What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-07 · 330 added, 566 removed, 894 unchanged (50% of the section changed)

4 unchanged sentences

(Dollars in thousands, except par value)

September 30,

2023 December 31,

2 unchanged sentences

Mortgage loans held for sale, at fair value 7,445 8,987

Available for sale debt securities, at fair value (amortized cost of $ 1,165,816 , net of allowance for credit losses on securities of $ 0 at September 30, 2022;

Available for sale debt securities, at fair value (amortized cost of $ 1,209,794 , net of allowance for credit losses on securities of $ 0 at March 31, 2023;

and amortized cost of $ 1,166,340 ;

24 unchanged sentences

authorized 60,000,000 shares;

17,363,457 shares issued and 17,171,147 shares outstanding at September 30, 2022 and 17,363,457 shares issued and 17,330,818 shares outstanding at December 31, 2021

17,363,457 shares issued and 16,985,872 shares outstanding at March 31, 2023 and 17,363,457 shares issued and 17,182,753 shares outstanding at December 31, 2022

Paid-in capital 127,734 127,056

2 unchanged sentences

Treasury stock, at cost;

192,310 shares at September 30, 2022 and 32,639 shares at December 31, 2021

377,585 shares at March 31, 2023 and 180,704 shares at December 31, 2022

( 17,307 ) ( 8,715 )

6 unchanged sentences

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

Three Months Nine Months

Periods ended September 30, 2022 2021 2022 2021

Three months ended March 31, 2023 2022

Interest income:

31 unchanged sentences

Amortization of intangibles 212 217

Debt prepayment penalties — — — 4,230

Other expenses 2,431 2,053

14 unchanged sentences

(Dollars in thousands)

Three Months Nine Months

Periods ended September 30, 2022 2021 2022 2021

Three months ended March 31, 2023 2022

Net income $ 12,812 $ 16,483

Other comprehensive (loss) income, net of tax:

Other comprehensive income (loss), net of tax:

Net change in fair value of available for sale debt securities 13,198 ( 49,460 )

1 unchanged sentence

Net change in defined benefit plan obligations 45 325

Total other comprehensive loss, net of tax ( 53,714 ) ( 3,000 ) ( 151,774 ) ( 10,737 )

Total comprehensive (loss) income ($ 35,046 ) $ 15,751 ($ 96,666 ) $ 45,945

Total other comprehensive income (loss), net of tax 16,040 ( 59,470 )

Total comprehensive income (loss) $ 28,852 ($ 42,987 )

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

3 unchanged sentences

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

For the three months ended September 30, 2022 Common

Shares Outstanding Common

Stock Paid-in

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury Stock Total

Balance at June 30, 2022 17,190 $ 1,085 $ 126,079 $ 475,889 ($ 118,041 ) ($ 8,378 ) $ 476,634

— — — 18,668 — — 18,668

Total other comprehensive loss, net of tax — — — — ( 53,714 ) — ( 53,714 )

Cash dividends declared ($ 0.54 per share)

— — — ( 9,394 ) — — ( 9,394 )

Share-based compensation — — 976 — — — 976

Treasury stock purchased under 2021 Repurchase Program

( 19 ) — — — — ( 896 ) ( 896 )

Balance at September 30, 2022 17,171 $ 1,085 $ 127,055 $ 485,163 ($ 171,755 ) ($ 9,274 ) $ 432,274

For the nine months ended September 30, 2022 Common

For the three months ended March 31, 2023 Common

Shares Outstanding Common

3 unchanged sentences

Comprehensive

Loss Treasury Stock Total

(Loss) Income Treasury Stock Total

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

— — — 12,812 — — 12,812

Total other comprehensive loss, net of tax — — — — ( 151,774 ) — ( 151,774 )

Total other comprehensive income, net of tax — — — — 16,040 — 16,040

Cash dividends declared ($ 0.56 per share)

5 unchanged sentences

( 200 ) — — — — ( 8,741 ) ( 8,741 )

Balance at September 30, 2022 17,171 $ 1,085 $ 127,055 $ 485,163 ($ 171,755 ) ($ 9,274 ) $ 432,274

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

Washington Trust Bancorp, Inc.

and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity (unaudited)

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

For the three months ended September 30, 2021 Common

Shares Outstanding Common

Stock Paid-in

Capital Retained

Earnings Accumulated

Comprehensive

Loss Treasury Stock Total

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

— — — 18,751 — — 18,751

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

Cash dividends declared ($ 0.52 per share)

— — — ( 9,112 ) — — ( 9,112 )

Share-based compensation — — 823 — — — 823

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

For the nine months ended September 30, 2021 Common

Balance at March 31, 2023 16,986 $ 1,085 $ 127,734 $ 495,231 ($ 141,760 ) ($ 17,307 ) $ 464,983

For the three months ended March 31, 2022 Common

Shares Outstanding Common

12 unchanged sentences

1 — ( 44 ) — — 25 ( 19 )

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

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

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

3 unchanged sentences

(Dollars in thousands)

Nine months ended September 30, 2022 2021

Three months ended March 31, 2023 2022

Cash flows from operating activities:

2 unchanged sentences

Provision for credit losses

( 2,100 ) ( 2,000 )

Depreciation of premises and equipment

2 unchanged sentences

Share-based compensation

Tax benefit from stock option exercises and other equity awards 71 135

Tax (expense) benefit from stock option exercises and other equity awards ( 1 ) 10

Income from bank-owned life insurance

5 unchanged sentences

( 23,394 ) ( 95,644 )

(Increase) decrease in operating lease right-of-use assets ( 1,096 ) 2,003

Increase (decrease) in operating lease liabilities 1,179 ( 1,907 )

Decrease (increase) in operating lease right-of-use assets 986 ( 2,124 )

(Decrease) increase in operating lease liabilities ( 936 ) 2,160

(Increase) decrease in other assets ( 4,917 ) 21,289

Increase (decrease) in other liabilities 25,451 ( 36,698 )

Decrease in other liabilities ( 176 ) ( 25,100 )

Net cash provided by operating activities 11,094 38,562

9 unchanged sentences

Available for sale debt securities:

Other — 70,500

Net (purchases) redemption of Federal Home Loan Bank stock ( 19,909 ) 15,191

Purchases of other equity investments ( 375 ) —

Net redemptions of Federal Home Loan Bank stock 962 4,579

Purchases of other equity investments, net — ( 188 )

Net increase in loans ( 116,609 ) ( 8,700 )

3 unchanged sentences

( 1,144 ) ( 834 )

Purchases of bank-owned life insurance

( 7,000 ) ( 7,000 )

Equity investment in real estate limited partnership

Proceeds from bank-owned life insurance 1,566 —

Equity investments in real estate limited partnerships ( 6,632 ) —

Net cash used in investing activities

4 unchanged sentences

1,005,000 197,000

Repayment of Federal Home Loan Bank advances

( 1,391,112 ) ( 1,544,267 )

