 ) ( 1,521 )

Net cash flow hedge (losses) gains reclassified into earnings (1) (2)

( 27 ) ( 7 ) ( 20 ) 829 196 633

Net change in fair value of cash flow hedges ( 48 ) ( 12 ) ( 36 ) ( 1,165 ) ( 277 ) ( 888 )

Defined benefit plan obligations:

Amortization of net actuarial losses (3)

2,133 512 1,621 1,606 377 1,229

Total other comprehensive (loss) income ($ 14,127 ) ($ 3,390 ) ($ 10,737 ) $ 10,235 $ 2,401 $ 7,834

(1) The pre-tax amounts for the nine months ended September 30, 2021 are included in interest expense on FHLB advances and interest and fees on loans in the Unaudited Consolidated Statements of Income.

(2) The pre-tax amounts for the nine months ended September 30, 2020 are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Unaudited Consolidated Statements of Income.

(1) The pre-tax amounts for the three months ended March 31, 2022 are included in interest expense on FHLB advances and interest and fees on loans in the Unaudited Consolidated Statements of Income.

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

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

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

For the three months ended September 30, 2021

Balance at June 30, 2021 $ 696 ($ 1,080 ) ($ 14,744 ) ($ 15,128 )

Other comprehensive loss before reclassifications ( 3,137 ) ( 219 ) — ( 3,356 )

Amounts reclassified from accumulated other comprehensive income

— ( 184 ) 540 356

Net other comprehensive (loss) income ( 3,137 ) ( 403 ) 540 ( 3,000 )

Balance at September 30, 2021 ($ 2,441 ) ($ 1,483 ) ($ 14,204 ) ($ 18,128 )

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

For the nine months ended September 30, 2021

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

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

For the three months ended March 31, 2022

Balance at December 31, 2021 ($ 6,795 ) ($ 4,013 ) ($ 9,173 ) ($ 19,981 )

Other comprehensive loss before reclassifications ( 49,460 ) ( 10,033 ) — ( 59,493 )

Amounts reclassified from accumulated other comprehensive income

— ( 20 ) 1,621 1,601

Net other comprehensive (loss) income ( 12,322 ) ( 36 ) 1,621 ( 10,737 )

Balance at September 30, 2021 ($ 2,441 ) ($ 1,483 ) ($ 14,204 ) ($ 18,128 )

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

For the three months ended September 30, 2020

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

Other comprehensive loss before reclassifications ( 3,505 ) ( 107 ) — ( 3,612 )

Amounts reclassified from accumulated other comprehensive income

— 261 410 671

Amounts reclassified from accumulated other comprehensive loss — ( 302 ) 325 23

Net other comprehensive (loss) income ( 49,460 ) ( 10,335 ) 325 ( 59,470 )

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

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

For the nine months ended September 30, 2020

Balance at March 31, 2022 ($ 56,255 ) ($ 14,348 ) ($ 8,848 ) ($ 79,451 )

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

For the three months ended March 31, 2021

Balance at December 31, 2020 $ 9,881 ($ 1,447 ) ($ 15,825 ) ($ 7,391 )

Other comprehensive income (loss) before reclassifications

7,493 ( 1,521 ) — 5,972

Amounts reclassified from accumulated other comprehensive income

— 633 1,229 1,862

Net other comprehensive income (loss)

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

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Other comprehensive (loss) income before reclassifications ( 13,319 ) 83 — ( 13,236 )

Amounts reclassified from accumulated other comprehensive loss — 214 407 621

Net other comprehensive (loss) income ( 13,319 ) 297 407 ( 12,615 )

Balance at March 31, 2021 ($ 3,438 ) ($ 1,150 ) ($ 15,418 ) ($ 20,006 )

Note 16 - Earnings per Common Share

1 unchanged sentence

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

Three Months Nine Months

Periods ended September 30, 2021 2020 2021 2020

Earnings per common share - basic:

Net income $ 18,751 $ 18,322 $ 56,682 $ 51,263

dividends and undistributed earnings allocated to participating securities ( 55 ) ( 37 ) ( 163 ) ( 109 )

Net income available to common shareholders

$ 18,696 $ 18,285 $ 56,519 $ 51,154

Weighted average common shares

17,320 17,260 17,303 17,287

Earnings per common share - basic $ 1.08 $ 1.06 $ 3.27 $ 2.96

Earnings per common share - diluted:

Three months ended March 31, 2022 2021

Earnings for basic and diluted earnings per common share:

Net income $ 16,483 $ 20,471

1 unchanged sentence

Net income available to common shareholders $ 16,429 $ 20,415

$ 18,697 $ 18,285 $ 56,520 $ 51,154

Weighted average common shares

1 unchanged sentence

Dilutive effect of common stock equivalents

124 57 148 82

Weighted average diluted common shares 17,482 17,431

17,444 17,317 17,451 17,369

Earnings per common share - diluted $ 1.07 $ 1.06 $ 3.24 $ 2.95

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 148,542 and 149,675 , respectively, for the three and nine months ended September 30, 2021, compared to 223,210 and 221,047 , respectively, for the same periods in 2020.

Earnings per common share:

Basic earnings per common share $ 0.95 $ 1.18

Diluted earnings per common share $ 0.94 $ 1.17

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 94,175 and 149,575 , respectively, for the three months ended March 31, 2022 and 2021.

Note 17 - Commitments and Contingencies

1 unchanged sentence

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage the Corporation’s exposure to fluctuations in interest rates.

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 financial

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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 degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets.

13 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 $ 12.1 million and $ 11.7 million, respectively, as of September 30, 2021 and December 31, 2020.

At September 30, 2021 and December 31, 2020, there were no liabilities to beneficiaries resulting from

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

standby letters of credit.

Fee income on standby letters of credit was insignificant for the three and nine months ended September 30, 2021 and 2020.

The maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $ 11.8 million as of March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022 and December 31, 2021, there were no liabilities to beneficiaries resulting from standby letters of credit.

Fee income on standby letters of credit was insignificant for the three months ended March 31, 2022 and 2021.

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

9 unchanged sentences

The interest rate swaps with other counterparties are generally subject to bilateral collateralization terms.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Sep 30,

(Dollars in thousands) Mar 31,

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

29 unchanged sentences

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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

The ACL on unfunded commitments is adjusted through a provision for credit losses recognized in the Unaudited Consolidated Statements of Income.

The activity in the ACL on unfunded commitments for the three months ended September 30, 2021 is presented below:

(Dollars in thousands) Commercial Consumer

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

Beginning Balance $ 1,214 $ 1,045 $ 2,259 $ 56 $ — $ 18 $ 18 $ 2,333

Provision 4 ( 8 ) ( 4 ) 4 — — — —

Ending Balance $ 1,218 $ 1,037 $ 2,255 $ 60 $ — $ 18 $ 18 $ 2,333

The activity in the ACL on unfunded commitments for the nine months ended September 30, 2021 is presented below:

(Dollars in thousands) Commercial Consumer

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

Beginning Balance $ 907 $ 1,402 $ 2,309 $ 54 $ — $ 19 $ 19 $ 2,382

Provision 311 ( 365 ) ( 54 ) 6 — ( 1 ) ( 1 ) ( 49 )

Ending Balance $ 1,218 $ 1,037 $ 2,255 $ 60 $ — $ 18 $ 18 $ 2,333

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

The activity in the ACL on unfunded commitments for the three months ended March 31, 2022 is presented below:

(Dollars in thousands) Commercial Consumer

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

Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 1,267 $ 816 $ 2,083 $ 62 $ — $ 16 $ 16 $ 2,161

1 unchanged sentence

Ending Balance $ 1,335 $ 837 $ 2,172 $ 72 $ — $ 17 $ 17 $ 2,261

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The activity in the ACL on unfunded commitments for the three months ended March 31, 2021 is presented below:

(Dollars in thousands) Commercial Consumer

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

Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 907 $ 1,402 $ 2,309 $ 54 $ — $ 19 $ 19 $ 2,382

Adoption of Topic 326 817 626 1,443 34 — 6 6 1,483

Provision 46 ( 88 ) ( 42 ) ( 8 ) — 1 1 ( 49 )

3 unchanged sentences

Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such matters will not materially affect the consolidated balance sheets or statements of income of the Corporation.

Note 18 - Subsequent Events

On April 26, 2022, the Bancorp's shareholders approved the 2022 Incentive Plan.

The maximum number of shares of common stock that may be issued under the 2022 Incentive Plan is 600,000 .

The type of permitted equity awards under the 2022 Incentive Plan include stock options (both incentive and non-qualified options), stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, cash-based awards, and dividend equivalent rights.

Management's Discussion and Analysis

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

What changed 10-Q

Item 1. Financial Statements