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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-24 · 559 added, 689 removed, 1807 unchanged (41% of the section changed)

Financial Statements and Supplementary Data.

The financial statements and supplementary data are contained herein.

Description Page

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Consolidated Balance Sheets at December 31, 2022 and 2021

Consolidated Statements of Income For the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Changes in Shareholders’ Equity For the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows For the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Income f or the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Changes in Shareholders’ Equity f or the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows f or the Years Ended December 31, 2022, 2021 and 2020

Notes to Consolidated Financial Statements:

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Note 2 - Recently Issued Accounting Pronouncements

Note 3 - Cash and Due from Banks

Note 3 - Securities

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Note 8 - Goodwill and Intangible Assets

Note 9 - Derivative Financial Instruments

Note 10 - Fair Value Measurements

Note 11 - Income Taxes

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Note 1 4 - Shareholders’ Equity

Note 14 - Derivative Financial Instruments

Note 15 - Fair Value Measurements

Note 15 - Revenue from Contracts with Customers

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Management’s Annual Report on Internal Control Over Financial Reporting

The management of Washington Trust Bancorp, Inc.

and subsidiaries (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting.

The Corporation’s internal control over financial reporting is a process designed under the supervision of the Corporation’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Corporation’s Consolidated Financial Statements for external reporting purposes in accordance with U.S.

generally accepted accounting principles.

The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.

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

As of December 31, 2021, management assessed the effectiveness of the Corporation’s internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As of December 31, 2022, management assessed the effectiveness of the Corporation’s internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Based on this assessment, management concluded that the Corporation’s internal control over financial reporting as of December 31, 2022 was effective.

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(2013) issued by COSO.

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Corporation as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”) and our report dated February 23, 2023 expressed an unqualified opinion.

Basis for Opinion

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/s/ Crowe LLP

Livingston, New Jersey

Grand Rapids, Michigan

February 23, 2023

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

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

and Subsidiaries (the “Corporation”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 23, 2023 expressed an unqualified opinion.

Explanatory Paragraph - Change in Accounting Principle

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

Basis for Opinion

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

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

Report of Independent Registered Public Accounting Firm

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

As of December 31, 2022, the balance of the allowance for credit losses on loans (“ACL”) was $38.0 million.

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

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

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

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

These quantitative loss factors are

Report of Independent Registered Public Accounting Firm

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

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

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

Livingston, New Jersey

Grand Rapids, Michigan

February 23, 2023

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Mortgage loans held for sale, at fair value 8,987 40,196

40,196 61,614

Available for sale debt securities, at fair value (amortized cost $ 1,166,340 ;

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Taxable interest on debt securities 21,827 14,295 20,050

Nontaxable interest on debt securities — — 18

Dividends on Federal Home Loan Bank stock 548 436 2,240

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Income from bank-owned life insurance 2,591 2,925 2,491

Net realized losses on securities — — ( 53 )

Other income 1,588 2,540 3,100

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FDIC deposit insurance costs

1,687 1,592 1,818

Advertising and promotion 2,587 1,843 1,469

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and Subsidiaries

Consolidated Statements of Comprehensive Income (Dollars in thousands)

Consolidated Statements of Comprehensive Income (Loss) (Dollars in thousands)

Years ended December 31, 2022 2021 2020

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Net change in fair value of available for sale debt securities ( 124,238 ) ( 16,676 ) 6,655

( 16,676 ) 6,655 19,988

Net change in fair value of cash flow hedges ( 18,632 ) ( 2,566 ) ( 654 )

( 2,566 ) ( 654 ) ( 984 )

Net change in defined benefit plan obligations 5,051 6,652 ( 2,155 )

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

Total other comprehensive (loss) income, net of tax ( 137,819 ) ( 12,590 ) 3,846

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

Total comprehensive (loss) income ($ 66,138 ) $ 64,280 $ 73,675

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

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Cumulative effect of change in accounting principle - ASC 326

— — — ( 6,108 ) — — ( 6,108 )

Net income — — — 69,829 — — 69,829

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

Treasury stock purchased under the 2019 Repurchase Program

( 125 ) — — — — ( 4,322 ) ( 4,322 )

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

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

Net income — — — 76,870 — — 76,870

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

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

Cash dividends declared ($ 2.10 per share)

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

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

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

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Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered 46 — ( 2,702 ) — — 1,881 ( 821 )

Treasury stock purchased under the 2021 Stock Repurchase Program ( 194 ) — — — — ( 9,479 ) ( 9,479 )

Balance at December 31, 2022 17,183 $ 1,085 $ 127,056 $ 492,043 ($ 157,800 ) ($ 8,715 ) $ 453,669

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Net gains on loan sales, including changes in fair value ( 6,730 ) ( 28,195 ) ( 48,005 )

Net realized losses on securities — — 53

Proceeds from sales of loans, net 309,749 934,516 1,117,188

Loans originated for sale ( 272,855 ) ( 887,341 ) ( 1,114,448 )

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

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

( 464 ) 2,829 ( 2,729 )

(Decrease) increase in operating lease liabilities

Increase (decrease) in operating lease liabilities

547 ( 2,708 ) 2,856

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

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

(Increase) decrease in other assets ( 30,804 ) 38,935 ( 57,730 )

Increase (decrease) in other liabilities 34,070 ( 39,747 ) 49,323

Net cash provided by operating activities 113,006 100,812 36,478

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Other ( 10,747 ) ( 251,443 ) ( 149,899 )

Proceeds from sales of:

Available for sale debt securities:

Other — — 11,877

Maturities, calls and

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Other — 82,800 176,000

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

Net (purchases) redemptions of Federal Home Loan Bank stock ( 30,432 ) 17,254 20,568

Purchases of other equity investments, net ( 375 ) ( 650 ) —

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Purchases of premises and equipment ( 6,139 ) ( 3,490 ) ( 3,406 )

Proceeds from the sale of premises — — 213

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

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

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

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

Proceeds from sale of equity investments in real estate limited partnerships — 50 1,400

Equity investments in real estate limited partnerships ( 1,861 ) — —

Net cash used in investing activities ( 999,041 ) ( 240,899 ) ( 264,240 )

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Cash flows from financing activities:

Net increase (decrease) in deposits 601,698 879,471 ( 25,166 )

Net increase in deposits 38,911 601,698 879,471

Proceeds from Federal Home Loan Bank advances 3,156,112 1,294,176 1,988,500

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Loans transferred to property acquired through foreclosure or repossession — — 313

In conjunction with the adoption of ASC 842, the following assets and liabilities were recognized:

Operating lease right-of-use assets — — 28,923

Operating lease liabilities — — 30,853

In conjunction with the adoption of ASC 815, the following qualifying debt securities classified as held to maturity were transferred to available for sale:

Fair value of debt securities transferred from held to maturity to available for sale — — 10,316

Commitment for equity investments in real estate limited partnerships 8,360 — —

Supplemental Disclosures:

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Note 1 - Summary of Significant Accounting Policies

Basis of Presentation

Washington Trust Bancorp, Inc.

Nature of Operations

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”).

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 consolidated financial statements include the accounts of the Bancorp and its subsidiaries (collectively, the “Corporation” or “Washington Trust”).

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.

The Bancorp’s principal subsidiary is the Bank, a Rhode Island chartered financial institution founded in 1800.

The Bank is the oldest community bank in the nation and the largest state-chartered bank headquartered in Rhode Island.

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 through its offices in Rhode Island, Massachusetts and Connecticut.

Basis of Presentation

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

The consolidated financial statements include the accounts of the Bancorp and its wholly-owned subsidiaries, except subsidiaries that are not deemed necessary to be consolidated.

Intercompany balances and transactions have been eliminated in consolidation.

The Bancorp 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.

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Interest expense on the junior subordinated debentures is included in the 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.

Reclassification

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

Use of Estimates

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.

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

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

Cash and Cash Equivalents

Cash and cash equivalents, as referenced in the accompanying Consolidated Statements of Cash Flows, consists of cash and due from banks and short-term investments.

Cash and due from Banks

Cash and due from banks includes cash on hand, cash items in process of collection, cash on deposit at the FRBB and other correspondent banks, as well as cash pledged to derivative counterparties.

Cash on deposit includes interest-bearing deposits held at correspondent banks of $ 65.8 million and $ 128.3 million, respectively, at December 31, 2022 and 2021.

Cash collateral pledged to derivative counterparties represents restricted cash balances.

See Note 9 for additional disclosure regarding cash collateral pledged to derivative counterparties.

Short-term Investments

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Securities not classified as held to maturity are classified as available for sale.

Securities available for sale consist of debt securities that are available for sale to respond to changes in market interest rates, liquidity needs, changes in funding sources and other similar factors.

Securities available for sale

Notes to Consolidated Financial Statements – (continued)

consist of debt securities that are available for sale to respond to changes in market interest rates, liquidity needs, changes in funding sources and other similar factors.

These assets are specifically identified and are carried at fair value.

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

The Corporation also excludes accrued interest from the estimate

Notes to Consolidated Financial Statements – (continued)

of credit losses on debt securities.

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

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

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

There were no debt securities on nonaccrual status as of December 31, 2021 and December 31, 2020 and, therefore there was no accrued interest related to debt securities reversed against interest income for 2021 and 2020.

There were no debt securities on nonaccrual status as of December 31, 2022 and 2021 and, therefore there was no accrued interest related to debt securities reversed against interest income for 2022 and 2021.

Allowance for Credit Losses on Securities

For available for sale debt securities in an unrealized loss position, management first assesses whether the Corporation intends to sell, or if it is likely that the Corporation will be required to sell the security before recovery of its amortized cost basis.

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The FHLB is a cooperative that provides services, including funding in the form of advances, to its member banking institutions.

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

As a requirement of membership, the Bank must own a minimum amount of

Notes to Consolidated Financial Statements – (continued)

FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB.

No market exists for shares of FHLB stock and therefore, it is carried at cost.

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Based on the capital adequacy and the liquidity position of the FHLB, management believes there is no impairment related to the carrying amount of FHLB stock included in the Consolidated Balance Sheet as of December 31, 2022.

Other Equity Investments

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

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

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

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

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

Notes to Consolidated Financial Statements – (continued)

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

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

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

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

Mortgage Banking Activities

Mortgage Loans Held for Sale

Residential mortgage loans originated and intended for sale in the secondary market are classified as held for sale.

Residential real estate mortgage loans originated and intended for sale in the secondary market are classified as held for sale.

ASC 825, “Financial Instruments” allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis that may otherwise not be required to be measured at fair value under other accounting standards.

