WASHINGTON TRUST BANCORP INC 10-Q

Item 1. Financial Statements Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) (Dollars in thousands, except par value) September 30, 2024 December 31, 2023 Assets: Cash and due from banks $ 206,971 $ 86,824 Short-term investments 3,772 3,360 Mortgage loans held for sale, at fair value 20,864 20,077 Available for sale debt securities, at fair value (amortized cost of $ 1,098,649 , net of allowance for credit losses on securities of $ 0 at September 30, 2024; and amortized cost of $ 1,152,629 ; net of allowance for credit losses on securities of $ 0 at December 31, 2023) 973,266 1,000,380 Federal Home Loan Bank stock, at cost 57,439 51,893 Loans: Total loans 5,514,870 5,647,706 Less: allowance for credit losses on loans 42,630 41,057 Net loans 5,472,240 5,606,649 Premises and equipment, net 32,145 32,291 Operating lease right-of-use assets 27,612 29,364 Investment in bank-owned life insurance 105,998 103,736 Goodwill 63,909 63,909 Identifiable intangible assets, net 3,089 3,711 Other assets 174,266 200,653 Total assets $ 7,141,571 $ 7,202,847 Liabilities: Deposits: Noninterest-bearing deposits $ 665,706 $ 693,746 Interest-bearing deposits 4,506,184 4,654,414 Total deposits 5,171,890 5,348,160 Federal Home Loan Bank advances 1,300,000 1,190,000 Junior subordinated debentures 22,681 22,681 Operating lease liabilities 30,237 32,027 Other liabilities 114,534 137,293 Total liabilities 6,639,342 6,730,161 Commitments and contingencies (Note 16) Shareholders’ Equity: Common stock of $ .0625 par value; authorized 60,000,000 shares; 17,363,457 shares issued and 17,058,413 shares outstanding at September 30, 2024 and 17,363,457 shares issued and 17,030,987 shares outstanding at December 31, 2023 1,085 1,085 Paid-in capital 126,698 126,150 Retained earnings 505,654 501,917 Accumulated other comprehensive loss ( 117,158 ) ( 141,153 ) Treasury stock, at cost, 305,044 shares at September 30, 2024 and 332,470 shares at December 31, 2023 ( 14,050 ) ( 15,313 ) Total shareholders’ equity 502,229 472,686 Total liabilities and shareholders’ equity $ 7,141,571 $ 7,202,847 The accompanying notes are an integral part of these unaudited consolidated financial statements. -4- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Income (unaudited) (Dollars and shares in thousands, except per share amounts) Three Months Nine Months Periods ended September 30, 2024 2023 2024 2023 Interest income: Interest and fees on loans $ 75,989 $ 70,896 $ 227,865 $ 196,094 Interest on mortgage loans held for sale 366 332 1,013 725 Taxable interest on debt securities 6,795 7,271 20,835 21,868 Dividends on Federal Home Loan Bank stock 1,262 878 3,459 2,333 Other interest income 3,174 1,344 5,667 3,693 Total interest and dividend income 87,586 80,721 258,839 224,713 Interest expense: Deposits 37,203 34,069 111,963 83,362 Federal Home Loan Bank advances 17,717 12,497 50,151 35,775 Junior subordinated debentures 404 404 1,213 1,132 Total interest expense 55,324 46,970 163,327 120,269 Net interest income 32,262 33,751 95,512 104,444 Provision for credit losses 200 500 1,400 2,000 Net interest income after provision for credit losses 32,062 33,251 94,112 102,444 Noninterest income: Wealth management revenues 9,989 8,948 29,005 26,659 Mortgage banking revenues 2,866 2,108 8,133 5,106 Card interchange fees 1,321 1,267 3,741 3,667 Service charges on deposit accounts 784 674 2,238 2,118 Loan related derivative income 126 1,082 459 1,278 Income from bank-owned life insurance 770 710 2,262 2,754 Other income 416 437 4,257 1,252 Total noninterest income 16,272 15,226 50,095 42,834 Noninterest expense: Salaries and employee benefits 21,350 21,622 64,385 63,994 Outsourced services 4,185 3,737 12,061 10,854 Net occupancy 2,399 2,387 7,357 7,240 Equipment 924 1,107 2,902 3,185 Legal, audit, and professional fees 836 1,058 2,283 2,932 FDIC deposit insurance costs 1,402 1,185 4,247 3,428 Advertising and promotion 857 789 2,066 1,624 Amortization of intangibles 206 211 622 635 Other expenses 2,345 2,294 6,854 7,078 Total noninterest expense 34,504 34,390 102,777 100,970 Income before income taxes 13,830 14,087 41,430 44,308 Income tax expense 2,849 2,926 8,698 9,079 Net income $ 10,981 $ 11,161 $ 32,732 $ 35,229 Net income available to common shareholders $ 10,973 $ 11,140 $ 32,732 $ 35,160 Weighted average common shares outstanding - basic 17,058 17,019 17,048 17,034 Weighted average common shares outstanding - diluted 17,140 17,041 17,115 17,063 Per share information: Basic earnings per common share $ 0.64 $ 0.65 $ 1.92 $ 2.06 Diluted earnings per common share $ 0.64 $ 0.65 $ 1.91 $ 2.06 The accompanying notes are an integral part of these unaudited consolidated financial statements. -5- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (unaudited) (Dollars in thousands) Three Months Nine Months Periods ended September 30, 2024 2023 2024 2023 Net income $ 10,981 $ 11,161 $ 32,732 $ 35,229 Other comprehensive income (loss), net of tax: Net change in fair value of available for sale debt securities 30,254 ( 32,785 ) 20,015 ( 29,414 ) Net change in fair value of cash flow hedges ( 1,108 ) 2,833 3,912 8,345 Net change in defined benefit plan obligations 22 45 68 135 Total other comprehensive income (loss), net of tax 29,168 ( 29,907 ) 23,995 ( 20,934 ) Total comprehensive income (loss) $ 40,149 ($ 18,746 ) $ 56,727 $ 14,295 The accompanying notes are an integral part of these unaudited consolidated financial statements. -6- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (unaudited) (Dollars and shares in thousands, except per share amounts) For the three months ended September 30, 2024 Common Shares Outstanding Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance at June 30, 2024 17,058 $ 1,085 $ 125,898 $ 504,350 ($ 146,326 ) ($ 14,050 ) $ 470,957 Net income — — — 10,981 — — 10,981 Total other comprehensive income, net of tax — — — — 29,168 — 29,168 Cash dividends declared ($ 0.56 per share) — — — ( 9,677 ) — — ( 9,677 ) Share-based compensation — — 800 — — — 800 Balance at September 30, 2024 17,058 $ 1,085 $ 126,698 $ 505,654 ($ 117,158 ) ($ 14,050 ) $ 502,229 For the nine months ended September 30, 2024 Common Shares Outstanding Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance at December 31, 2023 17,031 $ 1,085 $ 126,150 $ 501,917 ($ 141,153 ) ($ 15,313 ) $ 472,686 Net income — — — 32,732 — — 32,732 Total other comprehensive income, net of tax — — — — 23,995 — 23,995 Cash dividends declared ($ 1.68 per share) — — — ( 28,995 ) — — ( 28,995 ) Share-based compensation — — 2,078 — — — 2,078 Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered 27 — ( 1,530 ) — — 1,263 ( 267 ) Balance at September 30, 2024 17,058 $ 1,085 $ 126,698 $ 505,654 ($ 117,158 ) ($ 14,050 ) $ 502,229 The accompanying notes are an integral part of these unaudited consolidated financial statements. -7- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (unaudited) (Dollars and shares in thousands, except per share amounts) For the three months ended September 30, 2023 Common Shares Outstanding Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance at June 30, 2023 17,019 $ 1,085 $ 125,685 $ 496,996 ($ 148,827 ) ($ 15,778 ) $ 459,161 Net income — — — 11,161 — — 11,161 Total other comprehensive loss, net of tax — — — — ( 29,907 ) — ( 29,907 ) Cash dividends declared ($ 0.56 per share) — — — ( 9,636 ) — — ( 9,636 ) Share-based compensation — — 624 — — — 624 Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered — — 1 — — — 1 Balance at September 30, 2023 17,019 $ 1,085 $ 126,310 $ 498,521 ($ 178,734 ) ($ 15,778 ) $ 431,404 For the nine months ended September 30, 2023 Common Shares Outstanding Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance at December 31, 2022 17,183 $ 1,085 $ 127,056 $ 492,043 ($ 