Treasury stock purchased

Repayments of Federal Home Loan Bank advances ( 1,060,000 ) ( 287,000 )

Purchases of treasury stock ( 8,741 ) —

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

4 unchanged sentences

176,131 48,484

Net (decrease) increase in cash and cash equivalents ( 45,654 ) 98,120

Net increase in cash and cash equivalents 19,858 49,603

Cash and cash equivalents at beginning of period

4 unchanged sentences

Loans charged-off $ 61 $ 36

Commitment for equity investment in real estate limited partnership 8,360 —

Loans transferred to property acquired through foreclosure or repossession 683 —

Commitment for equity investments in real estate limited partnerships 1,728 —

Supplemental Disclosures:

4 unchanged sentences

Note 1 - Basis of Presentation

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 Bank, a Rhode Island chartered financial institution founded in 1800, and Weston Securities Corporation.

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

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

All intercompany balances and transactions have been eliminated in consolidation.

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

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

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

Actual results could differ from those estimates.

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

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

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 the Washington Trust conform to GAAP and to general practices of the banking industry.

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

1 unchanged sentence

The accompanying Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The Unaudited 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.

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

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

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

Use of Estimates

Actual results could differ from those estimates.

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

Note 2 - Recently Issued Accounting Pronouncements

Accounting Standards Pending Adoption

Accounting Standards Adopted in 2023

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 an 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 certain loan modifications made to borrowers experiencing financial difficulty.

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

The provisions of ASU 2022-02 were effective January 1, 2023 and the Corporation adopted the provisions on a prospective basis.

Historical disclosures on TDRs were removed from this report in accordance with the provisions of this ASU.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Business Combinations - ASC 805

2 unchanged sentences

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

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

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

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

Financial Instruments - Credit Losses - ASC 326

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

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

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

ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

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

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

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The provisions of ASU 2021-08 were effective January 1, 2023 and the Corporation adopted the provisions on a prospective basis.

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

Accounting Standards Pending Adoption

There were no new accounting standards issued in 2023 that are applicable to the Corporation and pending adoption.

Note 3 - Securities

2 unchanged sentences

(Dollars in thousands)

September 30, 2022 Amortized Cost Unrealized Gains Unrealized Losses ACL

March 31, 2023 Amortized Cost Unrealized Gains Unrealized Losses ACL

Available for Sale Debt Securities:

26 unchanged sentences

Total available for sale debt securities $ 1,166,340 $ 270 ($ 172,682 ) $ — $ 993,928

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

Accrued interest receivable on available for sale debt securities totaled $ 2.7 million and $ 2.3 million, respectively, as of September 30, 2022 and December 31, 2021.

As of September 30, 2022 and December 31, 2021, securities with a fair value of $ 302.7 million and $ 332.0 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRBB, certain public deposits and for other purposes.

Accrued interest receivable on available for sale debt securities totaled $ 3.1 million as of both March 31, 2023 and December 31, 2022.

As of March 31, 2023 and December 31, 2022, securities with a fair value of $ 306.6 million and $ 294.8 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRBB, certain public deposits and for other purposes.

See Note 9 for additional disclosure on FHLB borrowings.

2 unchanged sentences

All other debt securities are included based on contractual maturities.

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.

Actual maturities may differ from amounts presented because certain issuers have the right to call or

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)

September 30, 2022 Amortized Cost Fair Value

March 31, 2023 Amortized Cost Fair Value

Due in one year or less $ 106,939 $ 92,740

7 unchanged sentences

$ 1,209,794 $ 1,054,747

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Included in the above table are debt securities with an amortized cost balance of $ 253.0 million and a fair value of $ 217.6 million at September 30, 2022 that are callable at the discretion of the issuers.

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

Included in the above table are debt securities with an amortized cost balance of $ 273.0 million and a fair value of $ 242.4 million at March 31, 2023 that are callable at the discretion of the issuers.

Final maturities of the callable securities range from 1 year to 14 years, with call features ranging from 1 month to 16 months.

Assessment of Available for Sale Debt Securities for Impairment

2 unchanged sentences

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

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 at September 30, 2022 and 2021 and, therefore there was no accrued interest related to debt securities reversed against interest income for the three and nine months ended September 30, 2022 and 2021.

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

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

September 30, 2022 # Fair

March 31, 2023 # Fair

Value Unrealized

31 unchanged sentences

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

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.

There were no debt securities on nonaccrual status at March 31, 2023 and 2022 and, therefore there was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2023 and 2022.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

As of March 31, 2023, the Corporation does not intend to sell these debt securities and has determined that it is more-likely-than-not that the Corporation would not be required to sell each security before the recovery of its amortized cost basis.

In addition, management does not believe that any of these debt securities are impaired due to reasons of credit quality.

As further described below, management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates.

As a result, there was no ACL recorded at both March 31, 2023 and December 31, 2022.

Obligations of U.S.

1 unchanged sentence

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-

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

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

government agencies and U.S.

government-sponsored enterprises.

The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at September 30, 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 allowance for credits losses on securities was recorded at September 30, 2022.

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 March 31, 2023.

Additionally, 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 September 30, 2022 were three trust preferred securities issued by three individual companies in the banking sector.

These securities in an unrealized loss position at March 31, 2023 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 September 30, 2022, there was one individual name issuer trust preferred debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 132 thousand that was rated below investment grade by S&P.

We noted no downgrades to below investment grade between September 30, 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 held in our portfolio continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers.

Management 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 ACL on securities was recorded at September 30, 2022.

As of March 31, 2023, there was one individual name issuer trust preferred debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 135 thousand that was rated below investment grade by S&P.

We noted no downgrades to below investment grade between March 31, 2023 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

Included in debt securities in an unrealized loss position at September 30, 2022 were four corporate bond holdings issued by three individual companies in the financial services industry.

These securities in an unrealized loss position at March 31, 2023 included four corporate bond holdings issued by three individual companies in the financial services industry.

As of September 30, 2022, there was one corporate bond debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 121 thousand that was rated below investment grade by S&P.

We noted no downgrades to below investment grade between September 30, 2022 and the filing date of this report.

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

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

Therefore, no ACL was recorded at September 30, 2022.

As of March 31, 2023, there was one corporate bond debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 160 thousand that was rated below investment grade by S&P.

We noted no downgrades to below investment grade between March 31, 2023 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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

1 unchanged sentence

The following table presents a summary of loans:

(Dollars in thousands) September 30,

(Dollars in thousands) March 31,

2023 December 31, 2022

15 unchanged sentences

(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 $ 1.4 million and $ 38.0 million, respectively, of PPP loans as of September 30, 2022 and December 31, 2021.