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Loan Servicing Rights

When mortgage loans held for sale are sold with servicing retained, mortgage servicing right assets are recognized as separate assets.

When residential real estate mortgage loans held for sale are sold with servicing retained, mortgage servicing right assets are recognized as separate assets.

Mortgage servicing rights are originally recorded at fair value.

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

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

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

Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the

Notes to Consolidated Financial Statements – (continued)

reversed against current period income.

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

loan or recognized as interest income depending on management’s assessment of the ultimate collectability of the loan.

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.

Troubled Debt Restructured Loans

A loan that has been modified or renewed is considered to be a troubled debt restructuring (“TDR”) when two conditions are met:

A loan that has been modified or renewed is considered to be a TDR when two conditions are met:

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.

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

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

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

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

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

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.

The vast majority of the loan payment deferral modifications or “deferments” made qualified as eligible loans modifications and were not classified as TDRs.

All of these loans with qualified deferments exited their payment deferral period prior to March 31, 2022.

Individually Analyzed Loans

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

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

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

Allowance for Credit Losses on Loans

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

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

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

The ACL on loans is management’s estimate of expected lifetime credit losses on loans carried at amortized cost.

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

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

Notes to Consolidated Financial Statements – (continued)

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

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As discussed further below, adjustments to historical information 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.

Notes to Consolidated Financial Statements – (continued)

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

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

The methodology for evaluating quantitative factors consists of two basic components.

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

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

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

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

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

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

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

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

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

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

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

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

The following table summarizes the econometric factors utilized for each loan portfolio segment as of the dates indicated:

Econometric Factors

Loan portfolio segment At December 31, 2022

At December 31, 2021

Residential real estate NUR & HPI

Home equity NUR & HPI

Other consumer GDP

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

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

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

Notes to Consolidated Financial Statements – (continued)

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

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

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

4) changes in the experience, ability, and depth of lending management and other relevant staff;

5) changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or rated loans;

5) changes in the volume and severity of past due loans, the

Notes to Consolidated Financial Statements – (continued)

volume of nonaccrual loans, and the volume and severity of adversely classified or rated loans;

6) changes in the quality of the institution’s credit review system;

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and 9) the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.

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

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

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

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The ACL on loans is an estimate, and ultimate losses may vary from management’s estimate.

Prior to January 1, 2020, the allowance for loan losses was based on an incurred loss methodology and represented management’s estimate of the risk of loss inherent in the loan portfolio as of the balance sheet date.

The level of the allowance was based on management’s ongoing review of the growth and composition of the loan portfolio, historical loss experience, estimated loss emergence period (the period from the event that triggers the eventual default until the actual loss was recognized with a charge-off), economic conditions, analysis of asset quality and credit quality levels and trends, the performance of individual loans in relation to contract terms and other pertinent factors.

A methodology was used to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for the purposes of establishing a sufficient allowance for loan losses.

The methodology included:

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

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

For loans that were collectively evaluated, loss allocation factors were derived by analyzing historical loss experience by loan segment over an established look-back period deemed to be relevant to the inherent risk of loss in the portfolios.

Loans were segmented by loan type, collateral type, delinquency status and loan risk rating, where applicable.

These loss allocation factors were adjusted to reflect the loss emergence period.

These amounts were supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by historical loss rates.

The qualitative risk factors were the same as those considered under the ASC 326 accounting policy described above.

Allowance for Credit Losses on Unfunded Commitments

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

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

Unfunded commitments for home equity lines of credit and commercial demand loans are considered unconditionally cancellable for regulatory capital purposes and, therefore, are excluded from the calculation to estimate the ACL on unfunded commitments.

For each portfolio, estimated loss rates and funding factors are applied to the corresponding balance of unfunded commitments.

For each portfolio, the estimated loss rates applied to unfunded commitments are the same quantitative and qualitative loss rates applied to the corresponding on-balance sheet amounts in determining the ACL on loans.

The estimated loss rates applied to unfunded commitments are the same quantitative and qualitative loss rates applied to the corresponding on-balance sheet amounts in determining the ACL on loans.

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

Notes to Consolidated Financial Statements – (continued)

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

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Depreciation for financial reporting purposes is calculated on the straight-line method over the estimated useful lives of assets.

Leasehold improvements are depreciated over the shorter of the expected lease terms or the estimated useful lives of the improvements.

For leasehold improvements, the estimated useful life is the shorter of the expected lease term or the estimated useful life of the improvement.

Expected lease terms include lease renewal options to the extent that the exercise of such renewals is reasonably assured.

Expenditures for major additions and improvements are capitalized while the costs of current maintenance and repairs are charged to operating expenses.

The estimated useful lives of premises and improvements range from 5 to 40 years.

For furniture, fixtures and equipment, the estimated useful lives range from 3 to 20 years.

Repairs and maintenance costs are charged to noninterest expense as incurred.

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

Operating leases are recorded on the balance sheet, through the recognition of an operating lease ROU asset and an operating lease liability at the commencement date of the new lease.

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

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

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

Variable lease components, such

Notes to Consolidated Financial Statements – (continued)

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

Bank-Owned Life Insurance

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

Notes to Consolidated Financial Statements – (continued)

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

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Intangible assets are amortized over their estimated lives using a method that approximates the amount of economic benefits that are realized by the Corporation.

Intangible assets with definite lives are tested for impairment whenever events or circumstances occur that indicate that the carrying amount may not be recoverable.

Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.

If applicable, the Corporation tests each of the intangibles by comparing the carrying value of the intangible asset to the sum of undiscounted cash flows expected to be generated by the asset.

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

Impairment of Long - Lived Assets Other than Goodwill

Long-lived assets, including premises and equipment, are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount may not be fully recoverable.

If impairment is determined to exist, any related impairment loss is calculated based on fair value.

Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Property Acquired through Foreclosure or Repossession

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Fair value of such assets is determined based on independent appraisals and other relevant factors.

Any write-down to fair value at the time of foreclosure or repossession is charged to the allowance for loan losses.

Any write-down to fair value at the time of foreclosure or repossession is charged to the ACL on loans.

Subsequent to foreclosure or repossession, a valuation allowance is maintained for declines in market value and for estimated selling expenses.

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Any excess of sales proceeds over the carrying value of the foreclosed property is first applied as a recovery to the valuation allowance, if any, with the remainder being recognized as a gain on sale.

Changes to the valuation allowance, expenses associated with ownership of these properties, and gains and losses from their sale are included in foreclosed property costs.

Changes to the valuation allowance, expenses associated with ownership of these properties, and gains and losses from their sale are included in other noninterest expense.

Loans that are substantively repossessed include only those loans for which the Corporation has obtained control of the collateral, but has not completed legal foreclosure proceedings.

Investment in Real Estate Limited Partnerships

Investments in Real Estate Limited Partnerships

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

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

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

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

Notes to Consolidated Financial Statements – (continued)

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

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

Notes to Consolidated Financial Statements – (continued)

Other Equity Investments

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

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

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

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

If the equity investment is deemed to be impaired, an impairment loss is recognized in the amount by which the carrying value of the equity investment exceeds its estimated fair value.

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

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

Impairment of Long - Lived Assets Other than Goodwill

Long-lived assets, including premises and equipment, operating lease ROU assets and investments in real estate limited partnerships, are tested for impairment whenever events or changes in business circumstances indicate that the carrying amount may not be fully recoverable.

If impairment is determined to exist, any related impairment loss is calculated based on fair value.

Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

An impairment loss is recognized within noninterest expense in the Consolidated Statement of Income.

A previously recognized impairment loss cannot be reversed in a subsequent period.

Transfers and Servicing of Assets and Extinguishments of Liabilities

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If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with a pledge of collateral.

Wealth Management Assets Under Administration

Wealth Management AUA

AUA represents assets held in a fiduciary or agency capacity for wealth management clients and are not included in the Consolidated Balance Sheets, as these are not assets of the Corporation.

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ASC 606, Revenue from Contracts with Customers, provides a revenue recognition framework for contracts with customers unless those contracts are within the scope of other accounting standards.

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

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

The Corporation recognizes revenue from contracts with customers by identifying the performance obligations in its contracts, determining the transaction price in the contract, allocating the transaction price to each performance obligation contained within the contract, as applicable, and then recognizing revenue from its contracts with customers when it satisfies its performance obligations .

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

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), 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.

The Corporation recognizes revenue over a period of time, generally monthly, as services are performed and performance obligations are satisfied.

Such revenue includes wealth management revenues and service charges on deposit accounts.

Wealth management revenues are categorized as either asset-based revenues or transaction-based revenues.

Asset-based revenues include trust and investment management fees that are earned based upon a percentage of asset values under administration.

Transaction-based revenues include tax preparation fees, commissions and other service fees.

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

Revenue that is earned at a point in time 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.

This includes card interchange fees (fee income related to debit card transactions), certain service charges on deposits accounts such as overdraft

Notes to Consolidated Financial Statements – (continued)

charges, ATM fees for customers, stop-payment fees, and certain other income such as wire transfer fees and ATM fees for non-customers.

Revenue that is earned over time is generally recognized over the term of the contract as services are performed and performance obligations are satisfied.

Such revenue includes wealth management revenues, monthly service charges on deposit accounts and certain other income such as safe deposit box rental fees.

In certain cases, other parties are involved with providing services to our customers.

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

Pension benefit costs and benefit

Notes to Consolidated Financial Statements – (continued)

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

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

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

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

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

Compensation expense for awards is recognized over the service period based on the fair value at the date of grant and is included in salaries and employee benefits expense in the Corporation’s Consolidated Statements of Income.

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

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Forfeitures are recognized when they occur.

Vesting of the awards may accelerate or may be subject to proportional vesting if there is a change in control, disability, retirement or death.

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

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

Excess tax benefits (expenses) related to the settlement of share-based awards are recorded as a decrease (increase) to income tax expense.

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

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

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

Excess tax benefits (expenses) related to the settlement of share-based awards are recorded as a decrease (increase) to income tax expense in the Corporation’s Consolidated Income Statements and are classified in the Consolidated Statements of Cash Flows as an operating activity.

Notes to Consolidated Financial Statements – (continued)

Dividends declared on restricted stock units issued under the 2013 Stock Option and Incentive Plan are nonforfeitable and paid quarterly in conjunction with dividends declared and paid to common shareholders.

Dividends declared on restricted stock units issued under the 2022 Long Term Incentive Plan are accrued at each dividend declaration date and paid upon the issuance of the shares after the award vests.

Dividends on performance share units are accrued at each dividend declaration date based on the most recent performance assumptions available and paid upon the issuance of the shares after the award vest.