157,800 ) ($ 8,715 ) $ 453,669 Net income — — — 35,229 — — 35,229 Total other comprehensive loss, net of tax — — — — ( 20,934 ) — ( 20,934 ) Cash dividends declared ($ 1.68 per share) — — — ( 28,751 ) — — ( 28,751 ) Share-based compensation — — 1,569 — — — 1,569 Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered 36 — ( 2,315 ) — — 1,678 ( 637 ) Treasury stock purchased under 2023 Repurchase Program ( 200 ) — — — — ( 8,741 ) ( 8,741 ) Balance at September 30, 2023 17,019 $ 1,085 $ 126,310 $ 498,521 ($ 178,734 ) ($ 15,778 ) $ 431,404 The accompanying notes are an integral part of these unaudited consolidated financial statements. -8- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statement of Cash Flows (unaudited) (Dollars in thousands) Nine months ended September 30, 2024 2023 Cash flows from operating activities: Net income $ 32,732 $ 35,229 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 1,400 2,000 Net gain on sale of bank-owned property ( 988 ) — Depreciation of premises and equipment 2,975 3,006 Net amortization of premiums and discounts on debt securities and loans 878 1,033 Amortization of intangibles 622 635 Share-based compensation 2,078 1,569 Tax expense from stock option exercises and other equity awards ( 134 ) — Income from bank-owned life insurance ( 2,262 ) ( 2,754 ) Net gains on loan sales, including changes in fair value ( 6,599 ) ( 3,446 ) Proceeds from sales of loans, net 296,376 169,392 Loans originated for sale ( 291,647 ) ( 168,892 ) Decrease (increase) in operating lease right-of-use assets 1,752 ( 726 ) (Decrease) increase in operating lease liabilities ( 1,790 ) 996 Decrease (increase) in other assets 4,616 ( 38,002 ) (Decrease) increase in other liabilities ( 1,161 ) 19,913 Net cash provided by operating activities 38,848 19,953 Cash flows from investing activities: Purchases of: Available for sale debt securities: Mortgage-backed — ( 39,967 ) Available for sale debt securities: Other ( 1,050 ) ( 20,221 ) Maturities, calls, and principal payments of: Available for sale debt securities: Mortgage-backed 53,553 55,088 Available for sale debt securities: Other 500 250 Net purchases of Federal Home Loan Bank stock ( 5,546 ) ( 9,205 ) Net decrease (increase) in loans 134,633 ( 494,909 ) Purchases of loans ( 743 ) ( 5,428 ) Proceeds from the sale of property acquired through foreclosure or repossession 680 — Purchases of premises and equipment ( 3,519 ) ( 3,524 ) Net proceeds from the sale of bank-owned property 1,669 — Proceeds from bank-owned life insurance — 1,932 Equity investments in real estate limited partnerships ( 2,841 ) ( 7,167 ) Purchases of other equity investments ( 250 ) ( 375 ) Net cash provided by (used in) investing activities 177,086 ( 523,526 ) Cash flows from financing activities: Net (decrease) increase in deposits ( 176,270 ) 396,601 Proceeds from Federal Home Loan Bank advances 1,970,000 2,895,000 Repayments of Federal Home Loan Bank advances ( 1,860,000 ) ( 2,755,000 ) Treasury stock purchased — ( 8,741 ) Net proceeds from stock option exercises and issuance of other equity awards, net of awards surrendered ( 267 ) ( 637 ) Cash dividends paid ( 28,838 ) ( 29,063 ) Net cash (used in) provided by financing activities ( 95,375 ) 498,160 Net increase (decrease) in cash and cash equivalents 120,559 ( 5,413 ) Cash and cash equivalents at beginning of period 90,184 118,422 Cash and cash equivalents at end of period $ 210,743 $ 113,009 Noncash Activities: Loans charged-off $ 182 $ 157 Loans transferred to property acquired through foreclosure or repossession — 683 Commitment for equity investments in real estate limited partnerships 178 3,967 Supplemental Disclosures: Interest payments $ 168,036 $ 107,270 Income tax payments 6,976 6,826 The accompanying notes are an integral part of these unaudited consolidated financial statements. -9- Condensed Notes to Unaudited Consolidated Financial Statements Note 1 - Basis of Presentation Nature of Operations The Bancorp is a publicly-owned registered bank holding company that has elected to be a financial holding company. The Bancorp’s principal subsidiary is the Bank, a Rhode Island chartered financial institution founded in 1800. The Bank is the oldest community bank in the nation and the largest state-chartered bank headquartered in Rhode Island. Washington Trust offers a full range of financial services, including commercial, residential, and consumer lending, retail and commercial deposit products, and wealth management and trust services through its offices in Rhode Island, Massachusetts, and Connecticut. Basis of Presentation The accounting and reporting policies of the Washington Trust conform to GAAP and to general practices of the banking industry. The Corporation’s Unaudited Consolidated Financial Statements include the accounts of the Bancorp and its wholly-owned subsidiaries, except subsidiaries that are not deemed necessary to be consolidated. Through consolidation, intercompany balances and transactions have been eliminated. The Unaudited Consolidated Financial Statements of the Corporation presented herein have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying Unaudited Consolidated Financial Statements have been included. Interim results are not necessarily indicative of the results of the entire year. The accompanying Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Use of Estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Management considers the ACL on loans to be a material estimate that is particularly susceptible to change. Note 2 - Recently Issued Accounting Pronouncements Accounting Standards Pending Adoption Segment Reporting - Topic 280 Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), was issued in November 2023 to enhance and provide additional transparency on segment disclosures, including disclosure of significant segment expense provided to the chief operating decision maker (“CODM”), as well as disclosing the title and position of the CODM and how they use reported results in assessing segment performance and allocation of resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The provisions under ASU 2023-07 should be applied on a retrospective basis. ASU 2023-07 is not expected to have a material impact on the Corporation’s financial statements. Income Taxes - Topic 740 Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures” (“ASU 2023-09”), was issued in December 2023 to enhance and provide additional transparency on income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The provisions under ASU 2023-09 should be applied on a prospective basis; however, retrospective application is also permitted. ASU 2023-09 is not expected to have a material impact on the Corporation’s financial statements. -10- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Note 3 - Securities Available for Sale Debt Securities The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses, ACL on securities, and fair value of securities by major security type and class of security: (Dollars in thousands) September 30, 2024 Amortized Cost Unrealized Gains Unrealized Losses ACL Fair Value Available for Sale Debt Securities: Obligations of U.S. government-sponsored enterprises $ 250,350 $ 57 ($ 18,463 ) $ — $ 231,944 Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 825,046 475 ( 106,614 ) — 718,907 Obligations of states and political subdivisions 650 14 — — 664 Individual name issuer trust preferred debt securities 9,410 — ( 217 ) — 9,193 Corporate bonds 13,193 — ( 635 ) — 12,558 Total available for sale debt securities $ 1,098,649 $ 546 ($ 125,929 ) $ — $ 973,266 (Dollars in thousands) December 31, 2023 Amortized Cost Unrealized Gains Unrealized Losses ACL Fair Value Available for Sale Debt Securities: Obligations of U.S. government-sponsored enterprises $ 250,450 $ 15 ($ 24,723 ) $ — $ 225,742 Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 879,597 246 ( 125,887 ) — 753,956 Individual name issuer trust preferred debt securities 9,400 — ( 607 ) — 8,793 Corporate bonds 13,182 — ( 1,293 ) — 11,889 Total available for sale debt securities $ 1,152,629 $ 261 ($ 152,510 ) $ — $ 1,000,380 Available for sale debt securities balances exclude accrued interest receivable of $ 2.9 million and $ 3.7 million, respectively, as of September 30, 2024 and December 31, 2023. At September 30, 2024 and December 31, 2023, securities with a fair value of $ 302.3 million and $ 311.9 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRBB, certain public deposits, and for other purposes. See Note 9 for additional disclosure on FHLB borrowings. The schedule of maturities of available for sale debt securities is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments. All other debt securities are included based on contractual maturities. Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties. (Dollars in thousands) September 30, 2024 Amortized Cost Fair Value Due in one year or less $ 98,591 $ 86,486 Due after one year to five years 532,937 478,995 Due after five years to ten years 224,772 195,878 Due after ten years 242,349 211,907 Total debt securities $ 1,098,649 $ 973,266 -11- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Included in the above table are debt securities with an amortized cost balance of $ 253.6 million and a fair value of $ 234.3 million at September 30, 2024 that are callable at the discretion of the issuers. Final maturities of the callable securities range from 10 months to 20 years, with call features ranging from 1 month to 9 years. Assessment of Available for Sale Debt Securities for Impairment Management assesses the decline in fair value of investment securities on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer. Management evaluates both qualitative and quantitative factors to assess whether an impairment exists. The following tables summarize available for sale debt securities in an unrealized loss position, for which an ACL on securities has not been recorded, segregated by length of time that the securities have been in a continuous unrealized loss position: (Dollars in thousands) Less than 12 Months 12 Months or Longer Total September 30, 2024 # Fair Value Unrealized Losses # Fair Value Unrealized Losses # Fair Value Unrealized Losses Obligations of U.S. government-sponsored enterprises 1 $ 20,000 ($ 1 ) 18 $ 191,487 ($ 18,462 ) 19 $ 211,487 ($ 18,463 ) Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises — — — 150 659,027 ( 106,614 ) 150 659,027 ( 106,614 ) Individual name issuer trust preferred debt securities — — — 3 9,193 ( 217 ) 3 9,193 ( 217 ) Corporate bonds — — — 4 12,558 ( 635 ) 4 12,558 ( 635 ) Total 1 $ 20,000 ($ 1 ) 175 $ 872,265 ($ 125,928 ) 176 $ 892,265 ($ 125,929 ) (Dollars in thousands) Less than 12 Months 12 Months or Longer Total December 31, 2023 # Fair Value Unrealized Losses # Fair Value Unrealized Losses # Fair Value Unrealized Losses Obligations of U.S. government-sponsored enterprises 1 $ 19,824 ($ 176 ) 20 $ 195,903 ($ 24,547 ) 21 $ 215,727 ($ 24,723 ) Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 8 43,887 ( 262 ) 154 698,115 ( 125,625 ) 162 742,002 ( 125,887 ) Individual name issuer trust preferred debt securities — — — 3 8,793 ( 607 ) 3 8,793 ( 607 ) Corporate bonds — — — 4 11,889 ( 1,293 ) 4 11,889 ( 1,293 ) Total 9 $ 63,711 ($ 438 ) 181 $ 914,700 ($ 152,072 ) 190 $ 978,411 ($ 152,510 ) There were no debt securities on nonaccrual status at September 30, 2024 and 2023 and, therefore there was no accrued interest related to debt securities reversed against interest income for the three and nine months ended September 30, 2024 and 2023. As of September 30, 2024, the Corporation does not intend to sell the debt securities in an unrealized loss position and has determined that it is more-likely-than-not that the Corporation will not be required to sell each security before the recovery of its amortized cost basis. In addition, management does not believe that any of the securities are impaired due to reasons of credit quality. As further described below, management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates. Therefore, no ACL was recorded at both September 30, 2024 and December 31, 2023. Obligations of U.S. Government Agency and U.S. Government-Sponsored Enterprise Securities, including Mortgage-Backed Securities The contractual cash flows for these securities are either explicitly or implicitly guaranteed by the U.S. government, are -12- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) highly rated by major credit rating agencies, and have a long history of no credit losses. The issuers of these securities continue to make timely principal and interest payments, and none of these securities were past due at September 30, 2024. Additionally, the Corporation utilizes a zero credit loss estimate for these securities. Individual Name Issuer Trust Preferred Debt Securities These securities in an unrealized loss position at September 30, 2024 included three trust preferred securities issued by three individual companies in the banking sector. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date, as well as credit rating changes between the reporting period date and the filing date of this report, and other information. As of September 30, 2024, there was one individual name issuer trust preferred debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 140 thousand that was rated below investment grade by S&P. We noted no downgrades to below investment grade between September 30, 2024 and the filing date of this report. Based on the information available through the filing date of this report, all individual name issuer trust preferred debt securities continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers. Corporate Bonds These securities in an unrealized loss position at September 30, 2024 included four corporate bond holdings issued by three individual companies in the financial services industry. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date, as well as credit rating changes between the reporting period date and the filing date of this report, and other information. As of September 30, 2024, there was one corporate bond debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 25 thousand that was rated below investment grade by S&P. We noted no downgrades to below investment grade between September 30, 2024 and the filing date of this report. Based on the information available through the filing date of this report, all corporate bond debt securities continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers. Note 4 - Loans The following table presents the carrying value of loans, segregated by class of loans: (Dollars in thousands) September 30, 2024 December 31, 2023 Commercial: Commercial real estate (1) $ 2,102,091 $ 2,106,359 Commercial & industrial (2) 566,279 605,072 Total commercial 2,668,370 2,711,431 Residential Real Estate: Residential real estate (3) 2,529,397 2,604,478 Consumer: Home equity 299,379 312,594 Other (4) 17,724 19,203 Total consumer 317,103 331,797 Total loans (5) $ 5,514,870 $ 5,647,706 (1) CRE consists of commercial mortgages primarily secured by non-owner occupied income-producing property, as well as construction and development loans. Construction and development loans are made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings. (2) C&I consists of loans to businesses and individuals, a portion of which are fully or partially collateralized by owner occupied real estate. (3) Residential real estate consists of mortgage and homeowner construction loans secured by one- to