What changed in this filing

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Item 1. Business

2023-02-23 compared with 2022-02-24 · 109 added, 126 removed, 294 unchanged (44% of the section changed)

Washington Trust Bancorp, Inc.

The Bancorp, a publicly-owned registered bank holding company that has elected to be a financial holding company, was organized in 1984 under the laws of the state of Rhode Island.

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

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

The Bancorp owns all of the outstanding common stock of the Bank, a Rhode Island chartered financial institution founded in 1800.

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

See additional information under the caption “Subsidiaries.”

References in this report to “Washington Trust” or the “Corporation” refer to the Bancorp and its subsidiaries.

Washington Trust offers a comprehensive product line of banking and financial services to individuals and businesses, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management and trust services.

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

Washington Trust offers a full range of financial services, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management and trust services.

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

At December 31, 2022, Washington Trust had total assets of $6.7 billion, total deposits of $5.0 billion and total shareholders’ equity of $453.7 million.

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

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

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

Commercial Loans

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Commercial loans fall into two major categories:

commercial real estate and commercial and industrial loans.

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

Commercial real estate loans also include construction loans made to businesses for land development or the on-site construction of industrial, commercial or residential buildings.

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

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

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

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

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

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

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

At December 31, 2021, commercial and industrial loans represented 28% of the total commercial loan portfolio and 15% of the total loan portfolio.

CRE and C&I loans.

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

CRE loans also include construction loans made to businesses for land development or the on-site construction of industrial, commercial or residential buildings.

CRE loans frequently involve larger loan balances to single borrowers or groups of related borrowers.

At December 31, 2022, CRE loans represented 74% of the total commercial loan portfolio and 36% of the total loan portfolio.

C&I loans primarily provide working capital, equipment financing and financing for other business-related purposes.

C&I loans are frequently collateralized by equipment, inventory, accounts receivable and/or general business assets.

A portion of the Bank’s C&I loan portfolio is also collateralized by real estate.

C&I loans also include PPP loans that are fully guaranteed by the U.S.

government, tax-exempt loans made to states and political subdivisions, as well as industrial development or

revenue bonds issued through quasi-public corporations for the benefit of a private or non-profit entity where that entity rather than the governmental entity is obligated to pay the debt service.

At December 31, 2022, C&I loans represented 26% of the total commercial loan portfolio and 13% of the total loan portfolio.

Residential Real Estate Loans

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

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

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

Loan sales to the secondary market provide funds for additional lending and other banking activities.

Loans originated for sale to the secondary market are sold to investors such as the Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and other institutional investors.

Loans originated for sale to the secondary market are sold to investors such as the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and other institutional investors.

Washington Trust sells loans with servicing retained or released.

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A variety of retirement deposit accounts are offered to customers.

Additional deposit services provided to customers include debit cards, automated teller machines (“ATMs”), telephone banking, internet banking, mobile banking, remote deposit capture and other cash management services.

Brokered time deposits from out-of-market institutional sources are also utilized as part of our overall funding strategy.

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

Washington Trust uses these deposit sweep services to

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

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

Additional deposit services provided to customers include debit cards, ATMs, telephone banking, internet banking, mobile banking, remote deposit capture and other cash management services.

Wholesale brokered deposits from out-of-market institutional sources are also utilized as part of our overall funding strategy.

Washington Trust is a participant in the DDM program, the ICS program and the CDARS program.

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

Customer and client funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance.

As a program participant, we receive reciprocal amounts of deposits from other participating banks.

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

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

Investment Security Activities

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At December 31, 2022, the investment securities portfolio consisted of obligations of U.S.

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

government agencies and U.S.

government-sponsored enterprises, including mortgage-backed securities;

individual name issuer trust preferred debt securities;

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Wholesale Funding Activities

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

The Bank is a member of the FHLB.

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

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At December 31, 2022, the Bank had advances payable to the FHLB of $980.0 million.

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

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

The Bank had remaining available borrowing capacity with the FHLB of $668.3 million at December 31, 2022.

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

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

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

Additional funding sources are available through the FRBB and in other forms of borrowing, such as securities sold under repurchase agreements.

As noted above under the caption “Deposit Activities,” the Corporation also utilizes wholesale brokered deposits as part of its overall funding program.

Wealth Management Services

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and institutional trust services, including custody and fiduciary services.

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

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

See additional information under the caption “Subsidiaries.”