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

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Valuation allowances are established when necessary to reduce deferred tax assets to an amount, which is more-likely-than-not to be realizable.

Additionally, a liability for unrecognized tax benefits is recorded for uncertain tax positions taken by the Corporation on its tax returns for which there is less than a 50% likelihood of being recognized upon a tax examination.

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

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

Notes to Consolidated Financial Statements – (continued)

employee computations.

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

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

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

Earnings Per Common Share (“EPS”)

Earnings Per Common Share

EPS is calculated utilizing the two-class method.

The two-class method is an earnings allocation formula that determines earnings per share of each class of stock according to dividends and participation rights in undistributed earnings.

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

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

Share‑based awards that entitle holders to receive nonforfeitable dividends before vesting are considered participating securities (i.e., restricted stock units awarded under the 2013 Stock Option and Incentive Plan), not subject to performance-based measures.

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

Undistributed income is allocated to common shareholders and participating securities under the two-class method based upon the proportion of each to the total weighted average shares available.

Under the two-class method, basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding.

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

Under the two-class method, basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding.

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

Comprehensive Income

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Other comprehensive income (loss) includes the after-tax effect of net changes in the fair value of securities available for sale, net changes in fair value of cash flow hedges and net changes in defined benefit pension plan obligations.

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and other short-term investments.

Standby letters of credit are considered a guarantee of the Corporation.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party.

The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.

The credit risk involved in issuing standby letters of credit

Notes to Consolidated Financial Statements – (continued)

is essentially the same as that involved in extending loan facilities to customers.

Under the standby letters of credit, the Corporation is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer’s failure to perform under the terms of the underlying contract with the beneficiary.

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For derivatives not designated as hedges, changes in fair value of the derivative instruments are recognized in earnings, in noninterest income.

The accrued net settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense based on the item being hedged.

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

Notes to Consolidated Financial Statements – (continued)

Net accrued interest receivable or payable on derivatives that qualify for hedge accounting are recorded in interest income or interest expense based on the item being hedged.

Net accrued interest receivable or payable on derivatives that do not qualify for hedge accounting are reported in noninterest income.

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

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Accounting Standards Adopted in 2022

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

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

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

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

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

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

There were no recently issued accounting pronouncements, applicable to the Corporation, that were adopted in 2022.

Accounting Standards Pending Adoption

Business Combinations - ASC 805

Accounting Standards Update No.

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

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

Note 3 - Cash and Due from Banks

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

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

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

Effective March 26, 2020, the FRBB reduced the reserve

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

Notes to Consolidated Financial Statements – (continued)

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

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

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

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

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

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 change in accounting principle recognized in the opening balance of retained earnings as of the adoption date.

The adoption of this ASU is not expected to have a material impact on the consolidated financial statements.

Reference Rate Reform - ASC 848

2022-06, “Deferral of the Sunset Date of Topic 848” (“ASU 2022-06”), was issued in December 2022 and defers the date for which accounting relief can be applied under Topic 848.

ASU 2022-06 applies to entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The objective of the guidance in Topic 848 is to ease the burden in accounting for recognizing the effects of reference rate reform on financial reporting.

A sunset provision was included within Topic 848 based on expectations of when LIBOR would cease being published.

The Corporation had adopted the accounting relief provisions of Topic 848 effective October 1, 2020.

The amendments in ASU 2022-06 defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be able to apply the accounting relief in Topic 848.

ASU 2022-06 was effective for all entities upon its issuance.

The adoption of the provisions of Topic 848, as amended, did not have a material impact on the Corporation’s consolidated financial statements.

Note 3 - Securities

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(Dollars in thousands)

December 31, 2021 Amortized Cost Unrealized Gains Unrealized Losses Allowance for Credit Losses Fair Value

December 31, 2022 Amortized Cost Unrealized Gains Unrealized Losses ACL

Available for Sale Debt Securities:

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(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:

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Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands) Available for Sale

(Dollars in thousands)

December 31, 2022 Amortized Cost Fair Value

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Included in the above table are debt securities with an amortized cost balance of $ 253.0 million and a fair value of $ 219.1 million at December 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 years.

The following table summarizes amounts relating to sales of securities:

(Dollars in thousands)

For the periods ended December 31, 2021 2020 2019

Proceeds from sales $ — $ — $ 11,877

Gross realized gains $ — $ — $ —

Gross realized losses — — ( 53 )

Net realized losses on securities $ — $ — ($ 53 )

Final maturities of the callable securities range from 2 years to 14 years, with call features ranging from 1 month to 11 months.

Assessment of Available for Sale Debt Securities for Impairment

Management assesses the decline in fair value of investment securities on a regular basis.

Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, vol atility of earnings of a specific issuer, or deterioration in credit quality of the issuer.

Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer.

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

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99 $ 308,892 ($ 25,598 ) 91 $ 661,065 ($ 147,084 ) 190 $ 969,957 ($ 172,682 )

Notes to Consolidated Financial Statements – (continued)

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

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

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

Notes to Consolidated Financial Statements – (continued)

The Corporation does not intend to sell these debt securities and has determined, based upon available evidence, that it is more likely than not that the Corporation will not be required to sell each security before the recovery of its amortized cost basis and management does not believe that any of the securities are impaired due to reasons of credit quality.

As a result, the Corporation did not recognize a provision for credit losses on these securities for the years ended December 31, 2022 and 2021.

As a result of the Corporation’s review of these qualitative and quantitative factors mentioned below, 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.

Obligations of U.S.

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Government-Sponsored Enterprise Securities, including Mortgage-Backed Securities

The gross unrealized losses on U.S.

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.

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

government agencies and U.S.

government-sponsored enterprises.

The contractual cash flows for these securities are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major credit rating agencies and have a long history of no credit losses.

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

Management expects to recover the entire amortized cost basis of these securities.

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

Therefore, no ACL on securities was recorded at December 31, 2021.

As disclosed in Note 1, the Corporation utilizes a zero credit loss estimate for these securities.

Individual Name Issuer Trust Preferred Debt Securities

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

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

These securities in an unrealized loss position at December 31, 2022 included 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 December 31, 2021, there were two individual name issuer trust preferred debt securities with an amortized cost of $ 4.0 million and unrealized losses of $ 129 thousand that were rated below investment grade by S&P.

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

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

Management expects to recover the entire amortized cost basis of these securities.

Therefore, no ACL on securities was recorded at December 31, 2021.

As of December 31, 2022, there was one individual name issuer trust preferred debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 134 thousand that was rated below investment grade by S&P.

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

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

Corporate Bonds

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

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

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

Notes to Consolidated Financial Statements – (continued)

past due at December 31, 2021.

These securities in an unrealized loss position at December 31, 2022 included four corporate bond holdings issued by three individual companies in the financial services industry.

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.

Management expects to recover the entire amortized cost basis of these securities.

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

As of December 31, 2022, there was one corporate bond debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 136 thousand that was rated below investment grade by S&P.

We noted no downgrades to below investment grade between December 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 continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers.

Notes to Consolidated Financial Statements – (continued)

Note 4 - Loans

The following is a summary of loans:

The following table presents a summary of loans:

(Dollars in thousands)

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$ 5,110,139 $ 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 & industrial (“C&I”) consists of loans to businesses and individuals, a portion of which are fully or partially collateralized by real estate.

(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 $ 1.1 million and $ 38.0 million, respectively, of PPP loans as of December 31, 2022 and 2021.

5 unchanged sentences

See Note 13 for additional disclosure regarding borrowings.

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

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

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

See additional disclosure regarding TDRs below.

Notes to Consolidated Financial Statements – (continued)

Concentrations of Credit Risk

2 unchanged sentences

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.

Notes to Consolidated Financial Statements – (continued)

Past Due Loans

45 unchanged sentences

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

No ACL was deemed necessary on nonaccrual loans with a carrying value of $ 6.5 million and $ 4.2 million, respectively, as of December 31, 2022 and 2021.

Nonaccrual loans of $ 5.7 million and $ 4.8 million, respectively, at December 31, 2022 and 2021 were current as to the payment of principal and interest.

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

As of December 31, 2022 and 2021, nonaccrual loans secured by one- to four-family residential property amounting to $ 2.9 million and $ 1.5 million, respectively, were in process of foreclosure.

19 unchanged sentences

Accruing TDRs

$ 3,571 $ 16,564

Nonaccrual TDRs

Total TDRs $ 19,383 $ 15,763

$ 8,644 $ 19,383

Specific reserves on TDRs included in the ACL on loans

9 unchanged sentences

Total commercial 3 2 1,687 9,859 1,687 9,859

Residential Real Estate:

Residential real estate

— 11 — 5,943 — 5,943

— 4 — 873 — 873

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

Total 3 2 $ 1,687 $ 9,859 $ 1,687 $ 9,859

9 unchanged sentences

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

Notes to Consolidated Financial Statements – (continued)

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

(Dollars in thousands) # of Loans Recorded Investment

Years ended December 31, 2021 2020 2021 2020

Commercial real estate — 1 $ — $ 850

Commercial & industrial — — — —

Residential real estate:

Residential real estate — 2 — 1,299

Home equity — 2 — 118

Other — — — —

Total — 5 $ — $ 2,267

In 2022 and 2021, there were no TDRs modified within the previous 12 months for which there was a payment default.

Individually Analyzed Loans

2 unchanged sentences

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

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

Notes to Consolidated Financial Statements – (continued)

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

15 unchanged sentences

(3) Secured by one- to four-family residential properties.

Notes to Consolidated Financial Statements – (continued)

Credit Quality Indicators

3 unchanged sentences

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

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

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

See Note 5 for additional information.

3 unchanged sentences

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

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

9 unchanged sentences

“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.

Notes to Consolidated Financial Statements – (continued)

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.

3 unchanged sentences

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

Notes to Consolidated Financial Statements – (continued)

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

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

Among these techniques is the periodic tracking of loans with an updated Fair Isaac Corporation (commonly known as “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.

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

Notes to Consolidated Financial Statements – (continued)

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

65 unchanged sentences

Amortization ( 2,507 ) — ( 2,507 )

Increase in impairment reserve — ( 154 ) ( 154 )

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

1 unchanged sentence

Amortization ( 3,438 ) — ( 3,438 )

Increase in impairment reserve — ( 154 ) ( 154 )

Decrease in impairment reserve — 154 154

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

1 unchanged sentence

Amortization ( 1,763 ) — ( 1,763 )

Decrease in impairment reserve — 154 154

Balance at December 31, 2022 $ 9,015 $ — $ 9,015

4 unchanged sentences

Total estimated amortization expense $ 9,015

Loans sold to others are serviced by the Corporation on a fee basis under various agreements.