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

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

(5) Includes net unamortized loan origination costs of $ 10.7 million and $ 6.7 million, respectively, at September 30, 2022 and December 31, 2021 and net unamortized premiums on purchased loans of $ 329 thousand and $ 414 thousand, respectively, at September 30, 2022 and December 31, 2021.

Loan balances exclude accrued interest receivable of $ 14.6 million and $ 10.3 million, respectively, as of September 30, 2022 and December 31, 2021.

As of September 30, 2022 and December 31, 2021, loans amounting to $ 2.3 billion and $ 2.2 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window.

(5) Includes net unamortized loan origination costs of $ 11.9 million and $ 11.6 million, respectively, at March 31, 2023 and December 31, 2022 and net unamortized premiums on loans purchased from and serviced by other financial institutions of $ 310 thousand and $ 318 thousand, respectively, at March 31, 2023 and December 31, 2022.

Loan balances exclude accrued interest receivable of $ 19.0 million and $ 17.6 million, respectively, as of March 31, 2023 and December 31, 2022.

As of March 31, 2023 and December 31, 2022, loans amounting to $ 2.6 billion and $ 2.4 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window.

See Note 9 for additional disclosure regarding borrowings.

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,” qualified as eligible loan modifications and were not classified as TDRs.

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

Concentrations of Credit Risk

7 unchanged sentences

(Dollars in thousands) Days Past Due

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

March 31, 2023 30-59 60-89 Over 90 Total Past Due Current Total Loans

Commercial real estate

24 unchanged sentences

Total loans $ 7,364 $ 435 $ 3,779 $ 11,578 $ 5,098,561 $ 5,110,139

Included in past due loans as of September 30, 2022 and December 31, 2021, were nonaccrual loans of $ 7.1 million and $ 9.4 million, respectively.

In addition, all loans 90 days or more past due at September 30, 2022 and December 31, 2021 were classified as nonaccrual.

Included in past due loans as of March 31, 2023 and December 31, 2022, were nonaccrual loans of $ 5.6 million and $ 7.2 million, respectively.

In addition, all loans 90 days or more past due at March 31, 2023 and December 31, 2022 were classified as nonaccrual.

Nonaccrual Loans

7 unchanged sentences

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

(Dollars in thousands) Sep 30,

(Dollars in thousands) Mar 31,

Commercial real estate

7 unchanged sentences

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

No ACL was deemed necessary on nonaccrual loans with carrying values of $ 4.3 million and $ 4.2 million, respectively, as of September 30, 2022 and December 31, 2021.

Nonaccrual loans of $ 5.1 million and $ 4.8 million, respectively, at September 30, 2022 and December 31, 2021 were current as to the payment of principal and interest.

As of September 30, 2022 and December 31, 2021, nonaccrual loans secured by one- to four-family residential property amounting to $ 4.4 million and $ 1.5 million, respectively, were in process of foreclosure.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2022.

No ACL was deemed necessary on nonaccrual loans with carrying values of $ 7.1 million and $ 6.5 million, respectively, as of March 31, 2023 and December 31, 2022.

Nonaccrual loans of $ 8.3 million and $ 5.7 million, respectively, at March 31, 2023 and December 31, 2022 were current as to the payment of principal and interest.

As of March 31, 2023 and December 31, 2022, nonaccrual loans secured by one- to four-family residential property amounting to $ 763 thousand and $ 2.9 million, respectively, were in process of foreclosure.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2023.

The following table presents interest income recognized on nonaccrual loans:

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2022 2021 2022 2021

(Dollars in thousands)

Three months ended March 31, 2023 2022

Commercial real estate

$ — $ — $ — $ —

Commercial & industrial

2 unchanged sentences

Residential real estate

77 131 242 288

Total consumer 23 7

Total $ 236 $ 108

Troubled Debt Restructurings

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.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

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

Restructuring of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection.

The Corporation's ACL reflects the effects of a TDR when management reasonably expects at the reporting date that a TDR will be executed with an individual borrower.

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.

Reasonably expected TDRs and executed TDRs are evaluated individually to determine the required ACL.

TDRs that did not involve a below-market rate concession and perform in accordance with their modified contractual terms for a reasonable period of time may be included in the Corporation’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

TDRs are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan.

Loans that are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status.

Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term and full collection of principal and interest is in doubt.

TDRs are reported as such for at least one year from the date of the restructuring.

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 recorded investment in TDRs consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs.

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

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

(Dollars in thousands) Sep 30,

Accruing TDRs

$ 7,275 $ 16,564

Nonaccrual TDRs

$ 10,165 $ 19,383

Specific reserves on TDRs included in the ACL on loans

Additional commitments to lend to borrowers with TDRs

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

(Dollars in thousands) Outstanding Recorded Investment

# of Loans Pre-Modifications Post-Modifications

Three months ended September 30, 2022 2021 2022 2021 2022 2021

Commercial real estate

— — $ — $ — $ — $ —

Commercial & industrial

2 — 844 — 844 —

Total commercial 2 — 844 — 844 —

Total 2 — $ 844 $ — $ 844 $ —

Troubled Loan Modifications

As disclosed in Note 2, the Corporation adopted ASU 2022-02, which eliminated the accounting guidance for TDRs and added enhanced disclosures with respect to certain modifications for borrowers experiencing financial difficulty.

Effective January 1, 2023, a loan that has been modified is considered a troubled loan modification, or TLM, when the following conditions are met:

(1) the modification is considered a continuation of an existing loan and not a new loan in accordance

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands) Outstanding Recorded Investment

# of Loans Pre-Modifications Post-Modifications

Nine months ended September 30, 2022 2021 2022 2021 2022 2021

Commercial real estate

— — $ — $ — $ — $ —

Commercial & industrial

2 — 844 — 844 —

Total commercial 2 — 844 — 844 —

Total 2 — $ 844 $ — $ 844 $ —

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

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2022 2021 2022 2021

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

Payment deferral — — — —

Maturity / amortization concession — — — —

Interest only payments — — — —

Combination (1)

Total $ 844 $ — $ 844 $ —

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

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

(Dollars in thousands) Three Months Nine Months

# of Loans Recorded Investment # of Loans Recorded Investment

Periods ended September 30, 2022 2021 2022 2021 2022 2021 2022 2021

TDRs with a Payment Default:

Residential real estate — 1 $ — $ 330 — 1 $ — $ 330

with GAAP, (2) the modification is made to a borrower experiencing financial difficulty and (3) the modification has a direct impact to the contractual cash flows.

Modifications with direct impact to contractual cash flows are defined as:

principal forgiveness, interest rate reductions, maturity extensions, other-than-insignificant payment delays, or any combination thereof.