At December 31, 2021, wealth management assets under administration (“AUA”) totaled $7.8 billion.

At December 31, 2022, wealth management AUA totaled $6.0 billion.

These assets are not included in the Consolidated Financial Statements.

Washington Trust’s wealth management revenues represented 18% of total revenues in December 31, 2022.

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

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

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

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

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

In addition, the Bancorp also owns all of the outstanding common stock of WT Capital Trust I and WT Capital Trust II, special purpose finance entities formed with the sole purpose of issuing trust preferred debt securities and investing the proceeds in junior subordinated debentures of the Bancorp.

At December 31, 2022, the Bancorp’s principal subsidiary is the Bank.

The Bancorp also owns all of the outstanding common stock of Trust I and Trust II, special purpose finance entities formed with the sole purpose of issuing trust preferred debt securities and investing the proceeds in junior subordinated debentures of the Bancorp.

See Note 13 to the Consolidated Financial Statements for additional information.

The following is a description of Bancorp’s primary operating subsidiaries:

In the fourth quarter of 2022, Weston Securities Corporation, formerly a subsidiary of the Bancorp, was dissolved and its net assets were transferred to the Bancorp though a return of capital.

The following is a description of Bancorp’s principal subsidiary:

The Washington Trust Company, of Westerly

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Its current charter dates to 1902.

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

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

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

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

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

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

The Bank has a registered investment adviser subsidiary, WTA.

The Bank also has a mortgage banking subsidiary, WTMC that is licensed to do business in Rhode Island, Massachusetts, Connecticut and New Hampshire.

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

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

Weston Securities Corporation

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

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

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As of December 31, 2022, the Bank had 10 branch offices located in southern Rhode Island (Washington County), 14 branch offices located in the greater Providence area in Rhode Island and 1 branch office located in southeastern Connecticut.

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

In August 2022, we opened a new full-service branch in Cumberland, Rhode Island.

In addition, we announced that we submitted applications to establish a branch office in three northern Rhode Island locations in 2023 to further expand our branch footprint and serve the broader Rhode Island community.

The three branch offices will be located in Barrington, Providence and Smithfield, Rhode Island and are subject to federal, state, local, and regulatory approvals.

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

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

In addition, in July 2022, the Bank opened a new commercial lending office in New Haven, Connecticut.

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

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Washington Trust had 651 full-time equivalent employees at December 31, 2022.

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

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

Our employees are the foundation of our success.

They serve as trusted advisors, brand ambassadors, and leaders within the community, embodying our core values of quality, integrity and community.

We believe that providing caring, personal customer service with a human connection is an important differentiator for Washington Trust, especially in this digital age.

We seek to build strong relationships with our customers and understand their needs and challenges.

Our talented team is committed to providing an exceptional customer experience by listening and providing trusted advice and personalized solutions.

We invest in our employees.

Our employees are on a learning journey that continues throughout their employment and focuses on building industry and job specific knowledge, as well as refining technical and interpersonal skills.

We recognize that each position builds a foundation for the next, and therefore, make a conscious effort to provide opportunities for professional growth and advancement.

However, we also see the value in bringing new perspectives to our team through external hires, and always seek to hire the best and brightest employees who share our commitment to providing a superior customer experience with each interaction.

Attracting and retaining top talent continues to be challenging, and an important

tool in our human capital strategy is the availability of a remote or hybrid scheduling option for many of our team members.

To ensure human connectivity, continued collaboration and team engagement, we have adopted a philosophy of “intentional presence” regardless of an individual's physical location.

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

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

We take numerous steps to ensure that we are providing a satisfying work experience for employees.

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

promote and recognize employees for their work successes;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Additionally, we employ a robust succession planning process, which begins by determining critical roles within the organization;

identifying core competencies for individuals in those roles;

identifying and assessing possible successors;

and providing opportunities for those individuals to develop and hone core competencies through training, mentoring and professional experience.

This process is essential to ensure leadership continuity in key positions, retain and develop intellectual and knowledge capital for the future, and encourage professional development.

We are committed to fostering an inclusive culture that respects and values the diversity of our employees, customers, and community, where all ideas, perspectives and experiences are heard.

A diverse and inclusive workforce enables us to better understand the needs and challenges of our customers so we can build stronger relationships.

We recognize that an inclusive environment will foster increased collaboration, problem-solving, innovation and creativity, ultimately driving positive results.

We also recognize that being viewed as an employer that champions diversity, inclusion and equality of opportunity can provide a talent advantage allowing us to attract, hire and retain the best talent available.