Loans sold to others may be serviced by the Corporation on a fee basis under various agreements.

Loans serviced for others are not included in the Consolidated Balance Sheets.

7 unchanged sentences

Note 5 - Allowance for Credit Losses on Loans

Adoption of ASC 326

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

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

The ACL on loans is management’s estimate of expected lifetime credit losses on loans carried at amortized cost.

The following table presents the activity in the ACL on loans for the year ended December 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

5 unchanged sentences

$ 18,435 $ 10,356 $ 28,791 $ 7,740 $ 1,115 $ 381 $ 1,496 $ 38,027

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2020:

The following table presents the activity in the ACL on loans for the year ended December 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 — ( 307 ) ( 307 ) ( 107 ) ( 183 ) ( 66 ) ( 249 ) ( 663 )

3 unchanged sentences

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

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2019:

The following table presents the activity in the ACL on loans for the year ended December 31, 2020:

(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

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

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

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

17 unchanged sentences

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 $ 26.7 million and $ 29.5 million, respectively, as of December 31, 2021 and 2020.

Operating lease ROU assets amounted to $ 27.2 million and $ 26.7 million, respectively, as of December 31, 2022 and 2021.

Operating lease liabilities totaled $ 29.6 million and $ 29.0 million, respectively, as of December 31, 2022 and 2021.

As of December 31, 2022, there were three operating leases that had not yet commenced.

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

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

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

5 unchanged sentences

3 years - 5 years

1 year - 5 years

3 years - 5 years

Weighted average remaining lease term

7 unchanged sentences

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.

(1) Includes $ 439 thousand related to options to extend lease terms that are reasonably certain of being exercised.

(2) Includes short-term operating lease liabilities of $ 3.3 million.

18 unchanged sentences

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

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

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

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

The following table presents the components of intangible assets:

13 unchanged sentences

2028 and thereafter 1,231

Note 10 - Income Taxes

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

(Dollars in thousands)

Years ended December 31, 2021 2020 2019

Current Tax Expense:

$ 17,032 $ 19,248 $ 17,298

2,130 3,213 3,254

Total current tax expense

19,162 22,461 20,552

Deferred Tax Expense (Benefit):

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

333 ( 755 ) ( 197 )

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

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

Total income tax expense varies from the amount determined by applying the Federal income tax rate to income before income taxes.

The following table presents the reasons for the differences:

Years ended December 31, 2021 2020 2019

(Dollars in thousands) Amount Rate Amount Rate Amount Rate

Tax expense at Federal statutory rate $ 20,619 21.0 % $ 18,724 21.0 % $ 18,518 21.0 %

Increase (decrease) in taxes resulting from:

State income tax expense, net of federal tax benefit

1,943 2.0 1,995 2.2 2,417 2.7

Tax-exempt income, net

( 772 ) ( 0.8 ) ( 803 ) ( 0.9 ) ( 814 ) ( 0.9 )

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

Share-based compensation

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

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

Dividends received deduction

( 28 ) — ( 28 ) — ( 36 ) —

Federal tax credits

— — ( 93 ) ( 0.1 ) ( 364 ) ( 0.4 )

445 0.4 85 0.1 55 0.1

Total income tax expense $ 21,317 21.7 % $ 19,331 21.7 % $ 19,061 21.6 %

Notes to Consolidated Financial Statements – (continued)

The following table presents the approximate tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities:

(Dollars in thousands)

December 31, 2021 2020

Deferred Tax Assets:

Allowance for credit losses on loans $ 9,381 $ 10,585

Operating lease liabilities

Deferred compensation

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

Deferred loan origination fees

Share-based compensation

Cash flow hedges 1,268 457

Defined benefit pension obligations

Deferred tax assets

31,719 32,481

Deferred Tax Liabilities:

Operating lease right-of-use assets

( 6,406 ) ( 7,085 )

Deferred loan origination costs

( 4,982 ) ( 4,321 )

Loan servicing rights

( 2,357 ) ( 1,784 )

Amortization of intangibles

( 1,299 ) ( 1,513 )

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

Net unrealized gains on available for sale debt securities

( 1,427 ) ( 1,253 )

Deferred tax liabilities

( 17,708 ) ( 20,291 )

Net deferred tax asset $ 14,011 $ 12,190

The Corporation’s net deferred tax asset is included in other assets in the Consolidated Balance Sheets.

Management has determined that a valuation allowance is not required for any of the deferred tax assets since it is more-likely-than-not that these assets will be realized primarily through future reversals of existing taxable temporary differences or by offsetting projected future taxable income.

The Corporation had no unrecognized tax benefits as of December 31, 2021 and 2020.

The Corporation files income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

Generally, the Corporation is no longer subject to U.S.

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

Notes to Consolidated Financial Statements – (continued)

Note 11 - Deposits

The following table presents a summary of deposits:

(Dollars in thousands)

December 31, 2021 2020

Noninterest-bearing demand deposits $ 945,229 $ 832,287

Interest-bearing demand deposits 251,032 174,290

NOW accounts 867,138 698,706

Money market accounts 1,072,864 910,167

Savings accounts 555,177 466,507

Time deposits (1)

1,288,611 1,296,396

Total deposits $ 4,980,051 $ 4,378,353

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

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

(Dollars in thousands) Scheduled Maturity Weighted Average Rate

Years ending December 31:

2022 $ 1,004,817 0.52 %

2023 175,858 1.17

2024 22,280 1.37

2025 41,760 1.15

2026 43,896 1.02

2027 and thereafter — —

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

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

Note 12 - Borrowings

Federal Home Loan Bank Advances

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

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

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

Notes to Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Scheduled

Maturity Weighted

2022 $ 110,000 0.35 %

2023 35,000 0.45

2027 and thereafter — —

Total $ 145,000 0.38 %

Junior Subordinated Debentures

Junior subordinated debentures amounted to $ 22.7 million at December 31, 2021 and 2020.

The Bancorp sponsored the creation of WT Capital Trust I (“Trust I”) and WT Capital Trust II (“Trust II”), Delaware statutory trusts created for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Bancorp.

The Bancorp is the owner of all of the common securities of the trusts.

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

The $ 8.3 million of junior subordinated debentures associated with Trust I bear interest at a rate equal to the three-month LIBOR rate plus 1.45 % and mature on September 15, 2035.

The $ 14.4 million of junior subordinated debentures associated with Trust II bear interest at a rate equal to the three-month LIBOR rate plus 1.45 % and mature on November 23, 2035.

The debentures may be redeemed at par at the Bancorp’s option, subject to the approval of the applicable banking regulator to the extent required under applicable guidelines or policies.

See Note 13 for additional discussion of the regulatory capital treatment of trust preferred securities.

Notes to Consolidated Financial Statements – (continued)

Note 13 - Shareholders' Equity

Stock Repurchase Program

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

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

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

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

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

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

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

The Bancorp and the Bank are regulated enterprises and their abilities to pay dividends are subject to regulatory review and restriction.

Certain regulatory and statutory restrictions exist regarding dividends, loans, and advances from the Bank to the Bancorp.

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

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

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

Reserved Shares

As of December 31, 2021, a total of 1,487,365 common stock shares were reserved for issuance under the 2003 Stock Incentive Plan and the 2013 Stock Option and Incentive Plan.

Regulatory Capital Requirements

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

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

Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices.

These quantitative measures, to ensure capital adequacy, require minimum amounts and ratios.

Capital levels at December 31, 2021 exceeded the regulatory minimum levels to be considered “well capitalized.”

Notes to Consolidated Financial Statements – (continued)

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:

(Dollars in thousands) Actual For Capital Adequacy

Purposes To Be “Well Capitalized” Under Prompt Corrective Action Regulations

Amount Ratio Amount Ratio Amount Ratio

December 31, 2021

Total Capital (to Risk-Weighted Assets):

$ 578,137 14.01 % $ 330,105 8.00 % N/A N/A

565,087 13.70 330,025 8.00 $ 412,532 10.00 %

Tier 1 Capital (to Risk-Weighted Assets):

546,362 13.24 247,578 6.00 N/A N/A

533,312 12.93 247,519 6.00 330,025 8.00

Common Equity Tier 1 Capital (to Risk-Weighted Assets):

524,363 12.71 185,684 4.50 N/A N/A

533,312 12.93 185,639 4.50 268,146 6.50

Tier 1 Capital (to Average Assets):

546,362 9.36 233,534 4.00 N/A N/A

533,312 9.14 233,434 4.00 291,793 5.00

December 31, 2020

Total Capital (to Risk-Weighted Assets):

539,496 13.51 319,532 8.00 N/A N/A

534,288 13.38 319,503 8.00 399,379 10.00

Tier 1 Capital (to Risk-Weighted Assets):

503,791 12.61 239,649 6.00 N/A N/A

498,583 12.48 239,627 6.00 319,503 8.00

Common Equity Tier 1 Capital (to Risk-Weighted Assets):

481,792 12.06 179,737 4.50 N/A N/A

498,583 12.48 179,721 4.50 259,596 6.50

Tier 1 Capital (to Average Assets):

503,791 8.95 225,209 4.00 N/A N/A

498,583 8.86 225,126 4.00 281,407 5.00

(1) Leverage ratio.

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

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

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

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

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

Notes to Consolidated Financial Statements – (continued)

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

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

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

Note 9 - Derivative Financial Instruments

2 unchanged sentences

All derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value.

Derivative assets are included in other assets and derivative liabilities are included in other liabilities in the Consolidated Balance Sheets.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation.

7 unchanged sentences

Cash Flow Hedging Instruments

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

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

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

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

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

As of December 31, 2022 and 2021, the Corporation had an interest rate swap contract 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.

In addition, at December 31, 2022, and 2021, the Corporation had an interest rate swap contract 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

Interest Rate Swap Contracts with Customers

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

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

When the Corporation enters into an interest rate swap contract with a commercial loan borrower, it simultaneously enters into a “mirror” swap contract with a third party.

The third party exchanges the client’s fixed-rate loan payments for variable-rate loan payments.

Interest Rate Derivative Contracts with Customers

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

These interest rate swap contracts allow borrowers to convert variable-rate loan payments to fixed-rate loan payments, while interest rate cap contracts allow borrowers to limit their interest rate exposure in a rising rate environment.

When the Corporation enters into an interest rate derivative contract with a commercial loan borrower, it simultaneously enters into a “mirror” interest rate contract with a third party.

For interest rate swaps, the third party exchanges the client’s fixed-rate loan payments for variable-rate loan payments.