If each of the aforementioned criteria are met, then the modification is considered a TLM and subject to the enhanced disclosure requirements.

During the three months ended March 31, 2023, there were no TLMs.

Individually Analyzed Loans

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

As of September 30, 2022, the carrying value of individually analyzed loans amounted to $ 12.0 million, of which $ 8.3 million were considered collateral dependent.

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

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

Prior to January 1, 2023, individually analyzed loans also included TDRs.

As of March 31, 2023, individually analyzed loans amounted to $ 8.2 million, all of which were considered collateral dependent.

As of December 31, 2022, individually analyzed loans amounted to $ 10.0 million, of which $ 8.5 million were considered collateral dependent.

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

See Note 7 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) September 30, 2022 December 31, 2021

(Dollars in thousands) March 31, 2023 December 31, 2022

Carrying Value Related Allowance Carrying Value Related Allowance

10 unchanged sentences

(1) Secured by income-producing property.

(2) Secured by business assets.

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

4 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.

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

The Corporation 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.

1 unchanged sentence

Pass - Loans with acceptable credit quality, defined as ranging from superior or very strong to a status of lesser stature.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity.

10 unchanged sentences

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

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

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

7 unchanged sentences

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 FICO score and an updated estimated 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.

1 unchanged sentence

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of September 30, 2022:

The following table includes information on credit quality indicators and gross charge-offs for the Corporation’s loan portfolio, segregated by class of loans as of March 31, 2023:

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

5 unchanged sentences

94,852 556,396 416,307 180,270 196,701 454,423 9,033 1,154 1,909,136

CRE gross charge-offs

— — — — — — — — —

4,116 120,221 59,156 67,621 82,807 167,451 91,060 979 593,411

Special Mention

2 unchanged sentences

15,645 121,057 59,380 67,621 83,688 168,863 92,487 979 609,720

C&I gross charge-offs (1)

11 — — — — — — — 11

Residential Real Estate:

4 unchanged sentences

108,758 836,112 701,315 272,536 122,302 362,232 — — 2,403,255

Residential real estate gross charge-offs — — — — — — — — —

5,140 18,965 7,993 3,585 2,319 5,344 234,279 10,420 288,045

2 unchanged sentences

5,140 18,965 7,993 3,585 2,319 5,407 234,596 10,873 288,878

Home equity gross charge-offs — — — — — — — — —

1,951 4,180 4,204 1,427 217 4,764 222 — 16,965

1 unchanged sentence

1,966 4,180 4,204 1,427 217 4,764 222 — 16,980

Other gross charge-offs (1)

42 — 8 — — — — — 50

Total loans $ 226,361 $ 1,536,710 $ 1,189,199 $ 525,439 $ 405,227 $ 995,689 $ 336,338 $ 13,006 $ 5,227,969

Total gross charge-offs $ 53 $ — $ 8 $ — $ — $ — $ — $ — $ 61

(1) Gross charge-offs in 2023 represent charge-offs of business and consumer account overdraft balances.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

The following table includes information on credit quality indicators for the Corporation’s loan portfolio, segregated by class of loans as of December 31, 2022:

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

28 unchanged sentences

Note 5 - Allowance for Credit Losses on Loans

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

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

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.

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

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

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

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

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 September 30, 2022 At December 31, 2021

Residential real estate NUR & HPI

Home equity NUR & HPI

Other consumer GDP

The following table presents the activity in the ACL on loans for the three months ended September 30, 2022:

The following table presents the activity in the ACL on loans for the three months ended March 31, 2023:

(Dollars in thousands) Commercial Consumer

5 unchanged sentences

Ending Balance $ 21,374 $ 9,833 $ 31,207 $ 6,239 $ 978 $ 356 $ 1,334 $ 38,780

The following table presents the activity in the ACL on loans for the nine months ended September 30, 2022:

(Dollars in thousands) Commercial Consumer

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

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

Charge-offs — ( 19 ) ( 19 ) — — ( 103 ) ( 103 ) ( 122 )

Recoveries 145 22 167 21 4 34 38 226

Provision ( 1,467 ) ( 488 ) ( 1,955 ) ( 434 ) ( 2 ) 62 60 ( 2,329 )

Ending Balance $ 17,611 $ 10,347 $ 27,958 $ 7,447 $ 1,071 $ 387 $ 1,458 $ 36,863

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

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

(Dollars in thousands) Commercial Consumer

5 unchanged sentences

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

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

(Dollars in thousands) Commercial Consumer

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

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

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

Recoveries — 3 3 85 79 19 98 186

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

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

Note 6 - Deposits

The following table presents a summary of deposits:

(Dollars in thousands) Sep 30, 2022 Dec 31, 2021

Noninterest-bearing demand deposits $ 938,572 $ 945,229

Interest-bearing demand deposits (1)

304,275 251,032

NOW accounts 869,984 867,138

Money market accounts 1,146,826 1,072,864

Savings accounts 600,568 555,177

Time deposits (2)

1,209,632 1,288,611

Total deposits $ 5,069,857 $ 4,980,051

(1) Includes wholesale brokered demand deposit balances of $ 31,044 and $ 0 , respectively, as of September 30, 2022 and December 31, 2021.

(2) Includes wholesale brokered time deposit balances of $ 412,127 and $ 515,228 , respectively, as of September 30, 2022 and December 31, 2021.

Note 7 - Borrowings

Advances payable to the FHLB amounted to $ 700.0 million and $ 145.0 million, respectively, at September 30, 2022 and December 31, 2021.

As of September 30, 2022 and December 31, 2021, the Bank had access to a $ 40.0 million unused line of credit with the FHLB.

Additionally, the Bank had a $ 102.0 million standby letter of credit with the FHLB at September 30, 2022.

The Bank had remaining available borrowing capacity of $ 967.1 million and $ 1.6 billion, respectively, with the FHLB at September 30, 2022 and December 31, 2021.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of September 30, 2022:

(Dollars in thousands) Scheduled

Maturity Weighted

October 1, 2022 to December 31, 2022 $ 625,000 2.96 %

2023 55,000 1.92

2024 20,000 4.48

2027 and thereafter — —

Balance at September 30, 2022 $ 700,000 2.92 %

Note 8 - Shareholders' Equity

Stock Repurchase Program

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.

In the nine months ended September 30, 2022, the Corporation has repurchased 194,162 shares, at an average price of $ 48.82 and a total cost of $ 9.5 million, under its 2021 Repurchase Program.

Regulatory Capital Requirements

Capital levels at September 30, 2022 exceeded the regulatory minimum levels to be considered “well capitalized.”