four-family residential properties. Also, includes a $ 19 thousand negative basis adjustment associated with fair value hedges at September 30, 2024. See Note 6 for additional disclosure. (4) Other consists of loans to individuals secured by general aviation aircraft and other personal installment loans. (5) Includes net unamortized loan origination costs of $ 13.4 million and $ 13.0 million, respectively, at September 30, 2024 and December 31, 2023 and net unamortized premiums on loans purchased from and serviced by other financial institutions of $ 249 thousand and $ 286 thousand, respectively, at September 30, 2024 and December 31, 2023. The carrying value of loans excludes accrued interest receivable of $ 22.6 million and $ 22.9 million, respectively, as of September 30, 2024 and December 31, 2023. -13- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) As of September 30, 2024 and December 31, 2023, loans amounting to $ 3.3 billion and $ 3.4 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window. See Note 9 for additional disclosure regarding borrowings. Concentrations of Credit Risk A significant portion of our loan portfolio is concentrated among borrowers in southern New England, and a substantial portion of the portfolio is collateralized by real estate in this area. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy, as well as the health of the real estate economic sector in the Corporation’s market area. Past Due Loans Past due status is based on the contractual payment terms of the loan. The following tables present an aging analysis of past due loans, segregated by class of loans: (Dollars in thousands) Days Past Due September 30, 2024 Current 30-59 60-89 90 or More Total Past Due Total Loans Commercial: Commercial real estate $ 2,091,615 $ — $ 10,476 $ — $ 10,476 $ 2,102,091 Commercial & industrial 566,276 3 — — 3 566,279 Total commercial 2,657,891 3 10,476 — 10,479 2,668,370 Residential Real Estate: Residential real estate 2,522,450 912 3,856 2,179 6,947 2,529,397 Consumer: Home equity 296,579 1,520 533 747 2,800 299,379 Other 17,649 75 — — 75 17,724 Total consumer 314,228 1,595 533 747 2,875 317,103 Total loans $ 5,494,569 $ 2,510 $ 14,865 $ 2,926 $ 20,301 $ 5,514,870 (Dollars in thousands) Days Past Due December 31, 2023 Current 30-59 60-89 90 or More Total Past Due Total Loans Commercial: Commercial real estate $ 2,106,359 $ — $ — $ — $ — $ 2,106,359 Commercial & industrial 605,062 10 — — 10 605,072 Total commercial 2,711,421 10 — — 10 2,711,431 Residential Real Estate: Residential real estate 2,596,362 4,369 1,738 2,009 8,116 2,604,478 Consumer: Home equity 309,398 2,349 112 735 3,196 312,594 Other 19,180 20 3 — 23 19,203 Total consumer 328,578 2,369 115 735 3,219 331,797 Total loans $ 5,636,361 $ 6,748 $ 1,853 $ 2,744 $ 11,345 $ 5,647,706 Included in past due loans as of September 30, 2024 and December 31, 2023, were nonaccrual loans of $ 18.1 million and $ 6.9 million, respectively. In addition, all loans 90 days or more past due at September 30, 2024 and December 31, 2023 were classified as nonaccrual. -14- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Nonaccrual Loans Loans, with the exception of certain well-secured loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest, or sooner if considered appropriate by management. Well-secured loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. When loans are placed on nonaccrual status, interest previously accrued but not collected is reversed against current period income. Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest (generally for six months), the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible. The following table is a summary of nonaccrual loans, segregated by class of loans: (Dollars in thousands) September 30, 2024 December 31, 2023 Nonaccrual Loans Nonaccrual Loans With an ACL Without an ACL Total With an ACL Without an ACL Total Commercial: Commercial real estate $ 10,475 $ 7,784 $ 18,259 $ 10,997 $ 21,830 $ 32,827 Commercial & industrial — 616 616 — 682 682 Total commercial 10,475 8,400 18,875 10,997 22,512 33,509 Residential Real Estate: Residential real estate 9,489 1,028 10,517 8,495 1,131 9,626 Consumer: Home equity 1,750 — 1,750 1,483 — 1,483 Other — — — — — — Total consumer 1,750 — 1,750 1,483 — 1,483 Total nonaccrual loans $ 21,714 $ 9,428 $ 31,142 $ 20,975 $ 23,643 $ 44,618 Accruing loans 90 days or more past due $ — $ — Nonaccrual loans of $ 13.0 million and $ 37.7 million, respectively, at September 30, 2024 and December 31, 2023 were current as to the payment of principal and interest. As of September 30, 2024 and December 31, 2023, nonaccrual loans secured by one- to four-family residential property amounting to $ 2.4 million and $ 960 thousand, respectively, were in process of foreclosure. There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at September 30, 2024. -15- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table presents interest income recognized on nonaccrual loans: (Dollars in thousands) Three Months Nine Months Periods ended September 30, 2024 2023 2024 2023 Commercial: Commercial real estate $ — $ 474 $ — $ 1,344 Commercial & industrial — 9 — 35 Total commercial — 483 — 1,379 Residential Real Estate: Residential real estate 139 82 332 341 Consumer: Home equity 36 22 106 59 Other — 1 — 3 Total consumer 36 23 106 62 Total $ 175 $ 588 $ 438 $ 1,782 Troubled Loan Modifications In the course of resolving problem loans, the Corporation may choose to modify the contractual terms of certain loans. A loan that has been modified is considered a TLM when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows. 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. Modifications to borrowers experiencing financial difficulty may include modified contractual terms that have a direct impact to contractual cash flows, including principal forgiveness, interest rate reductions, maturity extensions, other-than-insignificant payment delays, or any combination thereof. Nonaccrual loans that become TLMs generally remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If a TLM is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. If the TLM successfully meets all repayment terms according to the modification documents for a specified period of time (generally 12 months) and the borrower is no longer experiencing financial difficulty, it would be declassified from TLM status. In addition, if a TLM is subsequently modified and the borrower is no longer experiencing financial difficulty, it would be declassified from TLM status. During the three months ended September 30, 2024, there were no loans modified as a TLM. The following table presents the carrying value of TLMs made during the nine months ended September 30, 2024, segregated by class of loans and type of concession granted: (Dollars in thousands) Maturity Extension Other-than-Insignificant Payment Delay Total % of Loan Class (1) Commercial: Commercial real estate $ — $ — $ — — % Commercial & industrial 616 — 616 — Total commercial 616 — 616 — Residential Real Estate: Residential real estate — 265 265 — Total $ 616 $ 265 $ 881 — % (1) Percentage of TLMs to the total loans outstanding within the respective loan class. -16- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table presents the carrying value of TLMs made during the three and nine months ended September 30, 2023, segregated by class of loans and type of concession granted: (Dollars in thousands) Maturity Extension Total % of Loan Class (1) Commercial: Commercial real estate $ 13,963 $ 13,963 1 % Commercial & industrial — — — Total commercial 13,963 13,963 1 Total $ 13,963 $ 13,963 — % (1) Percentage of TLMs to the total loans outstanding within the respective loan class. The following table describes the financial effect