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

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

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

Notes to Consolidated Financial Statements – (continued)

Risk Participation Agreements

2 unchanged sentences

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

Notes to Consolidated Financial Statements – (continued)

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.

As of December 31, 2021, the notional amounts of the risk participation-out agreements and risk participation-in agreements were $ 74.2 million and $ 163.2 million, respectively, compared to $ 61.6 million and $ 92.7 million, respectively, as of December 31, 2020.

Mortgage Loan Commitments

2 unchanged sentences

Forward sale commitments are contracts for delayed delivery or net settlement of the underlying instrument, such as a residential real estate mortgage loan, where the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument.

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 December 31, 2021, the notional amounts of interest rate lock commitments and forward sale commitments were $ 49.8 million and $ 103.6 million, respectively, compared to $ 167.7 million and $ 279.7 million, respectively, as of December 31, 2020.

Notes to Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Derivative Assets Derivative Liabilities

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

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

Fair Value Fair Value

Balance Sheet Location Dec 31,

2020 Balance Sheet Location Dec 31,

Notional Amounts Derivative Assets Derivative Liabilities Notional Amounts Derivative Assets Derivative Liabilities

Derivatives Designated as Cash Flow Hedging Instruments:

Interest rate risk management contracts:

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

Interest rate swaps (1)

$ 320,000 $ 548 $ 31,178 $ 320,000 $ 182 $ 5,301

Derivatives not Designated as Hedging Instruments:

Loan related derivative contracts:

Interest rate swaps with customers Other assets 32,361 75,804 Other liabilities 2,015 68

Mirror swaps with counterparties Other assets 2,001 67 Other liabilities 32,480 76,248

Risk participation agreements Other assets 1 22 Other liabilities 2 2

Interest rate contracts with customers 935,099 32 68,137 1,022,388 32,361 2,015

Mirror contracts with counterparties 935,099 67,797 61 1,022,388 2,001 32,480

Risk participation agreements 282,191 — 2 237,446 1 2

Mortgage loan commitments:

Interest rate lock commitments Other assets 1,256 7,202 Other liabilities — —

Forward sale commitments Other assets 54 — Other liabilities 905 2,914

Interest rate lock commitments 12,201 144 4 49,800 1,256 —

Forward sale commitments 23,150 58 150 103,626 54 905

Gross amounts 68,579 99,532 35,855 40,703

5 unchanged sentences

Net amounts $ 45,055 $ 68,292 $ 33,688 $ 3,997

(1) The fair value of derivative assets includes accrued interest receivable of $ 24 thousand and $ 182 thousand, respectively, at December 31, 2022 and 2021.

The fair value of derivative liabilities includes accrued interest payable of $ 856 thousand and $ 19 thousand, respectively, at December 31, 2022 and 2021.

(2) Interest rate risk management contracts and loan related derivative contracts with counterparties are subject to master netting arrangements.

1 unchanged sentence

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

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

Notes to Consolidated Financial Statements – (continued)

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

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

3 unchanged sentences

Interest rate caps $ — $ — $ 89

$ — $ 89 $ 52

Interest rate swaps

3 unchanged sentences

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

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

Notes to Consolidated Financial Statements – (continued)

For derivatives designated as cash flow hedging instruments, see Note 19 for additional disclosure pertaining to the amounts and location of reclassifications from AOCL into earnings.

The following table presents the effect of derivative instruments in the Consolidated Statements of Income:

(Dollars in thousands) Amount of Gain (Loss)

Recognized in Income on Derivatives

Recognized in Noninterest Income

Years ended December 31, Statement of Income Location 2022 2021 2020

1 unchanged sentence

Loan related derivative contracts:

Interest rate swaps with customers

Loan related derivative income ($ 27,846 ) $ 60,938 $ 29,910

Mirror swaps with counterparties

Loan related derivative income 31,547 ( 57,067 ) ( 26,043 )

Interest rate contracts with customers Loan related derivative income ($ 92,730 ) ($ 27,846 ) $ 60,938

Mirror contracts with counterparties Loan related derivative income 94,759 31,547 ( 57,067 )

Risk participation agreements

Loan related derivative income 727 641 120

Foreign exchange contracts

Loan related derivative income — — 28

Mortgage loan commitments:

7 unchanged sentences

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

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

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

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

1 unchanged sentence

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.

5 unchanged sentences

• Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in the markets and which reflect the Corporation’s market assumptions.

Notes to Consolidated Financial Statements – (continued)

Fair Value Option Election

6 unchanged sentences

Aggregate principal balance

39,201 59,313

Difference between fair value and principal balance $ 127 $ 995

Notes to Consolidated Financial Statements – (continued)

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

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

Changes in fair value amounted to a decrease to mortgage banking revenues of $ 868 thousand in 2022, compared to a decrease to mortgage banking revenues of $ 1.3 million in 2021.

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

12 unchanged sentences

Mortgage Loans Held for Sale

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

The Corporation has elected the fair value option for mortgage loans held for sale.

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

Collateral Dependent Individually Analyzed Loans

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

Collateral dependent individually analyzed loans are valued based upon the lower of amortized cost or fair value.

Fair value is determined based on the appraised value of the underlying collateral.

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

3 unchanged sentences

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 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 derivative contracts are traded in over-the-counter markets where quoted market prices are not readily available.

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

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

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

Counterparty exposure is

Accordingly, factors such as the likelihood of default

Notes to Consolidated Financial Statements – (continued)

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

by the Corporation and its counterparties, its net exposures and remaining contractual life are considered in determining if any fair value adjustments related to credit risk are required.

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

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

However, the credit valuation adjustments utilize Level 3 inputs.

As of December 31, 2021 and 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 December 31, 2022 and 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.

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

50 unchanged sentences

Items Recorded at Fair Value on a Nonrecurring Basis

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

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

1 unchanged sentence

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

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

(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 Inputs Utilized

December 31, 2021

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

Appraisal adjustments 100 %

Notes to Consolidated Financial Statements – (continued)

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

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)

December 31, 2021

1 unchanged sentence

Appraisal adjustments 100 %

Loan servicing rights

7,434 Discounted Cash Flow Discount Rate 10 % - 14 % ( 10 %)

Prepayment rates 18 % - 42 % ( 21 %)

Valuation of Financial Instruments

The estimated fair values and related carrying amounts for financial instruments for which fair value is only disclosed are presented below as of the periods indicated.

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

The Corporation considers cash and cash equivalents, accrued interest receivable and

Notes to Consolidated Financial Statements – (continued)

accrued interest payable as level 1 measurements within the fair value hierarchy.

The Corporation considers FHLB stock, BOLI and non-maturity deposits as level 2 measurements.

(Dollars in thousands) Carrying Amount Total

8 unchanged sentences

FHLB advances

980,000 978,590 — 978,590 —

Junior subordinated debentures 22,681 18,963 — 18,963 —

9 unchanged sentences

FHLB advances

145,000 144,862 — 144,862 —

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

Note 11 - Income Taxes

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

(Dollars in thousands)

Years ended December 31, 2022 2021 2020

Current Tax Expense:

$ 16,127 $ 17,032 $ 19,248

2,202 2,130 3,213

Total current tax expense

18,329 19,162 22,461

Deferred Tax Expense (Benefit):

1,012 1,822 ( 2,375 )

148 333 ( 755 )

Total deferred tax expense (benefit) 1,160 2,155 ( 3,130 )

Total income tax expense $ 19,489 $ 21,317 $ 19,331

Notes to Consolidated Financial Statements – (continued)

Total income tax expense varies from the amount determined by applying the Federal income tax rate to income before income taxes.

The following table presents the reasons for the differences:

Years ended December 31, 2022 2021 2020

(Dollars in thousands) Amount Rate Amount Rate Amount Rate

Tax expense at Federal statutory rate $ 19,146 21.0 % $ 20,619 21.0 % $ 18,724 21.0 %

Increase (decrease) in taxes resulting from:

State income tax expense, net of federal tax benefit

1,856 2.1 1,943 2.0 1,995 2.2

Tax-exempt income, net

( 721 ) ( 0.8 ) ( 772 ) ( 0.8 ) ( 803 ) ( 0.9 )

( 544 ) ( 0.6 ) ( 614 ) ( 0.6 ) ( 523 ) ( 0.6 )

Investments in low-income housing limited partnerships ( 261 ) ( 0.3 ) ( 117 ) ( 0.1 ) ( 118 ) ( 0.1 )

Share-based compensation

( 68 ) ( 0.1 ) ( 159 ) ( 0.2 ) 92 0.1

81 0.1 417 0.4 ( 36 ) —

Total income tax expense $ 19,489 21.4 % $ 21,317 21.7 % $ 19,331 21.7 %

The following table presents the approximate tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities:

(Dollars in thousands)

December 31, 2022 2021

Deferred Tax Assets:

Net unrealized losses on available for sale debt securities $ 41,379 $ 2,146

Allowance for credit losses on loans 9,127 9,381

Cash flow hedges 7,151 1,268

Operating lease liabilities

Deferred compensation

Deferred loan origination fees

Share-based compensation

Defined benefit pension obligations

Deferred tax assets

75,036 31,719

Deferred Tax Liabilities:

Operating lease ROU assets

( 6,518 ) ( 6,406 )

Deferred loan origination costs

( 6,394 ) ( 4,982 )

Loan servicing rights

( 2,163 ) ( 2,357 )

Depreciation of premises and equipment ( 1,494 ) ( 1,237 )

Amortization of intangibles

( 1,093 ) ( 1,299 )

Defined benefit pension obligations

( 669 ) ( 1,427 )

Deferred tax liabilities

( 18,664 ) ( 17,708 )

Net deferred tax asset $ 56,372 $ 14,011

The Corporation’s net deferred tax asset is included in other assets in the Consolidated Balance Sheets.

The Corporation had no unrecognized tax benefits as of December 31, 2022 and 2021.

Notes to Consolidated Financial Statements – (continued)

The Corporation files income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

Generally, the Corporation is no longer subject to U.S.

federal income and state tax examinations by tax authorities for years before 2019.

Note 12 - Deposits

The following table presents a summary of deposits:

(Dollars in thousands)

December 31, 2022 2021

Noninterest-bearing demand deposits $ 858,953 $ 945,229

Interest-bearing demand deposits (1)

333,197 251,032

NOW accounts 871,875 867,138

Money market accounts 1,255,805 1,072,864

Savings accounts 576,250 555,177

Time deposits (2)

1,122,882 1,288,611

Total deposits $ 5,018,962 $ 4,980,051

(1) Includes wholesale brokered demand deposit balances of $ 31,153 and $ 0 , respectively, as of December 31, 2022 and 2021.

