What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 308 added, 238 removed, 734 unchanged (43% of the section changed)

1 unchanged sentence

The following discussion should be read in conjunction with the Corporation’s Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023, and in conjunction with the condensed Unaudited Consolidated Financial Statements and notes thereto included in Item 1 of this report.

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results for the full-year ended December 31, 2024 or any future period.

Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results for the full-year ended December 31, 2024 or any future period.

Forward-Looking Statements

30 unchanged sentences

In January 2024, we opened a new full-service branch in Smithfield, Rhode Island.

In addition, we plan to open another branch in the Olneyville section of Providence later in 2024.

In addition, we plan to open another branch in the Olneyville section of Providence in the third quarter of 2024.

Risk Management

43 unchanged sentences

The following table presents a summarized consolidated statement of operations:

(Dollars in thousands)

Three months ended March 31, 2024 2023 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2024 2023 $ % 2024 2023 $ %

Net interest income $31,585 $33,500 ($1,915) (6 %) $63,250 $70,693 ($7,443) (11 %)

7 unchanged sentences

The following table presents a summary of performance metrics and ratios:

Three months ended March 31, 2024 2023

Three Months Six Months

Periods ended June 30, 2024 2023 2024 2023

Diluted earnings per common share $0.63 $0.66 $1.27 $1.41

4 unchanged sentences

Noninterest income as a percentage of total revenues 35 % 30 % 35 % 28 %

Net income totaled $10.9 million for the three months ended March 31, 2024, down by 15%, from the $12.8 million reported for the same period in 2023.

Results in 2024 largely reflected lower net interest income, partially offset by higher noninterest income.

Net income totaled $10.8 million and $21.8 million, respectively, for the three and six months ended June 30, 2024, compared to $11.3 million and $24.1 million, respectively, reported for the same periods in 2023.

Results in 2024 largely reflected lower net interest income, higher noninterest income, stable asset and credit quality metrics, and modestly higher total noninterest expenses.

The decline in net interest income in 2024 was driven by higher rates paid on, and increases in, average interest-bearing liability balances, which offset the benefit of higher yields on, and growth in, average interest-earning asset balances.

Noninterest income benefited from a $2.1 litigation settlement received in the first quarter of 2024, as well as higher mortgage banking revenues and wealth management revenues.

There was a modest decline in the provision for credit losses in 2024 as compared to the same period in 2023.

The increase in noninterest expenses largely reflected an increase in FDIC deposit insurance costs.

Noninterest income benefited from a $2.1 litigation settlement received in the first quarter of 2024, a net gain of $988 thousand recognized on the sale of a bank-owned operations facility in the second quarter of 2024, as well as higher mortgage banking revenues and wealth management revenues.

Management's Discussion and Analysis

Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis

The following table presents average balance and interest rate information.

The following tables present daily average balance, interest, and yield/rate information, as well as net interest margin on an FTE basis.

Tax-exempt income is converted to an FTE basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit.

1 unchanged sentence

Nonaccrual loans, as well as interest recognized on these loans, are included in amounts presented for loans.

Three months ended March 31, 2024 2023 Change

Three months ended June 30, 2024 2023 Change

(Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

5 unchanged sentences

Commercial & industrial (1)

Total commercial

602,786 9,837 6.56 615,101 9,458 6.17 (12,315) 379 0.39

Total commercial 2,770,571 44,544 6.47 2,543,562 38,258 6.03 227,009 6,286 0.44

Residential real estate 2,569,945 26,473 4.14 2,448,204 23,137 3.79 121,741 3,336 0.35

34 unchanged sentences

Net interest margin 1.83 2.03 (0.20)

(1) Interest income includes adjustments for taxable equivalency of $227 and $235, respectively, for the three months ended June 30, 2024 and 2023.

Management's Discussion and Analysis

Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency:

(Dollars in thousands)

Three months ended March 31, 2024 2023 Change

Commercial loans $223 $228 ($5)

Six months ended June 30, 2024 2023 Change

(Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

Cash, federal funds sold, and short-term investments $87,964 $2,493 5.70 $106,253 $2,349 4.46 ($18,289) $144 1.24

Mortgage loans held for sale 19,103 647 6.81 15,905 393 4.98 3,198 254 1.83

Taxable debt securities 1,138,013 14,040 2.48 1,197,935 14,597 2.46 (59,922) (557) 0.02

FHLB stock 57,106 2,197 7.74 44,952 1,455 6.53 12,154 742 1.21

Commercial real estate 2,154,336 68,927 6.43 1,894,087 54,100 5.76 260,249 14,827 0.67

Commercial & industrial (1)

606,766 19,728 6.54 622,896 18,528 6.00 (16,130) 1,200 0.54

Total commercial 2,761,102 88,655 6.46 2,516,983 72,628 5.82 244,119 16,027 0.64

Residential real estate 2,581,357 53,004 4.13 2,400,997 44,801 3.76 180,360 8,203 0.37

Home equity 308,467 10,215 6.66 289,288 7,841 5.47 19,179 2,374 1.19

Other 18,744 451 4.84 17,110 391 4.61 1,634 60 0.23

Total consumer 327,211 10,666 6.56 306,398 8,232 5.42 20,813 2,434 1.14

Total loans 5,669,670 152,325 5.40 5,224,378 125,661 4.85 445,292 26,664 0.55

Total interest-earning assets 6,971,856 171,702 4.95 6,589,423 144,455 4.42 382,433 27,247 0.53

Noninterest-earning assets 257,800 252,733 5,067

Total assets $7,229,656 $6,842,156 $387,500

Liabilities and Shareholders’ Equity:

Interest-bearing demand deposits (in-market) $521,495 $11,770 4.54 $346,255 $6,728 3.92 $175,240 $5,042 0.62

NOW accounts 716,896 764 0.21 801,296 758 0.19 (84,400) 6 0.02

Money market accounts 1,113,962 21,351 3.85 1,226,303 16,878 2.78 (112,341) 4,473 1.07

Savings accounts 486,472 1,554 0.64 544,159 636 0.24 (57,687) 918 0.40

Time deposits (in-market) 1,153,702 23,522 4.10 915,898 12,537 2.76 237,804 10,985 1.34

Interest-bearing in-market deposits 3,992,527 58,961 2.97 3,833,911 37,537 1.97 158,616 21,424 1.00

Wholesale brokered demand deposits — — — 8,097 177 4.41 (8,097) (177) (4.41)

Wholesale brokered time deposits 608,514 15,799 5.22 539,333 11,579 4.33 69,181 4,220 0.89

Wholesale brokered deposits 608,514 15,799 5.22 547,430 11,756 4.33 61,084 4,043 0.89

Total interest-bearing deposits 4,601,041 74,760 3.27 4,381,341 49,293 2.27 219,700 25,467 1.00

FHLB advances 1,318,544 32,434 4.95 1,011,768 23,278 4.64 306,776 9,156 0.31

Junior subordinated debentures 22,681 809 7.17 22,681 728 6.47 — 81 0.70

Total interest-bearing liabilities 5,942,266 108,003 3.66 5,415,790 73,299 2.73 526,476 34,704 0.93

Noninterest-bearing demand deposits 658,423 802,506 (144,083)

Other liabilities 162,939 160,677 2,262

Shareholders’ equity 466,028 463,183 2,845

Total liabilities and shareholders’ equity $7,229,656 $6,842,156 $387,500

Net interest income (FTE)

$63,699 $71,156 ($7,457)

Interest rate spread 1.29 1.69 (0.40)

Net interest margin 1.84 2.18 (0.34)

(1) Interest income includes adjustments for taxable equivalency of $449 and $463, respectively, for the six months ended June 30, 2024 and 2023.

Net Interest Income

Net interest income, the primary source of our operating income, totaled $31.7 million for the three months ended March 31, 2024, compared to $37.2 million for the same period in 2023.

Net interest income, the primary source of our operating income, totaled $31.6 million and $63.3 million, respectively, for the three and six months ended June 30, 2024, compared to $33.5 million and $70.7 million, respectively, for the same periods in 2023.

Net interest income is affected by the level of and changes in interest rates, and changes in the amount and composition of interest-earning assets and interest-bearing liabilities.

Prepayment penalty income associated with loan payoffs is included in net interest income.

Management's Discussion and Analysis

The following discussion presents net interest income on an FTE basis by adjusting income and yields on tax-exempt loans to be comparable to taxable loans.

Net interest income includes the periodic recognition of prepayment penalty fee income associated with commercial loan payoffs.

Prepayment penalty fee income amounted to $20 thousand and $124 thousand, respectively, for the three months ended March 31, 2024 and 2023, and had no basis point benefit to NIM in either period.

Prepayment penalty fee income amounted to $46 thousand and $66 thousand, respectively, for the three and six months ended June 30, 2024, and had essentially no benefit to NIM in either period.