Condensed Notes to Unaudited 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 Provisions

Amount Ratio Amount Ratio Amount Ratio

September 30, 2022

Total Capital (to Risk-Weighted Assets):

$ 596,341 12.65 % $ 377,111 8.00 % N/A N/A

579,854 12.30 376,991 8.00 $ 471,238 10.00 %

Tier 1 Capital (to Risk-Weighted Assets):

564,194 11.97 282,833 6.00 N/A N/A

547,707 11.62 282,743 6.00 376,991 8.00

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

542,197 11.50 212,125 4.50 N/A N/A

547,707 11.62 212,057 4.50 306,305 6.50

Tier 1 Capital (to Average Assets):

564,194 8.99 251,121 4.00 N/A N/A

547,707 8.73 250,995 4.00 313,743 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.

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

The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at September 30, 2022 and December 31, 2021.

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

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

At both September 30, 2022 and December 31, 2021, $ 22.0 million in trust preferred securities were included in the Tier 1 capital of the Corporation for regulatory capital reporting purposes pursuant to the capital adequacy guidelines of the 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 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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 6 - 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 Unaudited 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 September 30, 2022 and December 31, 2021, the Corporation had an interest rate swap contract with a total notional amount of $ 20.0 million that was designated as a cash flow hedge to hedge the interest rate risk associated with short-term variable rate FHLB advances.

As of March 31, 2023 and December 31, 2022, 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.

As of September 30, 2022 and December 31, 2021, the Corporation had an interest rate swap contract with a total notional amount of $ 300.0 million that was designated as a cash flow hedge to hedge the interest rate risk associated with a pool of variable rate commercial loans.

The interest rate swap on loans matures in May 2026.

In addition, at December 31, 2022, 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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

commercial loans.

On March 31, 2023, the Corporation terminated this interest rate swap contract and the derivative liability was derecognized.

The loss on this interest rate swap included in the AOCL component of shareholders’ equity was updated to its termination date fair value of $ 26.5 million, or $ 20.1 million after tax.

This loss will be amortized into earnings as a reduction of interest income on a straight-line basis over the remaining life of the original interest rate swap term, or through May 1, 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.

6 unchanged sentences

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

As of September 30, 2022 and December 31, 2021, Washington Trust had interest rate derivative contracts with commercial loan borrowers (predominantly interest rate swap contracts) with notional amounts of $ 962.4 million and $ 1.0 billion, respectively, and equal amounts of “mirror” contracts with third party financial institutions.

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

5 unchanged sentences

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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

As of September 30, 2022, the notional amounts of risk participation-out agreements and risk participation-in agreements were $ 66.9 million and $ 177.0 million, respectively, compared to $ 74.2 million and $ 163.2 million, respectively, as of December 31, 2021.

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 September 30, 2022, the notional amounts of interest rate lock commitments and forward sale commitments were $ 27.4 million and $ 64.1 million, respectively, compared to $ 49.8 million and $ 103.6 million, respectively, as of December 31, 2021.

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

(Dollars in thousands) Derivative Assets Derivative Liabilities

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) March 31, 2023 December 31, 2022

Fair Value Fair Value

Balance Sheet Location Sep 30, 2022 Dec 31, 2021 Balance Sheet Location Sep 30, 2022 Dec 31, 2021

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 $ 540 $ 182 Other liabilities $ 32,936 $ 5,301

Interest rate swaps (1)

$ 20,000 $ 405 $ — $ 320,000 $ 548 $ 31,178

Derivatives not Designated as Hedging Instruments:

Loan related derivative contracts:

Interest rate contracts with customers Other assets 122 32,361 Other liabilities 71,028 2,015

Mirror contracts with counterparties Other assets 70,679 2,001 Other liabilities 122 32,480

Interest rate contracts with customers 933,832 1,131 53,185 935,099 32 68,137

Mirror contracts with counterparties 933,832 52,875 1,260 935,099 67,797 61

Risk participation agreements

Other assets — 1 Other liabilities — 2

284,325 — 2 282,191 — 2

Mortgage loan commitments:

Interest rate lock commitments

Other assets 204 1,256 Other liabilities 186 —

26,489 404 — 12,201 144 4

Forward sale commitments

Other assets 1,069 54 Other liabilities 211 905

38,810 12 305 23,150 58 150

Gross amounts

4 unchanged sentences

collateral pledged (3)

— — 8,542 34,539

Net amounts $ 53,567 $ 53,492 $ 45,055 $ 68,292

(1) The fair value of derivative assets includes accrued interest receivable of $ 25 thousand and $ 24 thousand, respectively, at March 31, 2023 and December 31, 2022.

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

(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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

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

(Dollars in thousands) Gain (Loss) Recognized in

Other Comprehensive Income (Loss), Net of Tax

Three Months Nine Months

Periods ended September 30, 2022 2021 2022 2021

Three months ended March 31, 2023 2022

Derivatives Designated as Cash Flow Hedging Instruments:

4 unchanged sentences

For derivatives designated as cash flow hedging instruments, see Note 14 for additional disclosure pertaining to the amounts and location of reclassifications from AOCL into earnings.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands) Amount of Gain (Loss)

Recognized in Income on Derivatives

Three Months Nine Months

Periods ended September 30, Statement of Income Location 2022 2021 2022 2021

Recognized in Noninterest Income

Three months ended March 31, Statement of Income Location 2023 2022

Derivatives not Designated as Hedging Instruments:

1 unchanged sentence

Interest rate contracts with customers Loan related derivative income $ 11,132 ($ 40,822 )

Mirror contracts with counterparties Loan related derivative income 34,646 3,558 95,189 23,173

Mirror interest rate contracts with counterparties Loan related derivative income ( 11,171 ) 41,122

Risk participation agreements

22 unchanged sentences

Fair Value Option Election

GAAP allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

financial assets and liabilities on a contract-by-contract basis.

GAAP 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.

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

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

(Dollars in thousands) September 30,

(Dollars in thousands) March 31,

2023 December 31,

1 unchanged sentence

Aggregate principal balance

24,328 39,201

Difference between fair value and principal balance $ 150 $ 127

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

Changes in fair value amounted to decreases to mortgage banking revenues of $ 521 thousand for the three months ended September 30, 2022 and $ 1.3 million for the nine months ended September 30, 2022.

This compared to an increase to mortgage banking revenues of $ 372 thousand for the three months ended September 30, 2021 and a decrease of $ 1.1 million for the nine months ended September 30, 2021.

There were no mortgage loans held for sale 90 days or more past due as of September 30, 2022 and December 31, 2021.

Changes in fair value amounted to an increase to mortgage banking revenues of $ 24 thousand for the three months ended March 31, 2023, compared to a decrease

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

to mortgage banking revenues of $ 1.1 million for the same period in 2022.

There were no mortgage loans held for sale 90 days or more past due as of March 31, 2023 and December 31, 2022.

Valuation Techniques

3 unchanged sentences

such items are classified as Level 1.

There were no Level 1 debt securities held at September 30, 2022 and December 31, 2021.