We have a formalized strategy that guides our diversity, equity & inclusion (“DE&I”) efforts, focusing on four pillars – culture and employee experience;

recruitment, development and retention;

leadership and workforce engagement;

and impactful community relationships.

To assist us in implementing our DE&I strategy, we have formed a DE&I Council, a cross functional group of colleagues representing different perspectives, backgrounds and experiences.

The DE&I Council assists us with developing a diverse talent pipeline;

identifying areas for increased education and awareness;

providing insight into organizational climate and culture;

implementing DE&I initiatives;

promoting the use of best practices;

and identifying opportunities for Washington Trust to engage with its broader communities.

Statistical Disclosures

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

COVID-19 Pandemic Related

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

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

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

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

Participation in the Paycheck Protection Program.

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

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

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

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

Troubled Debt Restructuring Relief.

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

From March 1, 2020 through January 1, 2022, a financial institution was permitted to elect to suspend the requirements under GAAP for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR, including impairment accounting.

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

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

Washington Trust made this election.

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

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

Moratorium on Negative Credit Reporting .

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

Regulation of the Bancorp

As a bank holding company, the Bancorp is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (“Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and the Rhode Island Department of Business Regulation, Division of Banking (the “RI Division of Banking”).

As a bank holding company, the Bancorp is subject to regulation, supervision and examination by the Federal Reserve under the BHCA, and the RI Division of Banking.

The Federal Reserve has the authority, among other things, to order bank holding companies to cease and desist from unsafe or unsound banking practices;

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Source of Strength.

Under the BHCA, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Bancorp is required to serve as a source of financial strength for the Bank.

Under the BHCA, as amended by the Dodd-Frank Act, the Bancorp is required to serve as a source of financial strength for the Bank.

This support may be required at times when the Bancorp may not have the resources to provide support to the Bank.

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However, among other permitted activities, a bank holding company may engage directly or indirectly in, and acquire control of companies engaged in, activities that the Federal Reserve has determined to be closely related to banking or managing and controlling banks, subject to certain notification requirements.

In 2005, the Bancorp elected financial holding company status pursuant to the provisions of the Gramm-Leach-Bliley Act of 1999 (“GLBA”).

In 2005, the Bancorp elected financial holding company status pursuant to the provisions of the GLBA.

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

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

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

If a financial holding company or any depository institution subsidiary of a financial holding company fails to remain well capitalized and well managed, the Federal Reserve may impose such limitations on the conduct or activities of the financial holding company as the Federal Reserve determines to be appropriate, and the company and its affiliates may not commence any new activity or acquire control of shares of any company engaged in any activity that is authorized particularly for financial holding companies without first obtaining the approval of the Federal Reserve.

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

If an insured depository institution subsidiary of a financial holding company fails to maintain a “satisfactory” or better record of performance under the Community Reinvestment Act (“CRA”), the financial holding

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

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

Limitations on Acquisitions of Bancorp Common Stock.

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

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

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

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

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

trustees of the bank or bank holding company, or the Federal Reserve has determined, after notice and opportunity for hearing, that the company has the power to exercise a controlling influence over the management or policies of the bank or bank holding company.

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

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The Bank is subject to the regulation, supervision and examination by the FDIC, the RI Division of Banking and the Connecticut Department of Banking.

The Bank is also subject to various Rhode Island and Connecticut business and banking regulations and the regulations issued by the Consumer Financial Protection Bureau (“CFPB”) (as enforced by the FDIC).

The Bank is also subject to various Rhode Island and Connecticut business and banking regulations and the regulations issued by the CFPB (as enforced by the FDIC).

The Federal Reserve may also directly examine the subsidiaries of the Bancorp, including the Bank.

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Deposit Insurance.

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

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

Deposit insurance premiums are based on assets.

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

Section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), which was enacted in 2018, amends the FDIA to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions.

Section 202 of the

Economic Growth Act, which was enacted in 2018, amends the FDIA to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions.

Community Reinvestment Act.

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Tier 1 capital generally consists of the sum of common equity Tier 1 elements, non-cumulative perpetual preferred stock, and related surplus and, in certain cases and subject to limitations, minority interests in consolidated subsidiaries that do not qualify as common equity Tier 1 capital, less certain deductions.