This compared to $50 thousand and $174 thousand, respectively, for the same periods in 2023, which had a 1 basis point benefit to NIM in each of those periods.

The analysis of net interest income, NIM, and the yield on loans is also impacted by changes in the level of net amortization of premiums and discounts on securities and loans, which is included in interest income.

2 unchanged sentences

Changes in prepayment speeds could increase or decrease the level of net amortization of premiums and discounts, thereby affecting interest income.

As noted in the Unaudited Consolidated Statements of Cash Flows, net amortization of premiums and discounts on securities and loans (a net reduction to net interest income) amounted to $265 thousand for the three months ended March 31, 2024, compared to $324 thousand for the same period in 2023.

FTE net interest income for the three months ended March 31, 2024 amounted to $31.9 million, down by $5.5 million, or 15%, from the same period in 2023.

For the three months ended March 31, 2024, increases in average interest-bearing liability balances, net of increased average interest-earning assets, reduced net income by $2.7 million.

Increases in funding costs outpaced increases in asset yields, reducing net interest income by $2.8 million for the three months ended March 31, 2024.

NIM was 1.84% for the three months ended March 31, 2024, compared to 2.33% for the same period in 2023.

As noted in the Unaudited Consolidated Statements of Cash Flows, net amortization of premiums and discounts on securities and loans (a net reduction to net interest income) amounted to $573 thousand for the six months ended June 30, 2024, compared to $707 thousand for the same period in 2023.

FTE net interest income for the three and six months ended June 30, 2024 amounted to $31.8 million and $63.7 million, respectively, down by $1.9 million and $7.5 million, respectively, from the same periods in 2023.

For the three and six months ended June 30, 2024, increases in average interest-bearing liability balances, net of increased average interest-earning assets, reduced net income by $1.0 million, and $3.9 million, respectively.

Increases in funding costs outpaced increases in asset yields, reducing net interest income by $916 thousand and $3.6 million, respectively, for the three and six months ended June 30, 2024.

NIM was 1.83% and 1.84%, respectively, for the three and six months ended June 30, 2024, compared to 2.03% and 2.18%, respectively, for the same periods in 2023.

While NIM benefited from higher market interest rates on loans, it was adversely impacted by a higher cost of funds.

Total average securities for the three months ended March 31, 2024 decreased by $47.4 million, or 4%, from the average balances for the same period a year earlier primarily due to routine pay-downs.

The FTE rate of return on the securities portfolio for the three months ended March 31, 2024 was 2.49%, compared to 2.44% for the same period in 2023.

Total average loan balances for the three months ended March 31, 2024 increased by $527.6 million, or 10%, from the average loan balances for the comparable 2023 period, largely reflecting growth in average balances of CRE and residential real estate loans.

The yield on total loans for the three months ended March 31, 2024 was 5.38%, compared to 4.73% in the corresponding period in 2023.

Total average securities for the three and six months ended June 30, 2024 decreased by $72.4 million and $59.9 million, respectively, from the average balances for the same periods a year earlier primarily due to routine pay-downs.

The FTE rate of return on the securities portfolio for the three and six months ended June 30, 2024 was 2.47% and 2.48%, respectively, compared to 2.47% and 2.46% respectively, for the same periods in 2023.

Total average loan balances for the three and six months ended June 30, 2024 increased by $363.8 million and $445.3 million, respectively, from the average loan balances for the comparable 2023 periods, largely reflecting growth in average balances of CRE and residential real estate loans.

The yield on total loans for the three and six months ended June 30, 2024 was 5.43% and 5.40%, respectively, compared to 4.97% and 4.85%, respectively, in the corresponding periods in 2023, reflecting higher market interest rates.

Higher levels of wholesale funding were used to fund balance sheet growth.

The average balance of FHLB advances for the three months ended March 31, 2024 increased by $195.9 million, or 19%, compared to the average balance for the same period in 2023.

Due to increases in market interest rates, the average rate paid on such advances for the three months ended March 31, 2024 was 4.91%, up 39 basis points from 4.52% for the same period in 2023.

Included in total average interest-bearing deposits were wholesale brokered deposits, which increased by $256.3 million, or 58%, from the same period in 2023.

The average rate paid on wholesale brokered deposits for the three months ended March 31, 2024 was 5.22%, up by 145 basis points from 3.77% for the same period in 2023.

Management's Discussion and Analysis

The average balance of FHLB advances for the three and six months ended June 30, 2024 increased by $417.3 million and $306.8 million, respectively, compared to the average balances for the same periods in 2023.

Due to increases in market interest rates, the average rate paid on such advances for the three and six months ended June 30, 2024 was 4.98% and 4.95%, respectively, up from 4.77% and 4.64%, respectively, for the same periods in 2023.

Included in total average interest-bearing deposits were wholesale brokered deposits, which decreased by $133.0 million and increased by $61.1 million, respectively, from the same periods in 2023.

The average rate paid on wholesale brokered deposits for the three and six months ended June 30, 2024 was 5.23% and 5.22%, respectively, up from 4.71% and 4.33%, respectively, for the same periods in 2023.

As market interest rates rose, deposit balances shifted from lower-cost deposits to higher-cost deposits.

Average in-market interest-bearing deposits, which excludes wholesale brokered deposits, for the three months ended March 31, 2024 increased by $204.7 million, or 5%, from the average balances for the same period in 2023, with increases in time deposits and interest-bearing demand deposits.

The average rate paid on in-market interest-bearing deposits for the three months ended March 31, 2024 was 2.93%, up by 127 basis points from 1.66% for the same period in 2023.

The average balance of noninterest-bearing demand deposits for the three months ended March 31, 2024 decreased by $170.6 million from the average balances for the same period in 2023.

Average in-market interest-bearing deposits, which excludes wholesale brokered deposits, for the three and six months ended June 30, 2024 increased by $113.2 million and $158.6 million, respectively, from the average balances for the same periods in 2023, with increases in time deposits and interest-bearing demand deposits.

The average rate paid on in-market interest-bearing deposits for the three and six months ended June 30, 2024 was 3.01% and 2.97%, respectively, up from 2.27% and 1.97%, respectively, for the same periods in 2023.

The average balance of noninterest-bearing demand deposits for the three and six months ended June 30, 2024 decreased by $117.9 million and $144.1 million, respectively, from the average balances for the same periods in 2023.

Management's Discussion and Analysis

Volume / Rate Analysis - Interest Income and Expense (FTE Basis)

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The net change attributable to both volume and rate has been allocated proportionately.

(Dollars in thousands) Three Months Ended March 31, 2024 vs.

Change Due to

Volume Rate Net Change

(Dollars in thousands) Three Months Ended June 30, 2024 vs.

2023 Six Months Ended June 30, 2024 vs.

Change Due to Change Due to

Volume Rate Net Change Volume Rate Net Change

Interest on Interest-Earning Assets:

2 unchanged sentences

Taxable debt securities (439) (20) (459) (719) 162 (557)

309 (43) 266 437 305 742

Commercial real estate 3,735 2,172 5,907 7,933 6,894 14,827

27 unchanged sentences

The provision for credit losses results from management’s review of the adequacy of the ACL.

The ACL is management’s

Management's Discussion and Analysis

estimate, at the reporting date, of expected lifetime credit losses and includes consideration of current forecasted economic conditions.

The ACL is management’s estimate, at the reporting date, of expected lifetime credit losses and includes consideration of current forecasted economic conditions.

Estimating an appropriate level of ACL necessarily involves a high degree of judgment.

Management's Discussion and Analysis

The following table presents the provision for credit losses:

(Dollars in thousands)

Three months ended March 31, 2024 2023 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2024 2023 $ % 2024 2023 $ %

Provision for credit losses on loans $500 $600 ($100) (17 %) $1,400 $1,400 $— — %

1 unchanged sentence

Provision for credit losses $500 $700 ($200) (29 %) $1,200 $1,500 ($300) (20 %)

The provisions recognized provided for loan growth and were reflective of continued slowdown of loan prepayment speeds and estimated forecasted economic conditions.

The provision recognized in 2023 also included modest additional reserve allocation for commercial loans migrating to nonaccrual status.

Net charge-offs totaled $52 thousand for the three months ended March 31, 2024, compared to net charge-offs of $47 thousand for the same period in 2023.

The ACL on loans was $41.9 million, or 0.74% of total loans, at March 31, 2024, compared to $41.1 million, or 0.73% of total loans, at December 31, 2023.

The provision for credit losses recognized in 2024 reflected continued, yet subsiding, slowdown of loan prepayment speeds, modest commercial loan growth and was partially offset by improvements in our estimate of forecasted economic conditions.

Additionally, as discussed further in the section labeled “Financial Condition,” the modest commercial loan growth was offset by reductions in residential real estate and consumer loans.

The reduction in the provision for credit losses in 2024 includes a decline in the provision for credit losses on unfunded commitments reflecting lower unfunded commitments to extend credit.