There were no Level 1 debt securities held at March 31, 2023 and December 31, 2022.

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

3 unchanged sentences

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

There were no Level 3 debt securities held at September 30, 2022 and December 31, 2021.

There were no Level 3 debt securities held at March 31, 2023 and December 31, 2022.

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.

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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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

any fair value adjustments related to credit risk are required.

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

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

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However, the credit valuation adjustments utilize Level 3 inputs.

As of September 30, 2022 and December 31, 2021, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation.

As of March 31, 2023 and December 31, 2022, 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.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Items Recorded at Fair Value on a Recurring Basis

3 unchanged sentences

(Level 2) Significant Unobservable Inputs

September 30, 2022

March 31, 2023

Available for sale debt securities:

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Total liabilities at fair value on a recurring basis $ 53,492 $ — $ 53,492 $ —

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

19 unchanged sentences

Total liabilities at fair value on a recurring basis $ 76,008 $ — $ 76,008 $ —

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Items Recorded at Fair Value on a Nonrecurring Basis

There were no assets written down to fair value during the nine months ended September 30, 2022.

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

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

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

The following table presents the carrying value of assets held at March 31, 2023, which were written down to fair value during the three months ended March 31, 2023:

(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 $ 1,292 $ — $ — $ 1,292

Total assets at fair value on a nonrecurring basis $ 1,292 $ — $ — $ 1,292

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

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

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

(Weighted Average)

December 31, 2021

March 31, 2023

Collateral dependent individually analyzed loans $ 1,292 Appraisals of collateral Discount for costs to sell 0 % - 47 % ( 43 %)

Appraisal adjustments 0 % - 100 % ( 9 %)

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Valuation of Financial Instruments

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(Dollars in thousands)

September 30, 2022 Carrying Amount Total

March 31, 2023 Carrying Amount Total

Fair Value Quoted Prices in Active Markets for Identical Assets

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Junior subordinated debentures 22,681 18,558 — 18,558 —

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands)

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

Note 8 - Deposits

The following table presents a summary of deposits:

(Dollars in thousands) Mar 31, 2023 Dec 31, 2022

Noninterest-bearing:

Demand deposits $ 829,763 $ 858,953

Interest-bearing:

Interest-bearing demand deposits (1)

319,598 333,197

NOW accounts 828,700 871,875

Money market accounts 1,214,014 1,255,805

Savings accounts 544,604 576,250

Time deposits (2)

1,531,835 1,122,882

Total interest-bearing deposits $ 4,438,751 $ 4,160,009

Total deposits $ 5,268,514 $ 5,018,962

(1) Includes wholesale brokered demand deposit balances of $ 1,233 and $ 31,153 , respectively, as of March 31, 2023 and December 31, 2022.

(2) Includes wholesale brokered time deposit balances of $ 607,329 and $ 327,044 , respectively, as of March 31, 2023 and December 31, 2022.

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

(Dollars in thousands) Scheduled Maturity Weighted Average Rate

April 1, 2023 to December 31, 2023 $ 945,304 3.44 %

2024 386,027 3.86

2025 112,789 2.99

2026 39,901 1.98

2027 33,817 2.88

2028 and thereafter 13,997 3.68

Balance at December 31, 2023 $ 1,531,835 3.46 %

Time certificates of deposit in denominations of $250 thousand or more totaled $ 241.8 million and $ 200.9 million, respectively, at December 31, 2023 and 2022.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 11 - Revenue from Contracts with Customers

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

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

For the three months ended September 30, 2022 2021

(Dollars in thousands) Revenue (1)

ASC 606 Revenue (2)

Net interest income $ 42,042 $ — $ 36,070 $ —

Noninterest income:

Asset-based wealth management revenues

Note 9 - Borrowings

Advances payable to the FHLB amounted to $ 925.0 million and $ 980.0 million, respectively, at March 31, 2023 and December 31, 2022.

As of March 31, 2023 and December 31, 2022, 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 March 31, 2023 and 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 $ 859.6 million and $ 668.3 million, respectively, with the FHLB at March 31, 2023 and December 31, 2022.

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

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of March 31, 2023:

(Dollars in thousands) Scheduled

Maturity Weighted

April 1, 2023 to December 31, 2023 $ 665,000 4.72 %

2024 40,000 4.56

Transaction-based wealth management revenues

2025 80,000 4.29

Total wealth management revenues

2026 90,000 4.31

Mortgage banking revenues

2027 20,000 4.13

Card interchange fees

2028 and thereafter 30,000 4.12

Balance at March 31, 2023 $ 925,000 4.60 %

Note 10 - Shareholders' Equity

Stock Repurchase Program

The 2023 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 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.

During the three months ended March 31, 2023, the Corporation repurchased 200,000 shares, at an average price of $ 43.70 and a total cost of $ 8.7 million.

Regulatory Capital Requirements

Capital levels at March 31, 2023 exceeded the regulatory minimum levels to be considered “well capitalized.”

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands) Actual For Capital Adequacy Purposes To Be “Well Capitalized” Under Prompt Corrective Action Provisions

Amount Ratio Amount Ratio Amount Ratio

March 31, 2023

Total Capital (to Risk-Weighted Assets):

$ 601,662 12.01 % $ 400,831 8.00 % N/A N/A

584,596 11.67 400,723 8.00 $ 500,904 10.00 %

Service charges on deposit accounts

Tier 1 Capital (to Risk-Weighted Assets):

565,329 11.28 300,623 6.00 N/A N/A

548,263 10.95 300,542 6.00 400,723 8.00

Loan related derivative income

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

543,333 10.84 225,467 4.50 N/A N/A

548,263 10.95 225,407 4.50 325,587 6.50

Income from bank-owned life insurance

Tier 1 Capital (to Average Assets):

565,329 8.25 273,951 4.00 N/A N/A

548,263 8.01 273,868 4.00 342,336 5.00

Total noninterest income 15,803 11,947 20,520 12,703

Total revenues $ 57,845 $ 11,947 $ 56,590 $ 12,703

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

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

For the nine months ended September 30, 2022 2021

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

Revenue (1) ASC 606 Revenue (2)

Net interest income $ 114,648 $ — $ 103,695 $ —

Noninterest income:

Asset-based wealth management revenues

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

Transaction-based wealth management revenues

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

Total wealth management revenues

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

(1) Leverage ratio.

The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at March 31, 2023 and December 31, 2022.

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 March 31, 2023 and December 31, 2022, $ 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.

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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 11 - Revenue from Contracts with Customers

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

For the three months ended March 31, 2023 2022

(Dollars in thousands) Revenue (1)

ASC 606 Revenue (2)

Net interest income $ 37,193 $ — $ 35,091 $ —

Noninterest income:

Wealth management revenues 8,663 8,663 10,531 10,531

Mortgage banking revenues

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

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

Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), 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.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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 service charges assessed to customers who hold deposit accounts at the Bank.