of TLMs made during the nine months ended September 30, 2024, segregated by class of loans: Nine months ended September 30, 2024 Financial Effect Maturity Extension: Commercial & industrial Extended maturity by a weighted average of 120 months Other-than-Insignificant Payment Delay: Residential real estate Provided payment delay for a weighted average period of 6 months The following table describes the financial effect of TLMs made during the three and nine months ended September 30, 2023, segregated by class of loans: Financial Effect Maturity Extension: Commercial real estate Extended maturity by a weighted average period of 9 months Management closely monitors the performance of TLMs to understand the effectiveness of the modifications. The following table presents an aging analysis, as of the date indicated, of TLMs that have been modified in the past 12 months: (Dollars in thousands) Days Past Due September 30, 2024 Current 30-59 60-89 90 or More Total Past Due Total Loans Commercial: Commercial real estate $ 7,519 $ — $ — $ — $ — $ 7,519 Commercial & industrial 881 — — — — 881 Total commercial 8,400 — — — — 8,400 Residential Real Estate: Residential real estate 265 — — — — 265 Total loans $ 8,665 $ — $ — $ — $ — $ 8,665 There were no TLMs made in the previous 12 months for which there was a subsequent payment default. There were no significant commitments to lend additional funds to borrowers experiencing financial difficulty whose loans were TLMs at September 30, 2024. Individually Analyzed Loans Individually analyzed loans are individually assessed for credit impairment and include nonaccrual commercial loans, TLMs, as well as certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans. -17- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) As of September 30, 2024 and December 31, 2023, individually analyzed loans amounted to $ 19.9 million and $ 34.6 million, respectively, all of which were considered collateral dependent. For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. See Note 7 for additional disclosure regarding fair value of individually analyzed collateral dependent loans. The following table presents the carrying value of collateral dependent individually analyzed loans: (Dollars in thousands) September 30, 2024 December 31, 2023 Carrying Value Related Allowance Carrying Value Related Allowance Commercial: Commercial real estate (1) $ 18,259 $ 500 $ 32,827 $ 97 Commercial & industrial (2) 616 — 682 — Total commercial 18,875 500 33,509 97 Residential Real Estate: Residential real estate (3) 1,028 — 1,131 — Total $ 19,903 $ 500 $ 34,640 $ 97 (1) Secured by income-producing property. (2) Secured by business assets. (3) Secured by one- to four-family residential properties. Credit Quality Indicators Commercial The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan risk rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees, and other credit quality characteristics. The Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate ACL on loans. See Note 5 for additional information. A description of the commercial loan categories is as follows: Pass - Loans with acceptable credit quality, defined as ranging from superior or very strong to a status of lesser stature. Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity. Lesser stature loans have an acceptable level of credit quality, but may exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, performance or may be in an industry or of a loan type known to have a higher degree of risk. These weaknesses may be mitigated by secondary sources of repayment, including SBA guarantees. Special Mention - Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s position as creditor at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Examples of these conditions include but are not limited to outdated or poor quality financial data, strains on liquidity and leverage, losses or negative trends in operating results, marginal cash flow, weaknesses in occupancy rates or trends in the case of commercial real estate, and frequent delinquencies. Classified - Loans identified as “substandard,” “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectability. A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to -18- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined. “Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset. The Corporation’s procedures call for loan risk ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, management reviews a watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate, and other selected loans. Management’s review focuses on the current status of the loans, the appropriateness of risk ratings and strategies to improve the credit. An annual credit review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices, and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio. Residential and Consumer Management monitors the relatively homogeneous residential real estate and consumer loan portfolios on an ongoing basis using delinquency information by loan type. In addition, other techniques are utilized to monitor indicators of credit deterioration in the residential real estate loans and home equity consumer loans. Among these techniques is the periodic tracking of loans with an updated Fair Isaac Corporation (commonly known as “FICO”) score and an updated estimated LTV ratio. LTV is estimated based on such factors as geographic location, the original appraised value, and changes in median home prices, and takes into consideration the age of the loan. The results of these analyses and other credit review procedures, including selected targeted internal reviews, are taken into account in the determination of qualitative loss factors for residential real estate and home equity consumer credits. -19- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table includes information on credit quality indicators and gross charge-offs for the Corporation’s loan portfolio, segregated by class of loans as of September 30, 2024: (Dollars in thousands) Term Loans Amortized Cost by Origination Year 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Revolving Loans Converted to Term Loans Total Commercial: CRE: Pass $ 102,951 $ 411,548 $ 595,793 $ 363,292 $ 126,092 $ 440,220 $ 12,702 $ 998 $ 2,053,596 Special mention — — — — — 6,291 — — 6,291 Classified 20,518 7,784 — — — 13,902 — — 42,204 Total CRE 123,469 419,332 595,793 363,292 126,092 460,413 12,702 998 2,102,091 Gross charge-offs — — — — — — — — — C&I: Pass 36,394 51,886 134,880 24,008 45,534 167,399 86,116 500 546,717 Special mention — — 3,630 1,223 1,420 6,511 5,001 — 17,785 Classified 815 — — 169 — 793 — — 1,777 Total C&I 37,209 51,886 138,510 25,400 46,954 174,703 91,117 500 566,279 Gross charge-offs 24 — — — — — — — 24 Residential Real Estate: Residential real estate: Current (1) 61,973 412,283 780,622 633,280 239,234 395,077 — — 2,522,469 Past due — 288 — — 510 6,149 — — 6,947 Total residential real estate 61,973 412,571 780,622 633,280 239,744 401,226 — — 2,529,416 Gross charge-offs — — — — — — — — — Consumer: Home equity: Current 10,553 18,968 13,186 6,298 2,368 4,580 227,817 12,809 296,579 Past due — 196 100 — 142 873 899 590 2,800 Total home equity 10,553 19,164 13,286 6,298 2,510 5,453 228,716 13,399 299,379 Gross charge-offs — — — — — — — — — Other: Current 3,266 4,774 3,046 2,241 857 3,228 237 — 17,649 Past due 41 — 24 9 — 1 — — 75 Total other 3,307 4,774 3,070 2,250 857 3,229 237 — 17,724 Gross charge-offs 153 — — — 2 3 — — 158 Total loans, amortized cost $ 236,511 $ 907,727 $ 1,531,281 $ 1,030,520 $ 416,157 $ 1,045,024 $ 332,772 $ 14,897 $ 5,514,889 Total gross charge-offs $ 177 $ — $ — $ — $ 2 $ 3 $ — $ — $ 182 (1) Excludes a $ 19 thousand negative basis adjustment associated with fair value hedges. See Note 6 