Net charge-offs totaled $27 thousand for the three months ended June 30, 2024, compared to net charge-offs of $37 thousand for the same period in 2023.

For the six months ended June 30, 2024, net charge-offs totaled $79 thousand, compared to net charge-offs of $84 thousand for the same period in 2023.

The ACL on loans was $42.4 million, or 0.75% of total loans, at June 30, 2024, compared to $41.1 million, or 0.73% of total loans, at December 31, 2023.

See additional discussion under the caption “Asset Quality” for further information on asset quality metrics and the ACL on loans.

2 unchanged sentences

The principal categories of noninterest income are shown in the following table:

(Dollars in thousands)

Three months ended March 31, 2024 2023 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2024 2023 $ % 2024 2023 $ %

Noninterest income:

11 unchanged sentences

Noninterest Income Analysis

Revenue from wealth management services represented 54% of total noninterest income for the three months ended March 31, 2024, compared to 65% for the same period in 2023.

Revenue from wealth management services represented 56% of total noninterest income for the six months ended June 30, 2024, compared to 64% for the same period in 2023.

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

3 unchanged sentences

The categories of wealth management revenues are shown in the following table:

(Dollars in thousands)

Three months ended March 31, 2024 2023 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2024 2023 $ % 2024 2023 $ %

Wealth management revenues:

2 unchanged sentences

Total wealth management revenues $9,678 $9,048 $630 7 % $19,016 $17,711 $1,305 7 %

Wealth management revenues for the three months ended March 31, 2024 increased by $675 thousand, or 8%, from the same period in 2023, reflecting an increase in asset-based revenues.

Wealth management revenues for the three and six months ended June 30, 2024 increased by $630 thousand and $1.3 million, respectively, from the same periods in 2023, reflecting an increase in asset-based revenues.

The change in asset-based revenues correlated with the change in average AUA balances.

The average balance of AUA for the three months ended March 31, 2024 increased by 10% from the average balance for the same period in 2023.

The end of period AUA balance amounted to $6.9 billion at March 31, 2024, up by $269.9 million, or 4%, from the end of 2023, reflecting net investment appreciation and income.

The average balance of AUA for the three and six months ended June 30, 2024 increased by 9%, from the average balance for both the same periods in 2023.

The end of period AUA balance amounted to $6.8 billion at June 30, 2024.

The following table presents the changes in wealth management AUA balances:

(Dollars in thousands)

Three months ended March 31, 2024 2023

Three Months Six Months

Periods ended June 30, 2024 2023 2024 2023

Wealth management assets under administration:

1 unchanged sentence

Net investment appreciation & income 108,529 259,788 472,773 546,050

Net client asset (outflows) inflows (94,328) (84,830)

Net client asset outflows (163,360) (72,950) (257,688) (157,780)

Balance at the end of period $6,803,491 $6,350,260 $6,803,491 $6,350,260

Mortgage banking revenues represented 15% of total noninterest income for three months ended March 31, 2024, compared to 9% for the same period in 2023.

Mortgage banking revenues represented 16% of total noninterest income for six months ended June 30, 2024, compared to 11% for the same period in 2023.

These revenues are dependent on mortgage origination volume and are sensitive to interest rates and the condition of housing markets.

1 unchanged sentence

The composition of mortgage banking revenues and the volume of loans sold to the secondary market are shown in the following table:

(Dollars in thousands)

Three months ended March 31, 2024 2023 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2024 2023 $ % 2024 2023 $ %

Mortgage banking revenues:

4 unchanged sentences

Loan servicing fee income, net (3)

536 544 (8) (1) 1,132 1,127 5 —

Total mortgage banking revenues $2,761 $1,753 $1,008 58 % $5,267 $2,998 $2,269 76 %

5 unchanged sentences

(4) Includes brokered loans (loans originated for others).

For the three months ended March 31, 2024, mortgage banking revenues were up by $1.3 million, or 101%, compared to the same period in 2023.

The increase in mortgage banking revenues was mainly attributable to increases in both sales volume

For the three and six months ended June 30, 2024, mortgage banking revenues were up by $1.0 million and $2.3 million, respectively, compared to the same periods in 2023.

The increase in mortgage banking revenues was mainly attributable to

Management's Discussion and Analysis

and sales yield.

increases in both sales volume and sales yield.

Mortgage banking revenues are also impacted by changes in the fair value of mortgage loans held for sale and forward loan commitments, which are primarily based on current market prices in the secondary market and correlate to changes in the size of the mortgage pipeline.

For the three months ended March 31, 2024, loan related derivative income increased by $335 thousand, or 657%, from the same period in 2023, reflecting an increase in volume.

Income from BOLI for the three months ended March 31, 2024, was down by $426 thousand, or 37%, from the same period in 2023, reflecting the recognition of $476 thousand in non-taxable income in the first quarter of 2023 associated with the receipt of life insurance proceeds.

Other income for the three months ended March 31, 2024 was up by $2.1 million, or 601%, from the same period in 2023, due to the receipt of $2.1 million in the first quarter of 2024 associated with a litigation settlement.

Income from BOLI for the six months ended June 30, 2024, was down by $552 thousand, from the same period in 2023, reflecting the recognition of $658 thousand in non-taxable income in 2023 associated with the receipt of life insurance proceeds.

Other income for the three and six months ended June 30, 2024 was up by $912 thousand and $3.0 million, respectively, from the same periods in 2023.

Included in other income in 2024 was a net gain of $988 thousand recognized on the sale of a bank-owned operations facility in the second quarter and $2.1 million associated with a litigation settlement in the first quarter.

Excluding the impact of these items, other income for the three and six months ended June 30, 2024 was down modestly by $76 thousand and $62 thousand, respectively, from the same periods in 2023.

Noninterest Expense

The following table presents noninterest expense comparisons:

(Dollars in thousands)

Three months ended March 31, 2024 2023 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2024 2023 $ % 2024 2023 $ %

Noninterest expense:

11 unchanged sentences

Noninterest Expense Analysis

Salaries and employee benefits expense, the largest component of noninterest expense, for the three months ended March 31, 2024 was essentially unchanged compared to the same period in 2023.

Outsourced services expense for the three months ended March 31, 2024, increased by $284 thousand, or 8%, compared to the same period in the prior year, largely reflecting higher third-party costs and volume-related increases.

FDIC deposit insurance costs for the three months ended March 31, 2024 increased by $569 thousand, or 65%, compared to the same period in 2023, reflecting the impact of growth in assets and a higher FDIC deposit assessment rate.

Salaries and employee benefits expense, the largest component of noninterest expense, for the three and six months ended June 30, 2024 increased by $672 thousand and $663 thousand, respectively, compared to the same periods in 2023.

This largely reflected timing of adjustments to performance-based compensation accruals.

The year-to-date increase also includes merit increases, partially offset by lower staffing levels.

Outsourced services expense for the three and six months ended June 30, 2024 increased by $475 thousand and $759 thousand, respectively, compared to the same periods in the prior year, reflecting changes to and expansion of services provided by third-party vendors.

Legal, audit and professional fees for the three and six months ended June 30, 2024 decreased by $237 thousand and $427 thousand, respectively, compared to the same periods in 2023, reflecting lower legal fees.

FDIC deposit insurance costs for the six months ended June 30, 2024 increased by $602 thousand compared to the same period in 2023, reflecting the impact of growth in assets from a year ago and a higher FDIC deposit assessment rate.

Advertising and promotion expense for the three and six months ended June 30, 2024 increased by $234 thousand and $374 thousand, respectively, due to timing of such activities.

Management's Discussion and Analysis

The following table presents the Corporation’s income tax provision and applicable tax rates for the periods indicated:

(Dollars in thousands)

Three months ended March 31, 2024 2023

Three Months Six Months

Periods ended June 30, 2024 2023 2024 2023

Income tax expense $3,020 $2,853 $5,849 $6,153

Effective income tax rate 21.8 % 20.2 % 21.2 % 20.4 %

Management's Discussion and Analysis

The effective income tax rates for the three months ended March 31, 2024 and 2023 differed from the federal rate of 21%, primarily due to the benefits of tax-exempt income, income from BOLI, and federal tax credits, partially offset by state income tax expense.

The Corporation’s net deferred tax assets amounted to $56.6 million at March 31, 2024, compared to $53.8 million at December 31, 2023.

Net deferred tax assets increased in 2024, largely reflecting increases in deferred tax assets associated with a decline in fair value of securities available for sale due to changes in market interest rates.

The effective income tax rates in the table above differed from the federal rate of 21%, primarily due to state income tax expense and tax benefits related to income from BOLI, federal tax credits, and tax-exempt income.

The effective income tax rates for the three and six months ended June 30, 2024 were higher as compared to the same periods in 2023, primarily due to discrete tax items associated with the settlement of equity compensation awards and BOLI.