(2) Includes wholesale brokered time deposit balances of $ 327,044 and $ 515,228 , respectively, as of December 31, 2022 and 2021.

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

(Dollars in thousands) Scheduled Maturity Weighted Average Rate

Years ending December 31:

2023 $ 844,830 1.97 %

2024 163,668 2.88

2025 41,869 1.74

2026 36,428 1.36

2027 36,087 2.45

2028 and thereafter — —

Balance at December 31, 2022 $ 1,122,882 2.09 %

Time certificates of deposit in denominations of $250 thousand or more totaled $ 200.9 million and $ 184.3 million, respectively, at December 31, 2022 and 2021.

Note 13 - Borrowings

Federal Home Loan Bank Advances

Advances payable to the FHLB amounted to $ 980.0 million and $ 145.0 million, respectively, at December 31, 2022 and 2021.

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

Additionally, the Bank had a $ 215.0 million standby letter of credit with the FHLB at December 31, 2022.

This standby letter of credit was executed in 2022 to collateralize an institutional deposit.

The Bank had remaining available borrowing capacity of $ 668.3 million and $ 1.6 billion, respectively with the FHLB at December 31, 2022 and 2021.

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

Notes to Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Scheduled

Maturity Weighted

2023 $ 895,000 4.29 %

2024 20,000 4.48

2025 45,000 4.21

2026 20,000 4.13

2028 and thereafter — —

Total $ 980,000 4.29 %

Junior Subordinated Debentures

Junior subordinated debentures amounted to $ 22.7 million at December 31, 2022 and 2021.

The Bancorp sponsored the creation of Trust I and Trust II, Delaware statutory trusts created for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Bancorp.

The Bancorp is the owner of all of the common securities of the trusts.

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

The $ 8.3 million of junior subordinated debentures associated with Trust I bear interest at a rate equal to the three-month LIBOR rate plus 1.45 % and mature on September 15, 2035.

The $ 14.4 million of junior subordinated debentures associated with Trust II bear interest at a rate equal to the three-month LIBOR rate plus 1.45 % and mature on November 23, 2035.

The debentures may be redeemed at par at the Bancorp’s option, subject to the approval of the applicable banking regulator to the extent required under applicable guidelines or policies.

See Note 14 for additional discussion of the regulatory capital treatment of trust preferred securities.

Notes to Consolidated Financial Statements – (continued)

Note 14 - Shareholders' Equity

Stock Repurchase Program

On December 12, 2022, the Corporation announced that its Board of Directors adopted the 2023 Repurchase Program, which 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 numbers 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 2023 Repurchase Program commenced on January 1, 2023 and expires on December 31, 2023 and may be modified, suspended, or discontinued at any time.

The 2021 Repurchase Program expired on December 31, 2022.

For the year ended December 31, 2022, the Corporation repurchased 194,162 shares at an average price of $ 48.82 and a total cost of $ 9.5 million, under its 2021 Repurchase Program.

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

The Bancorp and the Bank are regulated enterprises and their abilities to pay dividends are subject to regulatory review and restriction.

Certain regulatory and statutory restrictions exist regarding dividends, loans, and advances from the Bank to the Bancorp.

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

Dividends paid by the Bank to the Bancorp amounted to $ 53.2 million and $ 45.7 million, respectively, for the years ended December 31, 2022 and 2021.

Regulatory Capital Requirements

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

These quantitative measures, to ensure capital adequacy, require minimum amounts and ratios.

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

Notes to Consolidated Financial Statements – (continued)

(Dollars in thousands) Actual For Capital Adequacy

Purposes To Be “Well Capitalized” Under Prompt Corrective Action Regulations

Amount Ratio Amount Ratio Amount Ratio

December 31, 2022

Total Capital (to Risk-Weighted Assets):

$ 605,005 12.37 % $ 391,363 8.00 % N/A N/A

588,090 12.02 391,260 8.00 $ 489,074 10.00 %

Tier 1 Capital (to Risk-Weighted Assets):

571,794 11.69 293,522 6.00 N/A N/A

554,879 11.35 293,445 6.00 391,260 8.00

Common Equity Tier 1 Capital (to Risk-Weighted Assets):

549,798 11.24 220,142 4.50 N/A N/A

554,879 11.35 220,083 4.50 317,898 6.50

Tier 1 Capital (to Average Assets):

571,794 8.65 264,295 4.00 N/A N/A

554,879 8.40 264,177 4.00 330,222 5.00

December 31, 2021

Total Capital (to Risk-Weighted Assets):

578,137 14.01 330,105 8.00 N/A N/A

565,087 13.70 330,025 8.00 412,532 10.00

Tier 1 Capital (to Risk-Weighted Assets):

546,362 13.24 247,578 6.00 N/A N/A

533,312 12.93 247,519 6.00 330,025 8.00

Common Equity Tier 1 Capital (to Risk-Weighted Assets):

524,363 12.71 185,684 4.50 N/A N/A

533,312 12.93 185,639 4.50 268,146 6.50

Tier 1 Capital (to Average Assets):

546,362 9.36 233,534 4.00 N/A N/A

533,312 9.14 233,434 4.00 291,793 5.00

(1) Leverage ratio.

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

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

Notes to Consolidated Financial Statements – (continued)

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 15 - Revenue from Contracts with Customers

8 unchanged sentences

Noninterest income:

Asset-based wealth management revenues

40,215 40,215 34,363 34,363 35,806 35,806

Transaction-based wealth management revenues

1,067 1,067 1,091 1,091 1,042 1,042

Total wealth management revenues

41,282 41,282 35,454 35,454 36,848 36,848

Wealth management revenues 38,746 38,746 41,282 41,282 35,454 35,454

Mortgage banking revenues

8 unchanged sentences

2,591 — 2,925 — 2,491 —

Net realized losses on securities

1,588 1,219 2,540 2,148 3,100 2,669

2,540 2,148 3,100 2,669 1,245 1,184

Total noninterest income 62,602 48,153 87,394 51,109 99,442 45,152

13 unchanged sentences

Service charges on deposit accounts

Total revenues from contracts in scope of ASC 606 $ 51,109 $ 45,152 $ 45,930

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

Total revenues from contracts with customers in scope of ASC 606

$ 48,153 $ 51,109 $ 45,152

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

Receivables amounted to $ 5.1 million and $ 6.6 million, respectively, at December 31, 2022 and 2021 and were included in other assets in the Consolidated Balance Sheets.

1 unchanged sentence

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

The balances of

Notes to Consolidated Financial Statements – (continued)

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

The balances of contract liabilities were insignificant at both December 31, 2022 and 2021 and were included in other liabilities in the Consolidated Balance Sheets.

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

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

Notes to Consolidated Financial Statements – (continued)

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 $ 2.1 million and $ 1.9 million, respectively, at December 31, 2022 and 2021 and were included in other assets in the Consolidated Balance Sheets.

5 unchanged sentences

The defined benefit pension plans were previously amended to freeze benefit accruals after a 10 -year transition period ending in December 2023.

The qualified pension plan is funded on a current basis, in compliance with the requirements of Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

The qualified pension plan is funded on a current basis, in compliance with the requirements of ERISA.

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

31 unchanged sentences

Funded (unfunded) status at end of period (1)

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

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

Notes to Consolidated Financial Statements – (continued)

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

$ 14,897 $ 13,639 ($ 13,562 ) ($ 17,717 )

(1) Funded status of the qualified pension plan is included in other assets in the Consolidated Balance Sheets.

Unfunded status of the non-qualified retirement plans is included in other liabilities in the Consolidated Balance Sheets.

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

Securities available for sale and other short-term investments designated for this purpose, with the carrying value of $ 14.0 million and $ 16.7 million are included in the Consolidated Balance Sheets at December 31, 2022 and 2021, respectively.

The following table presents the amounts included in accumulated other comprehensive income (“AOCI”) related to the qualified pension plan and non-qualified retirement plans:

The following table presents the amounts included in AOCI (AOCL) related to the qualified pension plan and non-qualified retirement plans:

(Dollars in thousands) Qualified

2 unchanged sentences

At December 31, 2022 2021 2022 2021

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

Net actuarial loss included in AOCI (AOCL), pre-tax

$ 1,846 $ 3,920 $ 3,455 $ 8,027

Notes to Consolidated Financial Statements – (continued)

The accumulated benefit obligation for the qualified pension plan was $ 64.8 million and $ 85.2 million, respectively, at December 31, 2022 and 2021.

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

The accumulated benefit obligation for the non-qualified retirement plans amounted to $ 13.1 million and $ 16.4 million, respectively, at December 31, 2022 and 2021.

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

10 unchanged sentences

( 4,634 ) ( 4,815 ) ( 4,538 ) — — —

Amortization of prior service credit (2)

— — ( 16 ) — — —

Recognized net actuarial loss (2)

4 unchanged sentences

Net (gain) loss ( 2,074 ) ( 8,132 ) 1,708 ( 4,572 ) ( 621 ) 1,244

Prior service credit

Recognized in other comprehensive income (loss)

4 unchanged sentences

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

Notes to Consolidated Financial Statements – (continued)

The following table presents the measurement date and weighted-average assumptions used to determine benefit obligations at December 31, 2022 and 2021:

19 unchanged sentences

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

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

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

Future increases in the long-term rate of return on plan assets would have the opposite effect.

The assumption is updated annually, taking

Notes to Consolidated Financial Statements – (continued)

into account the asset allocation, historical asset return trends on the types of assets held and the current and expected economic conditions.

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

Increases in the long-term rate of return on plan assets have the opposite effect.

The discount rate assumption for defined benefit pension plans is reset on the measurement date.

Discount rates are selected for each plan by matching expected future benefit payments stream to a yield curve based on a selection of high-quality fixed-income debt securities.

Future decreases in discount rates would increase the present value of pension obligations and increase our pension costs, while future increases in discount rates would have the opposite effect.

Decreases in discount rates increase the present value of pension obligations and increase our pension costs, while increases in discount rates have the opposite effect.

The "spot rate approach" was utilized in the calculation of interest and service cost.

1 unchanged sentence

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

Notes to Consolidated Financial Statements – (continued)

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

(Dollars in thousands)

Fair Value Measurements Using Assets at

(Dollars in thousands) Fair Value Measurements Using

December 31, 2022 Level 1 Level 2 Level 3

4 unchanged sentences

Corporate bonds — 4,854 — 4,854

Common stocks 16,565 — — 16,565

Mutual funds 23,932 — — 23,932

Total plan assets $ 32,370 $ 49,183 $ — $ 81,553

(Dollars in thousands)

Fair Value Measurements Using Assets at

(Dollars in thousands) Fair Value Measurements Using

December 31, 2021 Level 1 Level 2 Level 3

15 unchanged sentences

government-sponsored enterprises, obligations of states and political subdivisions and corporate bonds.