for additional disclosure. -20- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table includes information on credit quality indicators and gross charge-offs for the Corporation’s loan portfolio, segregated by class of loans as of December 31, 2023: (Dollars in thousands) Term Loans Amortized Cost by Origination Year 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Revolving Loans Converted to Term Loans Total Commercial: CRE: Pass $ 327,139 $ 598,946 $ 396,468 $ 168,451 $ 167,484 $ 333,356 $ 42,095 $ 1,032 $ 2,034,971 Special mention — — — — — 16,630 — — 16,630 Classified 21,830 — 18,430 — 14,498 — — — 54,758 Total CRE 348,969 598,946 414,898 168,451 181,982 349,986 42,095 1,032 2,106,359 Gross charge-offs — — — — — 373 — — 373 C&I: Pass 55,607 124,894 52,282 49,812 72,876 145,361 90,664 587 592,083 Special mention 11,119 — — — 181 — — — 11,300 Classified — 818 189 — 682 — — — 1,689 Total C&I 66,726 125,712 52,471 49,812 73,739 145,361 90,664 587 605,072 Gross charge-offs 37 — — — — — — — 37 Residential Real Estate: Residential real estate: Current 431,563 808,442 666,447 255,554 113,462 320,894 — — 2,596,362 Past due — — — 886 594 6,636 — — 8,116 Total residential real estate 431,563 808,442 666,447 256,440 114,056 327,530 — — 2,604,478 Gross charge-offs — — — — — — — — — Consumer: Home equity: Current 24,925 14,997 6,829 2,919 1,982 3,696 241,459 12,591 309,398 Past due — — — — 130 829 1,301 936 3,196 Total home equity 24,925 14,997 6,829 2,919 2,112 4,525 242,760 13,527 312,594 Gross charge-offs — — — — — — — — — Other: Current 6,777 3,530 3,685 1,001 120 3,824 243 — 19,180 Past due 21 — — — — — 2 — 23 Total other 6,798 3,530 3,685 1,001 120 3,824 245 — 19,203 Gross charge-offs 159 — 8 — — — — — 167 Total loans, amortized cost $ 878,981 $ 1,551,627 $ 1,144,330 $ 478,623 $ 372,009 $ 831,226 $ 375,764 $ 15,146 $ 5,647,706 Total gross charge-offs $ 196 $ — $ 8 $ — $ — $ 373 $ — $ — $ 577 -21- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Washington Trust may renew commercial loans at or immediately prior to their maturity. In the tables above, renewals subject to full credit evaluation before being granted are reported as originations in the period renewed. In addition, loans with extensions of maturity dates of more than three months are reported as originations in the period extended. Note 5 - Allowance for Credit Losses on Loans The ACL on loans is management’s estimate of expected lifetime credit losses on loans carried at amortized cost. The level of the ACL on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The following table presents the activity in the ACL on loans for the three months ended September 30, 2024: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 25,766 $ 7,097 $ 32,863 $ 8,102 $ 1,080 $ 333 $ 1,413 $ 42,378 Charge-offs — ( 4 ) ( 4 ) — — ( 55 ) ( 55 ) ( 59 ) Recoveries — 2 2 — 1 8 9 11 Provision ( 8 ) 308 300 ( 39 ) 5 34 39 300 Ending Balance $ 25,758 $ 7,403 $ 33,161 $ 8,063 $ 1,086 $ 320 $ 1,406 $ 42,630 The following table presents the activity in the ACL on loans for the nine months ended September 30, 2024: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 24,144 $ 8,088 $ 32,232 $ 7,403 $ 1,048 $ 374 $ 1,422 $ 41,057 Charge-offs — ( 24 ) ( 24 ) — — ( 158 ) ( 158 ) ( 182 ) Recoveries — 19 19 — 8 28 36 55 Provision 1,614 ( 680 ) 934 660 30 76 106 1,700 Ending Balance $ 25,758 $ 7,403 $ 33,161 $ 8,063 $ 1,086 $ 320 $ 1,406 $ 42,630 The following table presents the activity in the ACL on loans for the three months ended September 30, 2023: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 22,026 $ 9,428 $ 31,454 $ 6,442 $ 1,039 $ 408 $ 1,447 $ 39,343 Charge-offs — ( 5 ) ( 5 ) — — ( 39 ) ( 39 ) ( 44 ) Recoveries — 1 1 — 7 6 13 14 Provision 1,659 ( 1,002 ) 657 276 ( 54 ) 21 ( 33 ) 900 Ending Balance $ 23,685 $ 8,422 $ 32,107 $ 6,718 $ 992 $ 396 $ 1,388 $ 40,213 -22- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table presents the activity in the ACL on loans for the nine months ended September 30, 2023: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 18,435 $ 10,356 $ 28,791 $ 7,740 $ 1,115 $ 381 $ 1,496 $ 38,027 Charge-offs — ( 25 ) ( 25 ) — — ( 132 ) ( 132 ) ( 157 ) Recoveries — 10 10 — 10 23 33 43 Provision 5,250 ( 1,919 ) 3,331 ( 1,022 ) ( 133 ) 124 ( 9 ) 2,300 Ending Balance $ 23,685 $ 8,422 $ 32,107 $ 6,718 $ 992 $ 396 $ 1,388 $ 40,213 Note 6 - Derivative Financial Instruments The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments, principally to manage the Corporation’s interest rate risk. Additionally, the Corporation enters into interest rate derivatives to accommodate the business requirements of its customers. All derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. Derivative assets are included in other assets. and derivative liabilities are included in other liabilities in the Unaudited Consolidated Balance Sheets. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation. Interest Rate Risk Management Agreements Interest rate risk management agreements, such as swaps, caps, floors, and collars, are used from time to time as part of the Corporation’s interest rate risk management strategy. Interest rate swaps are agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments or variable-rate for fixed-rate payments) computed on a notional principal amount. Interest rate caps and floors represent options purchased by the Corporation to manage the interest rate paid throughout the term of the option contract. An interest rate collar is a derivative instrument that represents simultaneously buying an interest rate cap and selling an interest rate floor. The credit risk associated with these transactions is the risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the potential loss exposure. Cash Flow Hedging Instruments As of September 30, 2024 and December 31, 2023, the Corporation had interest rate swap contracts that were designated as cash flow hedges. In addition, at September 30, 2024, the Corporation had an interest rate collar that was designated as a cash flow hedge. These cash flow hedges were executed to hedge the interest rate risk associated with short-term borrowings. See Note 9 for additional disclosure on borrowings. On March 31, 2023, the Corporation terminated an interest rate swap contract that was designated as a cash flow hedge to hedge the interest rate risk associated with a pool of variable rate commercial loans. On the termination date, the derivative liability was derecognized. The loss on this interest rate swap included in the AOCL component of shareholders’ equity was updated to its termination date fair value of $ 26.5 million, or $ 20.1 million after tax. This loss is being amortized into earnings as a reduction of interest income on a straight-line basis over the remaining life of the original interest rate swap term, or through May 1, 2026. At September 30, 2024, the remaining unamortized balance of the loss included in the AOCL component of shareholders’ equity was $ 13.6 million, or $ 10.1 million after tax. The changes in fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) and subsequently reclassified to earnings when gains or losses are realized. Fair Value Hedging Instruments As of September 30, 2024, the Corporation had interest rate swap contracts that were designated as fair value hedges. The fair value hedges were executed to hedge the interest rate risk associated with a closed-pool of fixed-rate residential real estate loans (the “hedged item”). See Note 4 for additional disclosure on residential real estate loans. The hedged item is measured at fair value through a basis adjustment recognized on the balance sheet. The changes in fair -23- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) value of derivatives designated as fair value hedges, as