The Corporation’s net deferred tax assets amounted to $55.9 million at June 30, 2024, compared to $53.8 million at December 31, 2023.

Segment Reporting

3 unchanged sentences

The following table presents a summarized statement of operations for the Commercial Banking business segment:

(Dollars in thousands)

Three months ended March 31, 2024 2023 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2024 2023 $ % 2024 2023 $ %

Net interest income $31,585 $33,486 ($1,901) (6 %) $63,250 $70,666 ($7,416) (10 %)

7 unchanged sentences

Net income $8,475 $10,103 ($1,628) (16 %) $16,073 $22,362 ($6,289) (28 %)

Net interest income for the Commercial Banking segment for the three months ended March 31, 2024 decreased by $5.5 million, or 15%, from the same period in 2023.

Net interest income for the Commercial Banking segment for the three and six months ended June 30, 2024 decreased by $1.9 million and $7.4 million, respectively, from the same periods in 2023.

Net interest income was adversely impacted by higher rates paid on, and increases in, average interest-bearing liability balances, which offset the benefit of higher yields on, and growth in, average interest-earning asset balances.

The provision for credit losses for the three months ended March 31, 2024 decreased by $100 thousand from the same period in 2023.

Noninterest income derived from the Commercial Banking segment for the three months ended March 31, 2024 was up by $1.1 million, or 26%, from the comparable period in 2023.

The increase in Commercial Banking noninterest income reflected higher mortgage banking revenues and loan related derivative income, partially offset by lower BOLI income.

The provision for credit losses for the three and six months ended June 30, 2024 decreased by $200 thousand and $300 thousand, respectively from the same periods in 2023.

Noninterest income derived from the Commercial Banking segment for the three and six months ended June 30, 2024 was up by $1.5 million and $2.7 million, respectively, from the comparable periods in 2023.

The increase in Commercial Banking noninterest income reflected higher mortgage banking revenues and a net gain recognized on the sale of a bank-owned operations facility.

The year-to-date increase was partially offset by lower BOLI income.

See additional discussion under the caption “Noninterest Income” above.

Commercial Banking noninterest expenses for the three months ended March 31, 2024 were up by $1.6 million, or 6%, from the same period in 2023, with increases in FDIC deposit insurance costs, salaries and employee benefits, and outsourced services.

See additional discussion under the caption “Noninterest Expense” above.

Management's Discussion and Analysis

Commercial Banking noninterest expenses for the three and six months ended June 30, 2024 were up by $1.6 million and $3.2 million, respectively, from the same periods in 2023, with increases in salaries and employee benefits expense, outsourced services, and advertising and promotion, partially offset by lower legal fees.

The year-to-date increase also reflected an increase in FDIC deposit insurance costs.

See additional discussion under the caption “Noninterest Expense” above.

Wealth Management Services

The following table presents a summarized statement of operations for the Wealth Management Services business segment:

(Dollars in thousands)

Three months ended March 31, 2024 2023 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2024 2023 $ % 2024 2023 $ %

Net interest income $— $14 ($14) (100 %) $— $27 ($27) (100 %)

4 unchanged sentences

Net income $2,340 $1,153 $1,187 103 % $5,678 $1,706 $3,972 233 %

For the three months ended March 31, 2024, noninterest income derived from the Wealth Management Services segment increased by $2.7 million, or 31%, from the same period in 2023, reflecting income of $2.1 million associated with a litigation settlement, as well as an increase in asset-based revenues.

For the three and six months ended June 30, 2024, noninterest income derived from the Wealth Management Services segment increased by $826 thousand and $3.6 million, respectively, from the same periods in 2023, reflecting income of $2.1 million associated with a litigation settlement in the first quarter of 2024, as well as an increase in asset-based revenues.

See further discussion under the caption “Noninterest Income” above.

For the three months ended March 31, 2024, noninterest expenses for the Wealth Management Services segment decreased by $768 thousand, or 9%, from the comparable period in 2023, largely reflecting a decrease in salaries and employee benefits expense.

For the three and six months ended June 30, 2024, noninterest expenses for the Wealth Management Services segment decreased by $718 thousand and $1.5 million, respectively, from the comparable periods in 2023, with decreases in salaries and employee benefits expense and legal fees.

Financial Condition

11 unchanged sentences

Total shareholders’ equity 470,957 472,686 (1,729) —

Total assets amounted to $7.2 billion at March 31, 2024, up by $46.3 million, or 1%, from the end of 2023.

Cash and due from banks increased by 15.3 million.

or 18%, from December 31, 2023, reflecting higher cash balances on deposit at correspondent banks.

Total assets amounted to $7.2 billion at June 30, 2024, down modestly by $18.5 million from the end of 2023.

Cash and due from banks increased by $17.1 million, or 20%, from December 31, 2023, reflecting higher cash balances on deposit at correspondent banks.

The securities portfolio decreased by $48.6 million, or 5%, from the end of 2023, reflecting routine pay-downs on mortgage-backed securities and a decrease in fair value of available for sale securities due to changes in market interest rates.

Total loans increased by $37.5 million, or 1%, from the end of 2023, with the increase concentrated in commercial loans.

Total deposit balances were comparable to the end of 2023 and reflective of a competitive rate environment.

FHLB advances increased by $50.0 million, or 4%, from December 31, 2023, as higher levels of wholesale funding were utilized.

Management's Discussion and Analysis

Total loans decreased by $18.6 million, or 0.3%, from the end of 2023.

Residential real estate and consumer loan balances declined, while total commercial loans increased modestly.

Total deposit balances decreased by $372.0 million from the end of 2023 with the decrease concentrated in wholesale brokered time deposits.

FHLB advances increased by $360.0 million, or 30%, from December 31, 2023.

Shareholders’ equity decreased by $1.7 million, or 0.4%.

18 unchanged sentences

In addition, management periodically performs independent price tests of securities to ensure proper valuation and to verify our understanding of how securities are priced.

As of March 31, 2024 and December 31, 2023, management did not make any adjustments to the prices provided by the pricing service.

As of June 30, 2024 and December 31, 2023, management did not make any adjustments to the prices provided by the pricing service.

Our fair value measurements generally utilize Level 2 inputs, representing quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model-derived valuations in which all significant input assumptions are observable in active markets.

See Notes 3 and 7 to the Unaudited Consolidated Financial Statements for additional information regarding the determination of fair value of investment securities.

Management's Discussion and Analysis

Securities Portfolio

The carrying amounts of securities held are as follows:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Amount % of Total Amount % of Total

10 unchanged sentences

Total available for sale debt securities $951,828 100 % $1,000,380 100 %

Management's Discussion and Analysis

The securities portfolio represented 13% of total assets at March 31, 2024, compared to 14% of total assets at December 31, 2023.

The securities portfolio represented 13% of total assets at June 30, 2024, compared to 14% of total assets at December 31, 2023.

The largest component of the securities portfolio is mortgage-backed securities, all of which are issued by U.S.

3 unchanged sentences

This decrease included $34.6 million of routine pay-downs on mortgage-backed securities and a decrease of $13.7 million (pre-tax) in the fair value of available for sale securities.

As of March 31, 2024, the carrying amount of available for sale debt securities included net unrealized losses of $167.0 million, compared to net unrealized losses of $152.2 million as of December 31, 2023.

The decrease in fair value of available for sale debt securities from the end of 2023 was primarily concentrated in obligations of U.S.

As of June 30, 2024, the carrying amount of available for sale debt securities included net unrealized losses of $166.0 million, compared to net unrealized losses of $152.2 million as of December 31, 2023.

The net unrealized losses were primarily concentrated in obligations of U.S.

government agencies and U.S.

1 unchanged sentence

See Note 3 to the Unaudited Consolidated Financial Statements for additional information.

Total loans amounted to $5.7 billion at March 31, 2024, up by $37.5 million, or 1%, from the end of 2023.

Total loans amounted to $5.6 billion at June 30, 2024, down by $18.6 million, or 0.3%, from the end of 2023.

The following is a summary of loans:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Amount % of Total Amount % of Total

9 unchanged sentences

Commercial Loans

The commercial loan portfolio represented 49% of total loans at March 31, 2024, compared to 48% of total loans at December 31, 2023.

The commercial loan portfolio represented 49% of total loans at June 30, 2024, compared to 48% of total loans at December 31, 2023.

In making commercial loans, we may occasionally solicit the participation of other banks.

The Bank also participates in commercial loans originated by other banks.

In such cases, these loans are individually underwritten by us using standards similar to those employed for our self-originated loans.

Our participation in commercial loans originated by other banks amounted to $680.1 million and $652.7 million, respectively, at March 31, 2024 and December 31, 2023.

In such cases, these loans are individually underwritten by us using standards

Management's Discussion and Analysis

similar to those employed for our self-originated loans.