Notes to Consolidated Financial Statements – (continued)

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities may be classified as Level 3.

As of December 31, 2022 and 2021, the qualified pension plan did not have any securities in the Level 3 category.

Notes to Consolidated Financial Statements – (continued)

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

8 unchanged sentences

government-sponsored enterprises, obligations of states and political subdivisions and corporate bonds.

(2) Includes common stocks and mutual funds.

The assets of the qualified defined benefit pension plan trust (the “Pension Trust”) are managed to ensure that all present and future benefit obligations are met as they come due.

It seeks to achieve this goal while trying to mitigate volatility in plan funded status, contributions and expense by better matching the characteristics of the plan assets to that of the plan liabilities.

As benefit accruals under the qualified plan will be frozen on December 31, 2023, asset allocations have been and will continue to be refined.

(2) Includes mutual funds at December 31, 2022 and common stocks and mutual funds at December 31, 2021.

The assets of the qualified defined benefit pension plan trust are managed to ensure that all present and future benefit obligations are met as they come due.

It seeks to achieve this goal while trying to mitigate volatility in plan funded status, contributions and expense by aligning the characteristics of the plan assets to that of the plan liabilities.

The qualified pension plan is well-funded and will become frozen at December 31, 2023, at which point all future benefit accruals will cease.

Our investment approach takes these factors into consideration, and as such we have been increasing our allocation to lower-risk fixed income securities and reducing our allocation to higher-risk equity securities.

Cash inflow is typically composed of investment income from portfolio holdings and employer contributions, while cash outflow is for the purpose of paying plan benefits and certain plan expenses.

As early as possible each year, the trustee is advised of the projected schedule of employer contributions and estimations of benefit payments.

The investment philosophy used for the Pension Trust emphasizes consistency of results over an extended market cycle, while reducing the impact of the volatility of the security markets upon investment results.

The assets of the Pension Trust should be protected by substantial diversification of investments, providing exposure to a wide range of quality investment opportunities in various asset classes, with a high degree of liquidity.

Fixed income securities will typically be limited to investment grade securities in the top four categories used by the major credit rating agencies.

High yield fixed income securities may be used to provide exposure to this asset class as a diversification tool.

In order to reduce the volatility of the annual rate of return of the fixed income security portfolio, attention will be given to the maturity structure of the portfolio in the light of money market conditions and interest rate forecasts.

The assets of the Pension Trust will typically have a laddered maturity structure, avoiding large concentrations in any single year.

Equity securities provide opportunities for dividend and capital appreciation returns.

Equity securities will be appropriately diversified by maintaining broad exposure to large-, mid- and small-cap stocks as well as international equities.

Investment selection and mix of equity securities should be influenced by forecasts of economic activity, corporate profits and allocation among different segments of the economy while ensuring efficient diversification.

The fair value of equity securities of any one issuer will not be permitted to exceed 10 % of the total fair value of equity securities of the Pension Trust.

Contributions

The Internal Revenue Code permits flexibility in plan contributions so that normally a range of contributions is possible.

The Code permits flexibility in plan contributions so that normally a range of contributions is possible.

The Corporation does not expect to make a contribution to the qualified pension plan in 2023.

In addition, the Corporation expects to contribute $ 904 thousand in benefit payments to the non-qualified retirement plans in 2023.

Notes to Consolidated Financial Statements – (continued)

Estimated Future Benefit Payments

12 unchanged sentences

Total employer matching contributions under this plan amounted to $ 3.2 million, $ 3.0 million and $ 2.8 million in 2022, 2021 and 2020, respectively.

Notes to Consolidated Financial Statements – (continued)

Deferred Compensation Plan

5 unchanged sentences

The corresponding invested assets are reported in other assets in the Consolidated Balance Sheets.

Notes to Consolidated Financial Statements – (continued)

Note 17 - Share-Based Compensation Arrangements

The 2013 Stock Option and Incentive Plan (the “2013 Plan”) was approved by shareholders on April 23, 2013.

The 2013 Plan permits the granting of stock options and other equity incentives to officers, employees, directors and other key persons.

Vesting of stock options and share awards may accelerate or may be subject to proportional vesting if there is a change in control, disability, retirement or death (as defined in the 2013 Plan).

The Corporation’s equity compensation plans include the 2003 Stock Incentive Plan, the 2013 Stock Option and Incentive Plan and the 2022 Long Term Incentive Plan, which have been approved by the Corporation’s Board of Directors and shareholders.

Following shareholder approval of the 2022 Long Term Incentive Plan on April 26, 2022, awards are being granted only from the 2022 Long Term Incentive Plan.

The maximum number of shares of common stock that may be issued under the 2022 Long Term Incentive Plan is 600,000 and is subject to adjustment in accordance with the terms of this plan.

The types of permitted equity awards under the 2022 Long Term 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.

See Item 12 for additional information regarding the equity compensation plans.

Reserved Shares

As of December 31, 2022, a total of 1,438,109 common stock shares were reserved for issuance under the 2003 Stock Incentive Plan, 2013 Stock Option and Incentive Plan and 2022 Long Term Incentive Plan.

Share-based Compensation Expense

The following table presents share-based compensation expense and the related income tax benefits recognized in the Consolidated Statements of Income for stock options, restricted stock units and performance share units:

11 unchanged sentences

Stock options are designated as either non-qualified or incentive stock options.

In general, the stock option price is payable in cash, by the delivery of shares of common stock already owned by the grantee, or a combination thereof.

With respect to non-qualified stock option grants issued under the 2013 Plan, the exercise may also be accomplished by withholding the exercise price from the number of shares that would otherwise be delivered upon a cash exercise of the option.

For the years ended 2022, 2021 and 2020, all stock options granted by the Corporation were designated as non-qualified stock options.

Washington Trust uses historical data to estimate stock option exercise and employee departure behavior in the option-pricing model.

3 unchanged sentences

Treasury yield curve in effect at the date of grant.

Notes to Consolidated Financial Statements – (continued)

The following presents the assumptions used in determining the grant date fair value of the stock option awards granted to certain key employees:

7 unchanged sentences

Weighted average grant-date fair value $ 12.01 $ 11.10 $ 5.75

Notes to Consolidated Financial Statements – (continued)

The following table presents a summary of stock options outstanding as of and for the year ended December 31, 2022:

5 unchanged sentences

End of period 371,890 $ 46.67 6.95 $ 1,514

At end of period:

Options exercisable 138,690 $ 48.81 5.03 $ 1,112

Options expected to vest in future periods 183,450 $ 43.78 8.78 $ 2,310

Options exercisable at end of period 186,640 $ 49.54 5.20 $ 410

The total intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date.

12 unchanged sentences

137,886 6.69 55.60 84,186 56.24

$ 50.01 to $ 60.00

137,886 7.52 55.60 84,186 56.24

Total 371,890 6.95 $ 46.67 186,640 $ 49.54

2 unchanged sentences

In 2022, 2021 and 2020, the Corporation granted to directors and certain key employees 21,467 , 19,185 and 27,385 restricted stock units, respectively, with 3 -year cliff vesting.

Notes to Consolidated Financial Statements – (continued)

The following table presents a summary of restricted stock units as of and for the year ended December 31, 2022:

5 unchanged sentences

End of period 65,312 $ 45.51

Notes to Consolidated Financial Statements – (continued)

Performance Share Units

The Corporation granted performance share units to certain key employees providing the opportunity to earn shares of common stock over a 3 -year to 5 -year performance period.

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

The following table presents a summary of outstanding performance share unit awards as of December 31, 2021:

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.

The following table presents a summary of outstanding performance share units as of December 31, 2022:

Grant Date Fair Value per Share Weighted Average Current Performance Assumption Expected Number of Shares

8 unchanged sentences

Beginning of period 159,572 $ 43.09

Granted 40,975 44.46

Vested ( 34,573 ) 52.87

1 unchanged sentence

End of period 144,938 $ 45.41

(1) The number of shares include adjustments made to performance measure estimates on outstanding awards that have not yet vested.

The weighted average grant date fair value pertains only to awards granted during the year.

Notes to Consolidated Financial Statements – (continued)

1 unchanged sentence

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

In the fourth quarter of 2021 the Corporation re-assessed its reportable business segments and related allocation methodology in connection with the implementation of a new budgeting and profitability system in the same period.

Management determined it was appropriate to allocate activity previously reported in the Corporate Unit to the Commercial Banking and Wealth Management Services operating segments.

The Corporate Unit had included activities related to the Treasury function, which is responsible for managing the investment portfolio and wholesale funding needs, as well as certain administrative and executive expenses that were not previously allocated to the operating segments.

The prior year segment information contained within this report has been restated to reflect this change to reportable business segments and related allocation methodology.

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.

Commercial Banking

35 unchanged sentences

Net interest income (expense) $ 141,493 ($ 58 ) $ 141,435

Provision for loan losses 12,342 — 12,342

Net interest income (expense) after provision for loan losses 115,203 ( 101 ) 115,102

Provision for credit losses ( 4,822 ) — ( 4,822 )

Net interest income (expense) after provision for credit losses 146,315 ( 58 ) 146,257

Noninterest income 44,748 42,646 87,394

13 unchanged sentences

Net interest income (expense) $ 127,545 ($ 101 ) $ 127,444

Provision for loan losses 1,575 — 1,575

Net interest income (expense) after provision for loan losses 132,187 ( 348 ) 131,839

Provision for credit losses 12,342 — 12,342

Net interest income (expense) after provision for credit losses 115,203 ( 101 ) 115,102

Noninterest income 63,612 35,830 99,442

12 unchanged sentences

(Dollars in thousands)

Year ended December 31, 2021 Pre-tax Amounts Income Taxes Net of Tax

Year ended December 31, 2022 Pre-tax Amounts Income Tax Benefit (Expense) Net of Tax

Available for Sale Debt Securities:

1 unchanged sentence

($ 163,471 ) $ 39,233 ($ 124,238 )

Net (gains) losses on securities reclassified into earnings — — —

Net change in fair value of available for sale debt securities ( 21,942 ) ( 5,266 ) ( 16,676 )

Cash Flow Hedges:

1 unchanged sentence

( 27,344 ) 6,563 ( 20,781 )

Net gains on cash flow hedges reclassified into earnings (1)

Net cash flow hedge losses reclassified into earnings (1)

2,828 ( 679 ) 2,149

7 unchanged sentences

Total other comprehensive loss ($ 181,341 ) $ 43,522 ($ 137,819 )

(1) The pre-tax amounts are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Consolidated Statements of Income.