Tier 2 capital generally consists of hybrid capital instruments, perpetual debt and mandatory convertible debt securities, cumulative perpetual preferred stock, term subordinated debt and intermediate-term preferred stock, and, subject to limitations, allowances for loan losses.

The sum of Tier 1 and Tier 2 capital less certain required deductions represents qualifying total risk-based capital.

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

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

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

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

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Assets and off-balance sheet credit equivalents are assigned one of several categories of risk weights based primarily on relative risk.

Under the Federal Reserve’s rules applicable to the Bancorp and the FDIC’s capital rules applicable to the Bank, the Bancorp and the Bank are each required to maintain a minimum common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0% and a minimum leverage ratio requirement of 4.0%.

Under the Federal Reserve’s rules applicable to the Bancorp and the FDIC’s capital rules applicable to the Bank, the Bancorp and the Bank are each required to maintain a minimum common

equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0% and a minimum leverage ratio requirement of 4.0%.

Additionally, these rules require an institution to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions of more than 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases.

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

(ii) on a consolidated basis, the bank holding

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

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

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

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A banking organization that qualifies for and elects to use the community bank leverage framework described below will be considered well capitalized as long as it is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board to meet and maintain a specific capital level for any capital measure.

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

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

A community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9.0% will be considered to have satisfied the risk-based and leverage capital requirements in the banking agencies’ capital rules and will be considered to have met the well-capitalized ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act.

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

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

As required by Section 4012 of the CARES Act, the federal banking agencies temporarily lowered the community bank leverage ratio, issuing two interim final rules to set the community bank leverage ratio at 8.0%.

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

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

Safety and Soundness Standard.

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The Bancorp is a legal entity separate and distinct from the Bank and its other subsidiaries.

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

Revenues of the Bancorp are derived primarily from dividends paid to it by the Bank.

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

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

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

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

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

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

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Consumer Protection Regulation

The Bancorp and the Bank are subject to federal and state laws designed to protect consumers and prohibit unfair or deceptive business practices including the Equal Credit Opportunity Act, Fair Housing Act, Home Ownership Protection Act, Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), the GLBA, the Truth in Lending Act (“TILA”), the CRA, the Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, National Flood Insurance Act and various state law counterparts.

The Bancorp and the Bank are subject to federal and state laws designed to protect consumers and prohibit unfair or deceptive business practices including the Equal Credit Opportunity Act, Fair Housing Act, Home Ownership Protection Act, Fair Credit Reporting Act, as amended by the FACT Act, the GLBA, the TILA, the CRA, the Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, National Flood Insurance Act and various state law counterparts.

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

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

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

Additionally, the CFPB’s qualified mortgage rule, requires creditors, such as Washington Trust, to make a reasonable good faith determination of a consumer's ability to repay any

consumer credit transaction secured by a dwelling.

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

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The Bank Secrecy Act.

Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction.

Under the BSA, a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction.

Financial institutions are generally required to report to the U.S.

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In addition, financial institutions are required to file suspicious activity reports for any transaction or series of transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), which amended the BSA, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, such as the Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis.

The USA PATRIOT Act, which amended the BSA, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, such as the Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis.

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

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has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others.

These sanctions, which are administered by the U.S.

Treasury’s Office of Foreign Assets Control (“OFAC”), take many different forms.

These sanctions, which are administered by OFAC, take many different forms.

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

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

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

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

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

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Regulation of Other Activities

Registered Investment Adviser and Broker-Dealer.

WSC is a registered broker-dealer and a member of the Financial Industry Regulatory Authority, Inc.

WSC is subject to extensive regulation, supervision, and examination by the U.S.

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

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

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

Registered Investment Adviser.

WTA is registered as an investment adviser under the Advisers Act.

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

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Employee Retirement Income Security Act of 1974.

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

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

The Bank and WTA are each also subject to ERISA, and related regulations, to the extent it is a “fiduciary” under ERISA with respect to some of its clients.

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

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

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You may read and copy any reports, statements or other information filed by Washington Trust from commercial document retrieval services and at the website maintained by the SEC at https://www.sec.gov.

In addition, Washington Trust makes available free of charge on the Investor Relations section of its website (www.washtrustbancorp.com) its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and exhibits and amendments to those reports as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.

In addition, Washington Trust makes available free of charge on the Investor Relations section of its website (https://ir.washtrust.com) its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and exhibits and amendments to those reports as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC.

Information on the Washington Trust website is not incorporated by reference into this Annual Report on Form 10‑K.

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

What changed 10-K

Item 1. Business