Our participation in commercial loans originated by other banks amounted to $690.3 million and $652.7 million, respectively, at June 30, 2024 and December 31, 2023.

Our participation in commercial loans originated by other banks also includes shared national credits.

1 unchanged sentence

Commercial loans fall into two main categories, CRE and C&I loans.

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

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

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

1 unchanged sentence

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

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

C&I loans also include tax-exempt loans made to states and political

Management's Discussion and Analysis

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

A portion of the Bank’s C&I loans is also collateralized by owner occupied real estate.

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

Commercial Real Estate Loans

CRE loans totaled $2.2 billion at March 31, 2024, up by $52.2 million, or 2%, from the balance at December 31, 2023.

In 2024, CRE loan advances and originations of $87.3 million were partially offset by payments of approximately $29.1 million and reclassifications of $6.0 million to C&I.

Construction and development loans included in the CRE loan portfolio amounted to $237.7 million and $214.6 million, respectively, as of March 31, 2024 and December 31, 2023.

Unfunded commitments associated with these construction and development loans were $246.5 million and $304.7 million, respectively, at March 31, 2024 and December 31, 2023.

Shared national credit balances outstanding included in the CRE loan portfolio at March 31, 2024 and December 31, 2023, totaled $54.0 million and $47.4 million, respectively.

At March 31, 2024 and December 31, 2023, balances of $34.7 million and $29.0 million, respectively, were included in the pass-rated category of commercial loan credit quality and balances of $19.3 million and $18.4 million, respectively, were included in the classified category.

CRE loans totaled $2.2 billion at June 30, 2024, up by $85.6 million, or 4%, from the balance at December 31, 2023.

In the first six months of 2024, CRE advances and originations amounted to $137.3 million and were partially offset by payments.

The net increase in CRE also included reclassifications of $15.5 million from C&I, largely reflecting an underlying change from owner occupied to non-owner occupied on a loan secured by a medical office building.

Construction and development loans included in the CRE loan portfolio amounted to $172.1 million and $214.6 million, respectively, as of June 30, 2024 and December 31, 2023.

Unfunded commitments associated with these construction and development loans were $203.8 million and $304.7 million, respectively, at June 30, 2024 and December 31, 2023.

These reductions in the first six months of 2024 reflected loans transitioning to permanent financing within the CRE category, as the construction phase was completed.

Shared national credit balances outstanding included in the CRE loan portfolio at June 30, 2024 and December 31, 2023, totaled $56.5 million and $47.4 million, respectively.

At June 30, 2024 and December 31, 2023, balances of $36.7 million and $29.0 million, respectively, were included in the pass-rated category of commercial loan credit quality and balances of $19.8 million and $18.4 million, respectively, were included in the classified category.

All of these loans were current with respect to contractual payment terms at both dates.

The following table presents a geographic summary of CRE loans by property location:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Outstanding Balance % of Total Outstanding Balance % of Total

5 unchanged sentences

Total $2,191,996 100 % $2,106,359 100 %

Management's Discussion and Analysis

Management considers the CRE portfolio to be well-diversified with loans across several property types.

The following table presents a summary of CRE loans by property type segmentation:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Outstanding Balance (1)

15 unchanged sentences

$65,472 $65,458

(1) Does not include unfunded commitments of $288.2 million and $351.5 million, respectively, as of March 31, 2024 and December 31, 2023.

(1) Does not include unfunded commitments of $245.8 million and $351.5 million, respectively, as of June 30, 2024 and December 31, 2023.

(2) Total commitment (outstanding loan balance plus unfunded commitments) divided by number of loans.

In 2024, there continues to be heightened focus in the banking industry on the CRE office sector, given the continuation of

Management's Discussion and Analysis

remote work and an increase in vacancies across the office market.

As of March 31, 2024, Washington Trust’s CRE office loan segment totaled $284.7 million, or 5% of total loans and 13% of the total CRE loans.

These office loans are secured by properties located in our primary lending market area of southern New England - Connecticut, Massachusetts, and Rhode Island.

Multi-family totaled $592.8 million as of June 30, 2024, and is our largest single CRE segment, representing 27% of the total CRE portfolio.

This segment includes non-owner occupied residential properties consisting of four or more units that are rented to tenants.

At June 30, 2024, the credit quality of the multi-family segment was 100% pass-rated.

Also, there were no nonaccrual loans and all loans were current with respect to payment terms at June 30, 2024.

In 2024, there continues to be heightened focus in the banking industry on the CRE office sector, given the continuation of remote work and an increase in vacancies across the office market.

As of June 30, 2024, Washington Trust’s CRE office loan segment totaled $300.9 million, or 5% of total loans and 14% of the total CRE loans.

The loans are secured by non-owner occupied office properties, including medical office and lab space, located in our primary lending market area of southern New England - Connecticut, Massachusetts, and Rhode Island.

Furthermore, approximately 68% of the CRE office segment balance of $300.9 million is secured by properties located in suburban areas.

As of March 31, 2024, all of the CRE office loans were current with respect to payment terms, and 93% of the CRE office segment balance was on accruing status.

Additionally, the credit quality of the CRE office loan segment was 83% pass-rated, 2% special mention-rated, and 15% classified as of March 31, 2024.

As of June 30, 2024, all of the CRE office loans were current with respect to payment terms, and 94% of the CRE office segment balance was on accruing status.

Additionally, the credit quality of the CRE office loan segment was 84% pass-rated, 2% special mention-rated, and 14% classified as of June 30, 2024.

Commercial and Industrial Loans

C&I loans amounted to $613.4 million at March 31, 2024, up by $8.3 million, or 1%, from the balance at December 31, 2023.

C&I originations and advances of $21.2 million were partially offset by payments of $18.9 million.

The net increase in C&I also reflected reclassifications of $6.0 million from CRE.

Shared national credit balances outstanding included in the C&I loan portfolio totaled $68.2 million and $66.3 million, respectively, at March 31, 2024 and December 31, 2023.

C&I loans amounted to $558.1 million at June 30, 2024, down by $47.0 million, or 8%, from the balance at December 31, 2023.

In the first six months of 2024, C&I originations, advances and line utilization amounted to $26.3 million and were more than offset by payments.

The net decrease in C&I also reflected reclassifications of $15.5 million to CRE, as noted above.

Shared national credit balances outstanding included in the C&I loan portfolio totaled $65.2 million and $66.3 million, respectively, at June 30, 2024 and December 31, 2023.

All of these loans were included in the pass-rated category of commercial loan credit quality and were current with respect to contractual payment terms at both dates.

Management's Discussion and Analysis

Management considers the C&I portfolio to be well-diversified with loans across several industries.

The following table presents a summary of C&I loan by industry segmentation:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Outstanding Balance (1)

6 unchanged sentences

Manufacturing 48,818 9 54,905 9

Retail trade 44,166 7 43,746 7

Educational services 43,277 8 41,968 7

Retail trade 42,950 8 43,746 7

Finance and insurance

14 unchanged sentences

$24,684 $25,324

(1) Does not include unfunded commitments of $355.1 million and $341.9 million, respectively, as of March 31, 2024 and December 31, 2023.

(1) Does not include unfunded commitments of $348.6 million and $341.9 million, respectively, as of June 30, 2024 and December 31, 2023.

(2) Total commitment (outstanding loan balance plus unfunded commitments) divided by number of loans.

Healthcare and social assistance totaled $139.9 million as of June 30, 2024, and is our largest single C&I segment, representing 25% of the total C&I portfolio.

This segment includes specialty medical practices, elder services and community and mental health centers.

At June 30, 2024, the credit quality of the healthcare and social assistance segment was 100% pass-rated.

Also, there were no nonaccrual loans and all loans were current with respect to payment terms at June 30, 2024.

Residential Real Estate Loans

The residential real estate loan portfolio represented 45% of total loans at March 31, 2024, compared to 46% of total loans at December 31, 2023.

Residential real estate loans held in portfolio amounted to $2.6 billion at March 31, 2024, down by $19.0 million, or 1%, from the balance at December 31, 2023, as total loan origination activity declined and a lower proportion of loans was originated for portfolio.

The residential real estate loan portfolio represented 45% of total loans at June 30, 2024, compared to 46% of total loans at December 31, 2023.

Residential real estate loans amounted to $2.6 billion at June 30, 2024, down by $45.9 million, or 2%, from the balance at December 31, 2023, as total origination activity has declined and a lower proportion of loans was originated for portfolio.

Management's Discussion and Analysis

The following is a geographic summary of residential real estate loans by property location:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Amount % of Total Amount % of Total

6 unchanged sentences

$2,558,533 100 % $2,604,478 100 %

(1) Includes residential mortgage loans purchased from and serviced by other financial institutions totaling $52.1 million and $53.4 million, respectively, as of March 31, 2024 and December 31, 2023.

(1) Includes residential mortgage loans purchased from and serviced by other financial institutions totaling $51.0 million and $53.4 million, respectively, as of June 30, 2024 and December 31, 2023.