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

(1) The pre-tax amounts reclassified into earnings in the Consolidated Statements of Income include a $ 2.8 million reduction in interest and fees on loans and a $ 70 thousand increase in FHLB interest expense.

(2) The pre-tax amount presented above is included in other expenses in the Consolidated Statements of Income.

(Dollars in thousands)

Year ended December 31, 2020 Pre-tax Amounts Income Taxes Net of Tax

Year ended December 31, 2021 Pre-tax Amounts Income Tax Benefit (Expense) Net of Tax

Available for Sale Debt Securities:

1 unchanged sentence

($ 21,942 ) $ 5,266 ($ 16,676 )

Net (gains) losses on securities reclassified into earnings — — —

Net change in fair value of available for sale debt securities 8,784 2,129 6,655

Cash Flow Hedges:

1 unchanged sentence

( 3,067 ) 736 ( 2,331 )

Net losses on cash flow hedges reclassified into earnings (1)

Net cash flow hedge gains reclassified into earnings (1)

( 310 ) 75 ( 235 )

6 unchanged sentences

Net change in defined benefit plan obligations 8,752 ( 2,100 ) 6,652

Total other comprehensive income $ 4,965 $ 1,119 $ 3,846

(1) The pre-tax amounts are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Consolidated Statements of Income.

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

Total other comprehensive loss ($ 16,567 ) $ 3,977 ($ 12,590 )

(1) The pre-tax amounts reclassified into earnings in the Consolidated Statements of Income include a $ 1.5 million increase in interest and fees on loans and a $ 1.1 million increase in FHLB interest expense.

(2) The pre-tax amount presented above is included in other expenses in the Consolidated Statements of Income.

Notes to Consolidated Financial Statements – (continued)

(Dollars in thousands)

Year ended December 31, 2019 Pre-tax Amounts Income Taxes Net of Tax

Year ended December 31, 2020 Pre-tax Amounts Income Tax (Expense)Benefit Net of Tax

Available for Sale Debt Securities:

1 unchanged sentence

$ 8,784 ($ 2,129 ) $ 6,655

Net losses on securities reclassified into earnings (1)

Net change in fair value of available for sale debt securities 26,127 6,139 19,988

Cash Flow Hedges:

1 unchanged sentence

( 2,003 ) 482 ( 1,521 )

Net losses on cash flow hedges reclassified into earnings (2)

Net cash flow hedge losses reclassified into earnings (1)

1,136 ( 269 ) 867

Net change in the fair value of cash flow hedges ( 867 ) 213 ( 654 )

4 unchanged sentences

2,141 ( 400 ) 1,741

Amortization of net prior service credits (3)

( 16 ) ( 4 ) ( 12 )

Net change in defined benefit plan obligations ( 2,952 ) 797 ( 2,155 )

Total other comprehensive income $ 4,965 ($ 1,119 ) $ 3,846

(1) The pre-tax amount is reported as net realized losses on securities in the Consolidated Statements of Income.

(2) The pre-tax amounts are included in interest expense on FHLB advances, interest expense on junior subordinated debentures and interest and fees on loans in the Consolidated Statements of Income.

(3) The pre-tax amounts are included in other expenses in the 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) Gains on Cash Flow Hedges Net Unrealized (Losses) Gains on Defined Benefit Plan Obligations Total

(1) The pre-tax amounts reclassified into earnings in the Consolidated Statements of Income include a $ 203 thousand reduction in interest and fees on loans, $ 817 thousand increase in FHLB interest expense and a $ 116 thousand increase in junior subordinated debentures interest expense.

(2) The pre-tax amount presented above is included in other expenses in the Consolidated Statements of Income.

The following tables present the changes in AOCI (AOCL) 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

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

4 unchanged sentences

Balance at December 31, 2022 ($ 131,033 ) ($ 22,645 ) ($ 4,122 ) ($ 157,800 )

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

(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

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

Other comprehensive income (loss) before reclassifications 6,655 ( 1,521 ) ( 3,896 ) 1,238

Other comprehensive (loss) income before reclassifications ( 16,676 ) ( 2,331 ) 4,491 ( 14,516 )

Amounts reclassified from accumulated other comprehensive income

— ( 235 ) 2,161 1,926

Net other comprehensive income (loss) 6,655 ( 654 ) ( 2,155 ) 3,846

Net other comprehensive (loss) income ( 16,676 ) ( 2,566 ) 6,652 ( 12,590 )

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

Notes to Consolidated Financial Statements – (continued)

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

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

Balance at December 31, 2019 $ 3,226 ($ 793 ) ($ 13,670 ) ($ 11,237 )

5 unchanged sentences

Note 20 - Earnings per Common Share

The following table presents the calculation of earnings per common share:

The following table presents the calculation of EPS:

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

Years ended December 31, 2022 2021 2020

Earnings per common share - basic:

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

dividends and undistributed earnings allocated to participating securities ( 223 ) ( 152 ) ( 139 )

Net income available to common shareholders

$ 76,647 $ 69,677 $ 68,979

Weighted average common shares 17,310 17,282 17,331

Earnings per common share - basic $ 4.43 $ 4.03 $ 3.98

Earnings per common share - diluted:

Earnings per basic and diluted earnings per common share:

Net income $ 71,681 $ 76,870 $ 69,829

1 unchanged sentence

Net income available to common shareholders $ 71,479 $ 76,647 $ 69,677

$ 76,648 $ 69,678 $ 68,979

Weighted average common shares 17,310 17,282 17,331

Weighted average common shares outstanding 17,246 17,310 17,282

Dilutive effect of common stock equivalents 135 145 120

Weighted average diluted common shares

17,455 17,402 17,414

Earnings per common share - diluted $ 4.39 $ 4.00 $ 3.96

Weighted average diluted common shares outstanding 17,381 17,455 17,402

Earnings per common share:

Basic earnings per common share $ 4.14 $ 4.43 $ 4.03

Diluted earnings per common share $ 4.11 $ 4.39 $ 4.00

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 149,742 , 100,150 and 223,506 , respectively, for the years ended December 31, 2022, 2021 and 2020.

3 unchanged sentences

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 instruments include commitments to extend credit, standby letters of credit, mortgage 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 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 $ 11.8 million and $ 11.7 million, respectively, as of December 31, 2021 and 2020.

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

Fee income on standby letters of credit was insignificant for the years ended December 31, 2021, 2020 and 2019.

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

The collateral obtained is determined based on management’s credit evaluation of the customer.

Should the Corporation be required to make payments to the beneficiary, repayment from the customer to the Corporation is required.

5 unchanged sentences

Loan Related Derivative Contracts

The Corporation’s credit policies with respect to interest rate swap agreements with commercial borrowers are similar to those used for loans.

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

The Corporation’s credit policies with respect to interest rate contracts with commercial borrowers are similar to those used for loans.

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

Interest Rate Risk Management Contracts

The Corporation’s interest rate risk management contracts consist of interest rate swap agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments) computed on a notional principal amount.

The credit risk associated with these transactions is the risk of default by the counterparty.

To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy.

Notes to Consolidated Financial Statements – (continued)

4 unchanged sentences

Commitments to extend credit $ 1,308,873 $ 1,006,620

Commercial loans

$ 516,344 $ 453,493

Home equity lines

367,784 319,744

122,492 89,078

Standby letters of credit 9,028 11,844

6 unchanged sentences

Loan related derivative contracts:

Interest rate swaps with customers

1,022,388 991,002

Mirror swaps with counterparties

1,022,388 991,002

Interest rate contracts with customers 935,099 1,022,388

Mirror interest rate contracts with counterparties 935,099 1,022,388

Risk participation-in agreements

5 unchanged sentences

ACL on Unfunded Commitments

For each portfolio, estimated loss rates and funding factors are applied to the corresponding balance of unfunded commitments.

The estimated loss rates applied to unfunded commitments are the same quantitative and qualitative loss rates applied to the corresponding on-balance sheet amounts in determining the ACL on loans.

1 unchanged sentence

(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 $ 1,236 $ 988 $ 2,224 $ 50 $ — $ 16 $ 16 $ 2,290

Notes to Consolidated Financial Statements – (continued)

The activity in the ACL on unfunded commitments for the year ended December 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 ASC 326 817 626 1,443 34 — 6 6 1,483

Provision 360 ( 586 ) ( 226 ) 8 — ( 3 ) ( 3 ) ( 221 )

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

Notes to Consolidated Financial Statements – (continued)

Other Contingencies

8 unchanged sentences

As of December 31, 2022 and 2021, the carrying value of loans repurchased due to representation and warranty claims was $ 1.0 million and $ 1.4 million, respectively.

Washington Trust has recorded an estimated liability for its exposure to losses for premium recapture and the obligation to repurchase previously sold residential real estate mortgage loans.

The liability balance amounted to $ 275 thousand and $ 300 thousand at December 31, 2021 and 2020, respectively, and is included in other liabilities in the Consolidated Balance Sheets.

Washington Trust has recorded a reserve for its exposure to losses for premium recapture and the obligation to indemnify or repurchase previously sold residential real estate mortgage loans.

The reserve balance amounted to $ 265 thousand and $ 275 thousand at December 31, 2022 and 2021, respectively, and is included in other liabilities in the Consolidated Balance Sheets.

Any change in the estimate is recorded in mortgage banking revenues in the Consolidated Statements of Income.

Notes to Consolidated Financial Statements – (continued)

Note 22 - Parent Company Financial Statements

26 unchanged sentences

Total liabilities and shareholders’ equity $ 486,863 $ 597,608

Notes to Consolidated Financial Statements – (continued)

Statements of Income (Dollars in thousands)

6 unchanged sentences

Interest on junior subordinated debentures 739 370 641

Legal and professional fees 217 210 147

Other expenses 591 622 559

7 unchanged sentences

Net income $ 71,681 $ 76,870 $ 69,829

Notes to Consolidated Financial Statements – (continued)

Statements of Cash Flows (Dollars in thousands)

9 unchanged sentences

Increase in dividend receivable 2,386 ( 1,128 ) ( 2,261 )

Decrease (increase) in other assets 50 109 ( 43 )

(Increase) decrease in other assets ( 175 ) 50 109

Increase (decrease) in accrued expenses and other liabilities 93 31 ( 31 )

2 unchanged sentences

Cash flows from investing activities:

Repayment of equity investment in subsidiary 1,096 — —

Purchases of other equity investments, net ( 375 ) ( 650 ) —

10 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data