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

(Dollars in thousands) Three Months Nine Months

Periods ended September 30, 2022 2021 2022 2021

(Dollars in thousands)

Three months ended March 31, 2023 2022

Revenue recognized at a point in time:

4 unchanged sentences

Wealth management revenues

9,525 10,455 30,122 30,778

Service charges on deposit accounts

191 142 468 401

67 63 188 156

Total revenues from contracts in scope of Topic 606 $ 10,848 $ 12,649

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

Receivables amounted to $ 5.6 million and $ 6.6 million, respectively, at September 30, 2022 and December 31, 2021 and were included in other assets in the Unaudited Consolidated Balance Sheets.

Receivables amounted to $ 6.6 million and $ 5.1 million, respectively, at March 31, 2023 and December 31, 2022 and were included in other assets in the Unaudited Consolidated Balance Sheets.

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

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

The balances of contract liabilities were insignificant at both September 30, 2022 and December 31, 2021 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.

The balances of contract liabilities were insignificant at both March 31, 2023 and December 31, 2022 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.

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

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

The carrying value of contract cost assets amounted to $ 2.0 million and $ 1.9 million, respectively, at September 30, 2022 and December 31, 2021 and were included in other assets in the Unaudited Consolidated Balance Sheets.

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

The carrying value of contract cost assets amounted to $ 2.0 million and $ 2.1 million, respectively, at March 31, 2023 and

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

December 31, 2022 and were included in other assets in the Unaudited Consolidated Balance Sheets.

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

Note 12 - Defined Benefit Pension Plans

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Pension Plan Non-Qualified Retirement Plans

Three Months Nine Months Three Months Nine Months

Periods ended September 30, 2022 2021 2022 2021 2022 2021 2022 2021

Three months ended March 31, 2023 2022 2023 2022

Net Periodic Benefit Cost:

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Recognized net actuarial loss (2)

255 531 765 1,591 173 180 519 542

Net periodic benefit cost $ 88 $ 204 $ 274 $ 333

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Qualified Pension Plan Non-Qualified Retirement Plans

For the nine months ended September 30, 2022 2021 2022 2021

For the three months ended March 31, 2023 2022 2023 2022

Measurement date Dec 31, 2022 Dec 31, 2021 Dec 31, 2022 Dec 31, 2021

Equivalent single discount rate for benefit obligations 5.54 % 3.00 % 5.50 % 2.89 %

3.00 % 2.71 % 2.89 % 2.51 %

Equivalent single discount rate for service cost 5.60 3.11 5.61 3.16

3.11 2.86 3.16 2.94

Equivalent single discount rate for interest cost 5.43 2.67 5.40 2.48

2.67 2.16 2.48 1.97

Expected long-term return on plan assets

5.25 5.75 N/A N/A

Expected long-term return on plan assets 5.25 5.25 N/A N/A

Rate of compensation increase 5.00 3.75 5.00 3.75

3.75 3.75 3.75 3.75

Note 13 - Share-Based Compensation Arrangements

The 2022 Long Term Incentive Plan was approved by the shareholders on April 26, 2022.

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.

The type 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.

On February 18, 2022, the Corporation’s Board of Directors voted that no further awards would be granted under the 2013 Plan following shareholder approval of the 2022 Long Term Incentive Plan.

During the nine months ended September 30, 2022, the Corporation granted performance share unit and restricted stock unit awards.

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

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

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

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

In addition, the Corporation granted to certain key employees and non-executive directors 10,717 restricted stock units with 3 -year cliff vesting.

The weighted average grant date fair value of the restricted stock units was $ 51.57 .

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

Three months ended September 30, 2022 2021 2022 2021 2022 2021

Three months ended March 31, 2023 2022 2023 2022 2023 2022

Net interest income (expense) $ 37,180 $ 35,108 $ 13 ($ 17 ) $ 37,193 $ 35,091

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

Nine months ended September 30, 2022 2021 2022 2021 2022 2021

Net interest income (expense) $ 114,709 $ 103,737 ($ 61 ) ($ 42 ) $ 114,648 $ 103,695

Provision for credit losses ( 2,100 ) ( 2,000 ) — — ( 2,100 ) ( 2,000 )

Net interest income (expense) after provision for credit losses 116,809 105,737 ( 61 ) ( 42 ) 116,748 105,695

Noninterest income 18,174 35,032 30,640 32,055 48,814 67,087

Noninterest expenses:

Depreciation and amortization expense 2,168 2,105 1,034 1,118 3,202 3,223

Other noninterest expenses 69,110 74,425 23,051 22,597 92,161 97,022

Total noninterest expenses 71,278 76,530 24,085 23,715 95,363 100,245

Income before income taxes 63,705 64,239 6,494 8,298 70,199 72,537

Income tax expense 13,423 13,810 1,668 2,045 15,091 15,855

Net income $ 50,282 $ 50,429 $ 4,826 $ 6,253 $ 55,108 $ 56,682

Total assets at period end $ 6,332,986 $ 5,929,230 $ 75,065 $ 73,413 $ 6,408,051 $ 6,002,643

Expenditures for long-lived assets 3,494 2,027 330 139 3,824 2,166

Note 14 - Other Comprehensive Income (Loss)

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

Three months ended September 30, 2022 2021

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

Securities available for sale:

Change in fair value of available for sale debt securities ($ 61,931 ) ($ 14,864 ) ($ 47,067 ) ($ 4,127 ) ($ 990 ) ($ 3,137 )

Cash flow hedges:

Change in fair value of cash flow hedges

( 10,250 ) ( 2,460 ) ( 7,790 ) ( 288 ) ( 69 ) ( 219 )

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

1,075 258 817 ( 243 ) ( 59 ) ( 184 )

Net change in fair value of cash flow hedges ( 9,175 ) ( 2,202 ) ( 6,973 ) ( 531 ) ( 128 ) ( 403 )

Defined benefit plan obligations:

Amortization of net actuarial losses (2)

428 102 326 711 171 540

Total other comprehensive loss ($ 70,678 ) ($ 16,964 ) ($ 53,714 ) ($ 3,947 ) ($ 947 ) ($ 3,000 )

(1) The pre-tax amounts are included in interest and fees on loans and FHLB interest expense in the Unaudited Consolidated Statements of Income.