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

1 unchanged sentence

The table below presents residential real estate loan origination activity:

(Dollars in thousands)

Three months ended March 31, 2024 2023

Amount % of Total Amount % of Total

(Dollars in thousands) Three Months Six Months

Periods ended June 30, 2024 2023 2024 2023

Amount % of Total Amount % of Total Amount % of Total Amount % of Total

Originations for retention in portfolio (1)

5 unchanged sentences

(2) Includes brokered loans (loans originated for others).

Residential real estate loan origination and refinancing activities decreased in response to increases in market interest rates and changes in the housing markets.

The proportion of residential real estate loans originated for portfolio has decreased for balance sheet management purposes.

The table below presents residential real estate loan sales activity:

(Dollars in thousands)

Three months ended March 31, 2024 2023

Amount % of Total Amount % of Total

Three Months Six Months

Periods ended June 30, 2024 2023 2024 2023

Amount % of Total Amount % of Total Amount % of Total Amount % of Total

Loans sold with servicing rights retained $24,570 22 % $28,727 44 % $48,627 27 % $45,841 49 %

3 unchanged sentences

(1) Includes brokered loans (loans originated for others).

Residential real estate loan origination and refinancing activities decreased in response to increases in market interest rates and changes in the housing markets.

The proportion of residential real estate loans originated for portfolio has decreased due to balance sheet management purposes.

We have active relationships with various secondary market investors that purchase residential real estate loans we originate.

3 unchanged sentences

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

The net balance of capitalized servicing rights amounted to $8.4 million and $8.5 million, respectively, as of March 31, 2024 and December 31, 2023.

The balance of residential

The net balance of capitalized servicing rights amounted to

Management's Discussion and Analysis

mortgage loans serviced for others, which are not included in the Unaudited Consolidated Balance Sheets, amounted to $1.5 billion as of both March 31, 2024 and December 31, 2023.

$8.2 million and $8.5 million, respectively, as of June 30, 2024 and December 31, 2023.

The balance of residential mortgage loans serviced for others, which are not included in the Unaudited Consolidated Balance Sheets, amounted to $1.4 billion and $1.5 billion, respectively, as of June 30, 2024 and December 31, 2023.

Consumer Loans

The consumer loan portfolio represented 6% of total loans at both March 31, 2024 and December 31, 2023.

The consumer loan portfolio represented 6% of total loans at both June 30, 2024 and December 31, 2023.

Consumer loans include home equity loans and lines of credit and personal installment loans.

Home equity lines of credit and home equity loans represented 94% of the total consumer portfolio at March 31, 2024.

Home equity lines of credit and home equity loans represented 94% of the total consumer portfolio at June 30, 2024.

Our home equity line and home equity loan origination activities are conducted primarily in southern New England.

The Bank estimates that approximately 50% of the combined home equity lines of credit and home equity loan balances are first lien positions or subordinate to other Washington Trust mortgages.

The consumer loan portfolio totaled $327.8 million at March 31, 2024, down by $4.0 million, or 1%, from December 31, 2023, largely reflecting a decrease in home equity lines.

The consumer loan portfolio totaled $320.5 million at June 30, 2024, down by $11.3 million, or 3%, from December 31, 2023, largely reflecting a decrease in home equity lines.

Asset Quality

3 unchanged sentences

The decision to modify a loan, versus aggressively enforcing the collection of the loan, may benefit the Corporation by increasing the ultimate probability of collection.

See Note 4 for additional information regarding TLMs.

See Note 4 to the Unaudited Consolidated Financial Statements for additional information regarding TLMs.

Nonperforming Assets

1 unchanged sentence

The following table presents nonperforming assets and additional asset quality data:

(Dollars in thousands) March 31,

(Dollars in thousands) June 30,

2024 December 31,

17 unchanged sentences

Nonaccrual Loans

During the three months ended March 31, 2024, the Corporation made no changes in its practices or policies concerning the placement of loans into nonaccrual status.

During the six months ended June 30, 2024, the Corporation made no changes in its practices or policies concerning the placement of loans into nonaccrual status.

The following table presents the activity in nonaccrual loans:

(Dollars in thousands)

For the three months ended March 31, 2024 2023

(Dollars in thousands) Three Months Six Months

For the periods ended June 30, 2024 2023 2024 2023

Balance at beginning of period $30,710 $13,980 $44,618 $12,846

6 unchanged sentences

The following table presents additional detail on nonaccrual loans:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Days Past Due Days Past Due

13 unchanged sentences

(1) Percentage of nonaccrual loans to the total loans outstanding within the respective loan class.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2024.

As of March 31, 2024, the composition of nonaccrual loans was 63% commercial and 37% residential and consumer.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2024.

As of June 30, 2024, the composition of nonaccrual loans was 62% commercial and 38% residential and consumer.

This compared to 75% commercial and 25% residential and consumer as of December 31, 2023.

Total nonaccrual loans decreased by $14.1 million from the end of 2023, reflecting a decline in nonaccrual commercial real estate loans.

Nonaccrual commercial real estate loans decreased by $14.1 million from the balance at December 31, 2023, primarily due to one loan secured by a healthcare facility that returned to accruing status in the quarter.

As of March 31, 2024, the balance of nonaccrual commercial real estate loans consisted of two collateral dependent loans that are current with respect to payment terms.

These loans were individually assessed for credit impairment and based on the estimated fair value of the collateral less estimated costs to sell (when appropriate), no specific reserves were deemed necessary at March 31, 2024.

Nonaccrual commercial real estate loans decreased by $14.4 million from the balance at December 31, 2023, primarily due to one loan secured by a healthcare facility that returned to accruing status in the first quarter of 2024.

As of June 30, 2024, the balance of nonaccrual commercial real estate loans consisted of two collateral dependent loans that were current with respect to payment terms.

Of the total carrying value, $10.5 million is secured by an office property in Massachusetts and $7.9 million is secured by an office property in Connecticut and was modified as a TLM in 2023.

Management's Discussion and Analysis

As of March 31, 2024, the balance of nonaccrual residential mortgage loans was predominately secured by properties in Massachusetts, Connecticut, and Rhode Island.

Included in total nonaccrual residential real estate loans at March 31, 2024 were four loans purchased for portfolio and serviced by others amounting to $1.2 million.

As of June 30, 2024, the balance of nonaccrual residential mortgage loans was predominately secured by properties in Massachusetts, Connecticut, and Rhode Island.

Included in total nonaccrual residential real estate loans at June 30, 2024 were four loans purchased for portfolio and serviced by others amounting to $1.1 million.

Management monitors the collection efforts of its third-party servicers as part of its assessment of the collectability of nonperforming loans.

1 unchanged sentence

The following table presents past due loans by category:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Commercial real estate $— — % $— — %

8 unchanged sentences

(1) Percentage of past due loans to the total loans outstanding within the respective loan class.

As of March 31, 2024, the composition of past due loans (loans past due 30 days or more) was 97% residential and consumer and 3% commercial, compared to 100% residential and consumer and 0% commercial at December 31, 2023.

Total past due loans decreased by $1.3 million from the end of 2023.

Total past due loans included $5.1 million of nonaccrual loans as of March 31, 2024, compared to $6.9 million as of December 31, 2023.

All loans 90 days or more past due at March 31, 2024 and December 31, 2023 were classified as nonaccrual.

As of both June 30, 2024 and December 31, 2023, the composition of past due loans (loans past due 30 days or more) was essentially all residential and consumer.

Total past due loans increased by $535 thousand from the end of 2023.

Total past due loans included $8.4 million of nonaccrual loans as of June 30, 2024, compared to $6.9 million as of December 31, 2023.

All loans 90 days or more past due at June 30, 2024 and December 31, 2023 were classified as nonaccrual.

Potential Problem Loans

The Corporation classifies certain loans as “substandard,” “doubtful,” or “loss” based on criteria consistent with guidelines provided by banking regulators.

Potential problem loans include classified accruing commercial loans that were less than 90 days past due at March 31, 2024 and other loans for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future.

Potential problem loans include classified accruing commercial loans that were less than 90 days past due at June 30, 2024 and other loans for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future.

Potential problem loans are not included in the amounts of nonaccrual loans presented above.

1 unchanged sentence

Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become modified, or require an increased allowance coverage and provision for credit losses on loans.

Management has identified $23.8 million in potential problem loans at March 31, 2024, compared to $22.9 million at December 31, 2023.

Management has identified $24.2 million in potential problem loans at June 30, 2024, compared to $22.9 million at December 31, 2023.

The balances of potential problem loans largely consisted of two CRE loans secured by office properties in Massachusetts and Connecticut.

At March 31, 2024 and December 31, 2023, these loans were all current with respect to payment terms.

At June 30, 2024 and December 31, 2023, these loans were current with respect to payment terms.

Management's Discussion and Analysis

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The following table presents additional detail on the Corporation’s loan portfolio and associated allowance:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Loans Related Allowance Allowance / Loans Loans Related Allowance Allowance / Loans

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

The ACL on loans amounted to $41.9 million at March 31, 2024, up by $848 thousand, or 2%, from the balance at December 31, 2023.

The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.74% at March 31, 2024, compared to 0.73% at December 31, 2023.

The ACL on loans amounted to $42.4 million at June 30, 2024, up by $1.3 million, or 3%, from the balance at December 31, 2023.

The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.75% at June 30, 2024, compared to 0.73% at December 31, 2023.

Management's Discussion and Analysis

The Corporation recorded a provision for credit losses of $700 thousand for the three months ended March 31, 2024.

This included a provision for credit losses on loans of $900 thousand and a negative provision (or a benefit) for credit losses on unfunded commitments of $200 thousand.

The provision reflected commercial loan growth and a continued, but subsiding, slowdown of loan prepayment speeds, as well as our current estimate of forecasted economic conditions.

Net charge-offs were modest, totaling $52 thousand for the three months ended March 31, 2024 and $47 thousand for the same period in 2023.

The Corporation recorded a provision for credit losses on loans of $500 thousand and $1.4 million, respectively, for the three and six months ended June 30, 2024.

Net charge-offs totaled $27 thousand for the three months ended June 30, 2024, compared to $37 thousand for the same period in 2023.

For the six months ended June 30, 2024, net charge-offs totaled $79 thousand, compared to net charge-offs of $84 thousand for the same period in 2023.

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

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The total ACL on loans is available to absorb losses from any segment of the loan portfolio.

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Allocated ACL

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The following table presents a summary of deposits:

(Dollars in thousands) March 31, 2024 December 31, 2023 Change in Balance

(Dollars in thousands) June 30, 2024 December 31, 2023 Change in Balance

Amount % of Total Amount % of Total $ %

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Total deposits $4,976,126 100 % $5,348,160 100 % ($372,034) (7 %)

Total deposits amounted to $5.3 billion at March 31, 2024, essentially unchanged from December 31, 2023.

Wholesale brokered time deposits increased by $19.7 million, or 3%, from December 31, 2023, as higher levels were utilized to fund balance sheet growth.

In-market deposits, which exclude wholesale brokered time deposits, were down by $19.9 million from the balance at December 31, 2023.

Total deposits amounted to $5.0 billion at June 30, 2024, compared to $5.3 billion at December 31, 2023.

Wholesale brokered time deposits decreased by $314.8 million, or 48%, from December 31, 2023, reflecting a shift in wholesale funding mix based on pricing.

See disclosure regarding FHLB advances under the caption “Borrowings” below.

In-market deposits, which exclude wholesale brokered time deposits, were down by $57.2 million, or 1%, from the balance at December 31, 2023.

In-market deposits continue to shift from relatively lower-cost products to higher-cost products, due to elevated market interest rates and increased competition.

As of March 31, 2024, in-market deposits were approximately 61% retail and 39% commercial.

As of June 30, 2024, in-market deposits were approximately 61% retail and 39% commercial.

Our in-market deposits are well-diversified by industry and customer type.

The average size of our in-market deposit accounts was approximately $36 thousand at March 31, 2024.

The average size of our in-market deposit accounts was approximately $35 thousand at June 30, 2024.

The following table presents a summary of the Bank’s uninsured deposits:

(Dollars in thousands) March 31, 2024 December 31, 2023

(Dollars in thousands) June 30, 2024 December 31, 2023

Balance % of Total Deposits Balance % of Total Deposits

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Borrowings primarily consist of FHLB advances, which are used as a source of funding for liquidity and interest rate risk management purposes.

FHLB advances totaled $1.2 billion at March 31, 2024, up by $50.0 million, or 4%, from the balance at the end of 2023, as higher levels of wholesale funding were utilized to fund balance sheet growth.

FHLB advances totaled $1.6 billion at June 30, 2024, up by $360.0 million, or 30%, from the balance at the end of 2023, reflecting a shift to utilize higher levels of FHLB advances and lower levels of wholesale brokered time certificates as a wholesale funding source.

For additional information regarding FHLB advances see Note 9 to the Unaudited Consolidated Financial Statements.

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Liquidity is the ability of a financial institution to meet maturing liability obligations and customer loan demand.

The Corporation’s primary source of liquidity is in-market deposits, which funded approximately 64% of total average assets in the three months ended March 31, 2024.

The Corporation’s primary source of liquidity is in-market deposits, which funded approximately 64% of total average assets in the six months ended June 30, 2024.

While the generally preferred funding strategy is to attract and retain low-cost deposits, the ability to do so is affected by competitive interest rates and terms in the marketplace.

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Percentage of total contingent liquidity to uninsured deposits, after exclusions 162.7 % 195.9 %

(1) As of March 31, 2024 and December 31, 2023, loans with a carrying value of $3.4 billion and $3.4 billion, respectively, and securities available for sale with carrying values of $90.0 million and $94.3 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.

(2) As of March 31, 2024 and December 31, 2023, loans with a carrying value of $71.6 million and $71.0 million, respectively, and securities available for sale with a carrying value of $13.7 million and $13.1 million, respectively, were pledged to the FRBB for the discount window resulting in this additional unused borrowing capacity.

In addition to the amounts presented above, the Bank also has access to a $40.0 million unused line of credit with the FHLB at March 31, 2024 and December 31, 2023.

Furthermore, availability of $66.0 million and $65.0 million, respectively, at March 31, 2024 and December 31, 2023, was utilized to collateralize institutional deposits through standby letters of credit with the FHLB.

(1) As of June 30, 2024 and December 31, 2023, loans with a carrying value of $3.5 billion and $3.4 billion, respectively, and securities available for sale with carrying values of $87.5 million and $94.3 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.

(2) As of June 30, 2024 and December 31, 2023, loans with a carrying value of $87.5 million and $71.0 million, respectively, and securities available for sale with a carrying value of $13.7 million and $13.1 million, respectively, were pledged to the FRBB for the discount window resulting in this additional unused borrowing capacity.

In addition to the amounts presented above, the Bank also has access to a $40.0 million unused line of credit with the FHLB at June 30, 2024 and December 31, 2023.

Furthermore, availability of $66.0 million and $65.0 million, respectively, at June 30, 2024 and December 31, 2023, was utilized to collateralize institutional deposits through standby letters of credit with the FHLB.

The ALCO establishes and monitors internal liquidity measures to manage liquidity exposure.

Liquidity remained within target ranges established by the ALCO during the three months ended March 31, 2024.

Liquidity remained within target ranges established by the ALCO during the six months ended June 30, 2024.

Based on its assessment of the liquidity considerations described above, management believes the Corporation’s sources of funding meet anticipated funding needs.

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These include payments related to lease obligations, time deposits with stated maturity dates, and borrowings.

Also, in the ordinary course of business, the Corporation engages in a variety of financial transactions that, in accordance with GAAP, are

Management's Discussion and Analysis

ordinary course of business, the Corporation engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts.

not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts.

These financial transactions include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts.

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Capital Resources

Total shareholders’ equity amounted to $466.9 million at March 31, 2024, down by $5.8 million from December 31, 2023.

Total shareholders’ equity amounted to $471.0 million at June 30, 2024, down by $1.7 million from December 31, 2023.

Net income of $21.8 million was offset by $19.3 million in dividend declarations and a decline of $5.2 million in the AOCL component of shareholders' equity.

The decline in AOCL largely reflected a decrease in the fair value of available for sale debt securities due to changes in market interest rates.

The Corporation declared a quarterly dividend of 56 cents per share for the three months ended March 31, 2024, unchanged from the 56 cents per share declared for the same period in 2023.

The ratio of total equity to total assets amounted to 6.44% at March 31, 2024, compared to a ratio of 6.56% at December 31, 2023.

Book value per share was $27.41 at March 31, 2024, compared to $27.75 at December 31, 2023.

The Bancorp and the Bank are subject to various regulatory capital requirements and are considered “well capitalized,” with a total risk-based capital ratio of 11.62% at March 31, 2024, compared to 11.58% at December 31, 2023.

The decline in AOCL reflected a decrease in the fair value of available for sale debt securities due to changes in market interest rates, which was partially offset by the amortization of a loss on a previously terminated cash flow hedge.

See Note 6 to the Unaudited Consolidated Financial Statements for additional discussion regarding the previously terminated cash flow hedge.

The Corporation declared a quarterly dividend of 56 cents per share for the three months ended June 30, 2024, unchanged from the 56 cents per share declared for the same period in 2023.

On a year-to-date basis, dividend declarations totaled $1.12 per share in 2024, unchanged from the $1.12 per share declared in 2023.

The ratio of total equity to total assets amounted to 6.56% at both June 30, 2024 and December 31, 2023.