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Nine months ended September 30, 2022 2021

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

Securities available for sale:

The following table presents the activity in other comprehensive income (loss):

Three months ended March 31, 2023 2022

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

Available for Sale Debt Securities:

Change in fair value of available for sale debt securities $ 17,365 ($ 4,167 ) $ 13,198 ($ 65,078 ) $ 15,618 ($ 49,460 )

1 unchanged sentence

Change in fair value of cash flow hedges 1,046 ( 251 ) 795 ( 13,201 ) 3,168 ( 10,033 )

( 27,394 ) ( 6,574 ) ( 20,820 ) ( 21 ) ( 5 ) ( 16 )

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

4 unchanged sentences

59 ( 14 ) 45 428 ( 103 ) 325

Total other comprehensive loss ($ 199,703 ) ($ 47,929 ) ($ 151,774 ) ($ 14,127 ) ($ 3,390 ) ($ 10,737 )

(1) The pre-tax amounts are included in interest and fees on loans and FHLB interest expense in the Unaudited Consolidated Statements of Income.

Total other comprehensive income (loss) $ 21,106 ($ 5,066 ) $ 16,040 ($ 78,250 ) $ 18,780 ($ 59,470 )

(1) For the three months ended March 31, 2023 and 2022, the pre-tax amounts reclassified into earnings in the Unaudited Consolidated Statements of Income include a reduction of $ 2.8 million and an increase of $ 493 thousand, respectively, in interest and fees on loans, as well as a reduction of $ 127 thousand and an increase of $ 94 thousand, respectively, in FHLB interest expense.

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

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

The following tables present the changes in 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

For the three months ended September 30, 2022

Balance at June 30, 2022 ($ 92,197 ) ($ 17,321 ) ($ 8,523 ) ($ 118,041 )

Other comprehensive loss before reclassifications ( 47,067 ) ( 7,790 ) — ( 54,857 )

For the three months ended March 31, 2023

Balance at December 31, 2022 ($ 131,033 ) ($ 22,645 ) ($ 4,122 ) ($ 157,800 )

Other comprehensive income before reclassifications 13,198 795 — 13,993

Amounts reclassified from accumulated other comprehensive loss — 2,002 45 2,047

Net other comprehensive (loss) income ( 47,067 ) ( 6,973 ) 326 ( 53,714 )

Balance at September 30, 2022 ($ 139,264 ) ($ 24,294 ) ($ 8,197 ) ($ 171,755 )

Net other comprehensive income 13,198 2,797 45 16,040

Balance at March 31, 2023 ($ 117,835 ) ($ 19,848 ) ($ 4,077 ) ($ 141,760 )

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

For the nine months ended September 30, 2022

For the three months ended March 31, 2022

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

2 unchanged sentences

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

Balance at September 30, 2022 ($ 139,264 ) ($ 24,294 ) ($ 8,197 ) ($ 171,755 )

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

For the three months ended September 30, 2021

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

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

Amounts reclassified from accumulated other comprehensive income (loss) — ( 184 ) 540 356

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

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

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

For the nine months ended September 30, 2021

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

Other comprehensive income (loss) before reclassifications

( 12,322 ) ( 16 ) — ( 12,338 )

Amounts reclassified from accumulated other comprehensive income (loss) — ( 20 ) 1,621 1,601

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

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

Note 15 - 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)

Three Months Nine Months

Periods ended September 30, 2022 2021 2022 2021

Three months ended March 31, 2023 2022

Earnings for basic and diluted earnings per common share:

2 unchanged sentences

Net income available to common shareholders $ 12,783 $ 16,429

Weighted average common shares

17,174 17,320 17,269 17,303

Weighted average common shares outstanding 17,074 17,331

Dilutive effect of common stock equivalents

124 124 120 148

Weighted average diluted common shares 17,298 17,444 17,389 17,451

Weighted average diluted common shares outstanding 17,170 17,482

Earnings per common share:

1 unchanged sentence

Diluted earnings per common share $ 0.74 $ 0.94

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 137,886 and 140,777 , respectively, for the three and nine months ended September 30, 2022, compared to 148,542 and 149,675 , respectively, for the same periods in 2021.

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 303,982 for the three months ended March 31, 2023, compared to 94,175 for the same period in 2022.

Note 16 - Commitments and Contingencies

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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 $ 9.9 million and $ 11.8 million, respectively, as of September 30, 2022 and December 31, 2021.

At September 30, 2022 and December 31, 2021, there were no liabilities to beneficiaries resulting from standby letters of credit.

Fee income on standby letters of credit was insignificant for the three and nine months ended September 30, 2022 and 2021.

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.

At March 31, 2023 and December 31, 2022, there were no liabilities to beneficiaries resulting from standby letters of credit.

Should the Corporation be required to make payments to the beneficiary, repayment from the customer to the Corporation is required.

2 unchanged sentences

Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale.

To mitigate the interest rate risk and pricing risk associated with these rate locks and mortgage loans held for sale, the Corporation enters into forward sale commitments.

To mitigate the interest rate risk and pricing risk associated with these rate locks and mortgage loans held for sale, the

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Corporation enters into forward sale commitments.

Both interest rate lock commitments and forward sale commitments are derivative financial instruments.

2 unchanged sentences

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

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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.

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

(Dollars in thousands) Sep 30,

(Dollars in thousands) Mar 31,

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

Commitments to extend credit:

Commercial loans

$ 1,409,788 $ 1,308,873

Home equity lines

418,413 367,784

144,584 122,492

Standby letters of credit 9,696 9,028

7 unchanged sentences

Interest rate contracts with customers 933,832 935,099

Mirror contracts with counterparties 962,381 1,022,388

Mirror interest rate contracts with counterparties 933,832 935,099

Risk participation-in agreements

5 unchanged sentences

ACL on Unfunded Commitments

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

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.

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

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

The activity in the ACL on unfunded commitments for the three months ended September 30, 2022 is presented below:

(Dollars in thousands) Commercial Consumer

Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

Beginning Balance $ 1,279 $ 834 $ 2,113 $ 58 $ — $ 19 $ 19 $ 2,190

Provision 185 25 210 ( 8 ) — ( 2 ) ( 2 ) 200

Ending Balance $ 1,464 $ 859 $ 2,323 $ 50 $ — $ 17 $ 17 $ 2,390

Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The activity in the ACL on unfunded commitments for the nine months ended September 30, 2022 is presented below:

(Dollars in thousands) Commercial Consumer

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

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

Provision 197 43 240 ( 12 ) — 1 1 229

Ending Balance $ 1,464 $ 859 $ 2,323 $ 50 $ — $ 17 $ 17 $ 2,390

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

The activity in the ACL on unfunded commitments for the three months ended March 31, 2023 is presented below:

(Dollars in thousands) Commercial Consumer

3 unchanged sentences

Ending Balance $ 1,368 $ 883 $ 2,251 $ 25 $ — $ 14 $ 14 $ 2,290

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

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

(Dollars in thousands) Commercial Consumer

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

Total Commercial Residential Real Estate Home Equity Other Total Consumer Total

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

6 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-Q

Item 1. Financial Statements