Book value per share was $27.61 at June 30, 2024, compared to $27.75 at December 31, 2023.

The Bancorp and the Bank are subject to various regulatory capital requirements and are considered “well capitalized,” with a total risk-based capital ratio of 11.81% at June 30, 2024, compared to 11.58% at December 31, 2023.

See Note 10 to the Unaudited Consolidated Financial Statements for additional discussion regarding shareholders’ equity.

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The Corporation utilizes the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, interest rate contracts, and the pricing and structure of loans and deposits, to manage interest rate risk.

The interest rate contracts may include interest rate swaps, caps, and floors.

The interest rate contracts may include interest rate swaps, caps, floors, and collars.

These interest rate contracts involve, to varying degrees, credit risk and interest rate risk.

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The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk.

See Notes 6 and 16 to the Unaudited Consolidated Financial Statements for additional information.

The ALCO uses income simulation to measure interest rate risk inherent in the Corporation’s financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 12-month horizon, a 13- to 24-month horizon, and a 60-month horizon.

See Note 6 to the Unaudited Consolidated Financial Statements for additional information.

The simulations assume that the size and general composition of the Corporation’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from low-cost savings to higher-cost time deposits in selected interest rate scenarios.

Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios.

Mortgage-backed securities and residential real estate loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments.

Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value.

Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.

The characteristics of financial instrument classes are reviewed periodically by the ALCO to ensure their accuracy and consistency.

The ALCO reviews simulation results to determine whether the Corporation’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure.

As of March 31, 2024 and December 31, 2023, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation.

All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Corporation’s balance sheet remain stable for a 60-month period.

In addition to measuring the change in net interest income as compared to an unchanged rate scenario, the ALCO also measures the trend of

Management's Discussion and Analysis

both net interest income and NIM over a 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios.

The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve of up to 500 basis points, as well as parallel changes in interest rates of up to 400 basis points.

The increase of the Federal Funds target rate in recent years has resulted in higher rates paid on deposit balances and a shift of low-cost balances into higher-cost alternatives, which could continue into the future, particularly if interest rates remain elevated.

As such, the ALCO has modeled deposit shifts out of these low-cost categories into higher-cost alternatives in the rising rate simulation scenarios presented above.

Deposit balances may also be subject to possible outflow to non-bank alternatives in a rising rate environment, as well as due to heightened uncertainty in the banking industry.

This may cause interest rate sensitivity to differ from the results as presented.

Another significant simulation assumption is the sensitivity of savings deposits to fluctuations in interest rates.

Income simulation results assume that changes in both savings deposit rates and balances are related to changes in short-term interest rates.

The relationship between short-term interest rate changes and deposit rate and balance changes may differ from the ALCO’s estimates used in income simulation.

As of June 30, 2024 and December 31, 2023, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation.

The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including parallel changes in interest rates and scenarios showing the effect of steepening or flattening changes in the yield curve.

Because income simulations assume that the Corporation’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.

The following table sets forth the estimated change in net interest income from an unchanged rate scenario over the periods indicated for parallel changes in market interest rates using the Corporation’s on- and off-balance sheet financial instruments as of March 31, 2024 and December 31, 2023.

It should also be noted that the static balance sheet assumption does not necessarily reflect the Corporation’s expectation for future balance sheet growth, which is a function of the business environment and customer behavior.

While the ALCO reviews and updates simulation assumptions and also periodically back-tests the simulation results to ensure that the assumptions are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future NIM.

Over time, the repricing, maturity, and prepayment characteristics of financial instruments and the composition of the Corporation’s balance sheet may change to a different degree than estimated.

Interest rates are assumed to shift by parallel rate changes as shown in the table below.

Since market interest rates have risen sharply, management incorporated a down 300 basis point scenario into the tabular presentation below;

an up 300 basis point scenario is also included.

Further, deposits are assumed to have certain minimum rate levels below which they will not fall.

It should be noted that the rate scenarios shown do not necessarily reflect the ALCO’s view of the “most likely” change in interest rates over the periods indicated.

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Months 1 - 12 Months 13 - 24 Months 1 - 12 Months 13 - 24

6 unchanged sentences

The relative change in interest rate sensitivity from December 31, 2023, as shown in the above table, was attributable to changes in balance sheet composition and market interest rates.

As of March 31, 2024, the ALCO estimates that negative exposure of net interest income in Year 1 to falling rates as compared to an unchanged rate scenario results from a more rapid decline in earning asset yields compared to rates paid on deposits.

As of June 30, 2024, the ALCO estimates that negative exposure of net interest income in Year 1 to falling rates as compared to an unchanged rate scenario results from a more rapid decline in earning asset yields compared to rates paid on deposits.

If market interest rates were to fall and remain lower for a sustained period, certain savings and time deposit rates could decline more slowly and by a lesser amount than other market interest rates.

1 unchanged sentence

Asset yields would likely decline more rapidly than deposit costs as holdings mature or reprice, since cash flow from mortgage-related prepayments and redemption of callable securities would increase as market interest rates fall.

The negative exposure in down rate scenarios reflects the insensitivity of certain deposit rates to market interest rate declines as they approach their floors.

The negative exposure in down rate scenarios reflects the insensitivity of certain deposit rates to market interest rate

Management's Discussion and Analysis

declines as they approach their floors.

The positive exposure to falling rates in Year 2 is attributable to continued downward repricing of liabilities as time deposits and wholesale funding are replaced with lower rates as they mature.

As of March 31, 2024, the positive exposure of net interest income in Year 1 to rising rates as compared to an unchanged rate scenario results from a more rapid projected relative rate of increase in asset yields than funding costs over the near term.

As of June 30, 2024, the positive exposure of net interest income in Year 1 to rising rates as compared to an unchanged rate scenario results from a more rapid projected relative rate of increase in asset yields than funding costs over the near term.

As mentioned above, for simulation purposes, deposit rate changes are anticipated to lag behind other market interest rates in both timing and magnitude.

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Wholesale funds generally would reprice more quickly and by a greater amount than the repricing of in-market deposits in response to changes in market interest rates.

As market rates increase, ALCO modeling assumes that deposits shift from lower cost to higher cost deposits.

This assumption reflects historical operating conditions in rising rate cycles.

Although asset yields would increase in a rising interest rate environment, the cumulative impact of relative growth in rate-sensitive higher-cost deposit categories and wholesale funds suggests that the increase in the Corporation’s cost of funds could result in a relative decline in net interest income in Year 2 compared to an unchanged rate scenario.

Over time, the repricing, maturity, and prepayment characteristics of financial instruments and the composition of the Corporation’s balance sheet may change to a different degree than estimated.

Management's Discussion and Analysis

modeling assumes a static balance sheet, with the exception of certain modeled deposit mix shifts from low cost savings deposits to higher cost time deposits in rising rate scenarios as noted above.

The Federal Reserve has paused rate hikes and the target range for the Federal Funds rate was 5.25% - 5.50% at March 31, 2024.

The increase of the Federal Funds target rate in recent years has resulted in higher rates paid on deposit balances and a shift of low cost balances into higher cost alternatives, which could continue into the future, particularly if interest rates remain elevated.

As such, the ALCO has modeled deposit shifts out of these low cost categories into higher cost alternatives in the rising rate simulation scenarios presented above.

Deposit balances may also be subject to possible outflow to non-bank alternatives in a rising rate environment, as well as due to heightened uncertainty in the banking industry.

This may cause interest rate sensitivity to differ from the results as presented.

Another significant simulation assumption is the sensitivity of savings deposits to fluctuations in interest rates.

Income simulation results assume that changes in both savings deposit rates and balances are related to changes in short-term interest rates.

The relationship between short-term interest rate changes and deposit rate and balance changes may differ from the ALCO’s estimates used in income simulation.

Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value.

Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.

The Corporation also monitors the potential change in market value of its available for sale debt securities in changing interest rate environments.

Additionally, the Corporation monitors the potential change in market value of its available for sale debt securities in changing interest rate environments.

The purpose is to determine market value exposure that may not be captured by income simulation, but which might result in changes to the Corporation’s capital position.

Results are calculated using industry-standard analytical techniques and securities data.

The following table summarizes the potential change in market value of the Corporation’s available for sale debt securities as of March 31, 2024 and December 31, 2023 resulting from immediate parallel rate shifts:

The following table summarizes the potential change in market value of the Corporation’s available for sale debt securities as of June 30, 2024 and December 31, 2023 resulting from immediate parallel rate shifts:

(Dollars in thousands)

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Trust preferred debt and other corporate debt securities 35 (87)

Total change in market value as of March 31, 2024 $58,451 ($112,819)

Total change in market value as of June 30, 2024 $55,144 ($107,467)

Total change in market value as of December 31, 2023 $59,659 ($117,334)

7 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 2. Management’s Discussion and Analysis