well as the offsetting changes in fair value of the hedged item are recognized in earnings. Loan Related Derivative Contracts Interest Rate Derivative Contracts with Customers The Corporation enters into interest rate swap and interest rate cap contracts to help commercial loan borrowers manage their interest rate risk. These interest rate swap contracts allow borrowers to convert variable-rate loan payments to fixed-rate loan payments, while interest rate cap contracts allow borrowers to limit their interest rate exposure in a rising rate environment. When the Corporation enters into an interest rate derivative contract with a commercial loan borrower, it simultaneously enters into a “mirror” interest rate contract with a third party. For interest rate swaps, the third party exchanges the client’s fixed-rate loan payments for variable-rate loan payments. The Corporation’s credit policies with respect to interest rate contracts with commercial borrowers are similar to those used for loans. The Corporation retains the risk that is associated with the potential failure of counterparties and the risk inherent in originating loans. The interest rate contracts with counterparties are generally subject to bilateral collateralization terms. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings. Risk Participation Agreements The Corporation has entered into risk participation agreements with other banks in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings. Under a risk participation-out agreement, a derivative asset, the Corporation participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Corporation assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank. Mortgage Loan Commitments Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale. To mitigate the interest rate risk and pricing risk associated with rate locks and mortgage loans held for sale, the Corporation enters into forward sale commitments. Forward sale commitments are contracts for delayed delivery or net settlement of the underlying instrument, such as a residential real estate mortgage loan, where the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument. Both interest rate lock commitments and forward sale commitments are derivative financial instruments, but do not meet criteria for hedge accounting and therefore, the changes in fair value of these commitments are recognized in earnings. -24- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table presents the notional amounts and fair values of derivative instruments in the Unaudited Consolidated Balance Sheets: (Dollars in thousands) September 30, 2024 December 31, 2023 Fair Value Fair Value Notional Amounts Derivative Assets Derivative Liabilities Notional Amounts Derivative Assets Derivative Liabilities Derivatives Designated as Cash Flow Hedging Instruments: Interest rate risk management contracts: Interest rate swaps (1) $ 120,000 $ 307 $ 1,640 $ 120,000 $ 802 $ 1,119 Interest rate collar 50,000 — 198 — — — Derivatives Designated as Fair Value Hedging Instruments: Interest rate risk management contracts: Interest rate swaps 100,000 33 14 — — — Derivatives not Designated as Hedging Instruments: Loan related derivative contracts: Interest rate contracts with customers 902,068 8,069 36,501 938,872 6,594 52,102 Mirror contracts with counterparties 902,068 36,346 8,206 938,872 51,859 6,757 Risk participation agreements 340,822 58 1 321,055 66 1 Mortgage loan commitments: Interest rate lock commitments 41,191 684 — 20,980 504 1 Forward sale commitments 76,213 78 513 50,117 18 711 Gross amounts 45,575 47,073 59,843 60,691 Less: amounts offset (2) 8,528 8,528 7,877 7,877 Derivative balances, net of offset 37,047 38,545 51,966 52,814 Less: collateral pledged (3) — — — — Net amounts $ 37,047 $ 38,545 $ 51,966 $ 52,814 (1) The fair value of derivative assets includes accrued interest receivable of $ 218 thousand and $ 239 thousand, respectively, at September 30, 2024 and December 31, 2023. There was no accrued interest payable included in the fair value of derivative liabilities at September 30, 2024 or at December 31, 2023. (2) Interest rate risk management contracts and loan related derivative contracts with counterparties are subject to master netting arrangements. (3) Collateral contractually required to be pledged to derivative counterparties is in the form of cash. Washington Trust may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions. The following table presents the effect of derivative instruments in the Unaudited Consolidated Statements of Changes in Shareholders’ Equity: (Dollars in thousands) Amounts Recognized in Other Comprehensive Income (Loss), Net of Tax Three Months Nine Months Periods ended September 30, 2024 2023 2024 2023 Derivatives Designated as Cash Flow Hedging Instruments: Interest rate risk management contracts: Interest rate swaps ($ 992 ) $ 2,833 $ 4,059 $ 8,345 Interest rate collar ( 116 ) — ( 147 ) — Total ($ 1,108 ) $ 2,833 $ 3,912 $ 8,345 -25- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table presents the effect of derivative instruments in the Unaudited Consolidated Statements of Income: (Dollars in thousands) Amount of Gain (Loss) Recognized in the Unaudited Consolidated Statements of Income Three Months Nine Months Periods ended September 30, Statement of Income Location 2024 2023 2024 2023 Derivatives Designated as Cash Flow Hedging Instruments: Interest rate risk management contracts: Interest rate swaps Interest income: Interest and fees on loans ( 2,164 ) ( 2,164 ) ( 6,441 ) ( 7,065 ) Interest rate swaps Interest expense: FHLB advances 487 631 1,475 1,022 Derivatives Designated as Fair Value Hedging Instruments: Interest rate risk management contracts: Interest rate swaps Interest income: Interest and fees on loans 19 — 19 — Hedged item Interest income: Interest and fees on loans ( 19 ) — ( 19 ) — Derivatives not Designated as Hedging Instruments: Loan related derivative contracts: Interest rate contracts with customers Loan related derivative income $ 22,742 ($ 18,684 ) ($ 2,615 ) ($ 28,044 ) Mirror interest rate contracts with counterparties Loan related derivative income ( 22,733 ) 20,291 2,981 29,815 Risk participation agreements Loan related derivative income 117 ( 525 ) 93 ( 493 ) Mortgage loan commitments: Interest rate lock commitments Mortgage banking revenues ( 20 ) ( 17 ) 180 174 Forward sale commitments Mortgage banking revenues ( 432 ) 456 ( 189 ) 814 Total ($ 2,003 ) ($ 12 ) ($ 4,516 ) ($ 3,777 ) For derivatives designated as cash flow hedging instruments in the table above, the amounts represent the pre-tax reclassifications from AOCL into earnings. Note 7 - Fair Value Measurements The Corporation uses fair value measurements to record fair value adjustments on certain assets and liabilities and to determine fair value disclosures. Items recorded at fair value on a recurring basis include securities available for sale, mortgage loans held for sale, and derivatives. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as collateral dependent individually analyzed loans. Fair value is a market-based measurement, not an entity-specific measurement. Fair value measurements are determined based on the assumptions the market participants would use in pricing the asset or liability. In addition, GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information, or “inputs”, are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Corporation’s market assumptions. These two types of inputs have created the following fair value hierarchy: • Level 1 – Quoted prices for identical assets or liabilities in active markets. • Level 2 – 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 inputs and significant value drivers are observable in active markets. • Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in the markets and which reflect the Corporation’s market assumptions. Fair Value Option Election GAAP allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Corporation has elected the fair value option for mortgage loans held for sale to better match changes in fair value of the loans with changes in the fair value of the forward sale commitment contracts used to economically hedge them. -26- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table presents a summary of mortgage loans held for sale accounted for under the fair value option: (Dollars in thousands) September 30, 2024 December 31, 2023 Aggregate fair value $ 20,864 $ 20,077 Aggregate principal balance 20,389 19,480 Difference between fair value and principal balance $ 475 $ 597 Changes in fair value of mortgage loans held for sale accounted for under the fair value option election are included in mortgage banking revenues in the Unaudited Consolidated Statements of Income. Changes in fair value amounted to decreases in mortgage banking revenues of $ 31 thousand and $ 122 thousand, respectively, for the three and nine months ended September 30, 2024. This compared to decreases in mortgage banking revenues of $ 39 thousand and $ 21 thousand, respectively, for the three and nine months ended September 30, 2023. There were no mortgage loans held for sale 90 days or more past due as of September 30, 2024 and December 31, 2023. Valuation Techniques Debt Securities Available for sale debt securities are recorded at fair value on a recurring basis. When available, the Corporation uses quoted market prices to determine the fair value of debt securities; such items are classified as Level 1. There were no Level 1 debt securities held at September 30, 2024 and December 31, 2023. Level 2 debt securities are traded less frequently than exchange-traded instruments. The fair value of these securities is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category includes obligations of U.S. government-sponsored enterprises, including mortgage-backed securities, individual name issuer trust preferred debt securities, and corporate bonds. Debt securities not actively traded whose fair value is determined through the use of cash flows utilizing inputs that are unobservable are classified as Level 3. There were no Level 3 debt securities held at September 30, 2024 and December 31, 2023. Mortgage Loans Held for Sale The Corporation has elected the fair value option for mortgage loans held for sale. The fair value is estimated based on current market prices for similar loans in the secondary market and therefore are classified as Level 2 assets. Collateral Dependent Individually Analyzed Loans Collateral dependent individually analyzed loans are valued based upon the lower of amortized cost or fair value. Fair value is determined based on the appraised value of the underlying collateral. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. For collateral dependent loans that are expected to be repaid substantially through the sale of the collateral, management adjusts the fair value for estimated costs to sell. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the collateral. Internal valuations may be utilized to determine the fair value of other business assets. Collateral dependent individually analyzed loans are categorized as Level 3. Loan Servicing Rights Loans sold with the retention of servicing result in the recognition of loan servicing rights. Loan servicing rights are included in other assets in the Unaudited Consolidated Balance Sheets and are amortized as an offset to mortgage banking revenues over the estimated period of servicing. Loan servicing rights are evaluated quarterly for impairment based on their fair value. Impairment exists if the carrying value exceeds the estimated fair value. Impairment is measured on an aggregated basis by stratifying the loan servicing rights based on homogeneous characteristics such as note rate and loan type. The fair value is estimated using an independent valuation model that estimates the present value of expected cash flows, incorporating assumptions for discount rates and prepayment rates. Any impairment is recognized through a valuation allowance and as a reduction to mortgage banking revenues. Loan servicing rights are categorized as Level 3. -27- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Derivatives Interest rate derivative contracts are traded in over-the-counter markets where quoted market prices are not readily available. Fair value measurements are determined using independent valuation software, which utilizes the present value of future cash flows discounted using market observable inputs such as forward rate assumptions. The Corporation evaluates the credit risk of its counterparties, as well as that of the Corporation. Accordingly, factors such as the likelihood of default by the Corporation and its counterparties, its net exposures, and remaining contractual life are considered in determining if any fair value adjustments related to credit risk are required. Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position, if any. The Corporation has determined that the majority of the inputs used to value its derivative positions fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments utilize Level 3 inputs. As of September 30, 2024 and December 31, 2023, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Corporation has classified its derivative valuations in their entirety as Level 2. Fair value measurements of forward loan commitments (interest rate lock commitments and forward sale commitments) are primarily based on current market prices for similar assets in the secondary market for mortgage loans and therefore are classified as Level 2 assets. The fair value of interest rate lock commitments is also dependent on the ultimate closing of the loans. Pull-through rates are based on the Corporation’s historical data and reflect the Corporation’s best estimate of the likelihood that a commitment will result in a closed loan. Although the pull-through rates are Level 3 inputs, the Corporation has assessed the significance of the impact of pull-through rates on the overall valuation of its interest rate lock commitments and has determined that they are not significant to the overall valuation. As a result, the Corporation has classified its interest rate lock commitments as Level 2. Items Recorded at Fair Value on a Recurring Basis The following tables present the balances of assets and liabilities reported at fair value on a recurring basis: (Dollars in thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) September 30, 2024 Assets: Available for sale debt securities: Obligations of U.S. government-sponsored enterprises $ 231,944 $ — $ 231,944 $ — Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 718,907 — 718,907 — Obligations of states and political subdivisions 664 — 664 — Individual name issuer trust preferred debt securities 9,193 — 9,193 — Corporate bonds 12,558 — 12,558 — Mortgage loans held for sale 20,864 — 20,864 — Derivative assets 37,047 — 37,047 — Total assets at fair value on a recurring basis $ 1,031,177 $ — $ 1,031,177 $ — Liabilities: Derivative liabilities $ 38,545 $ — $ 38,545 $ — Total liabilities at fair value on a recurring basis $ 38,545 $ — $ 38,545 $ — -28- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) (Dollars in thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 Assets: Available for sale debt securities: Obligations of U.S. government-sponsored enterprises $ 225,742 $ — $ 225,742 $ — Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 753,956 — 753,956 — Individual name issuer trust preferred debt securities 8,793 — 8,793 — Corporate bonds 11,889 — 11,889 — Mortgage loans held for sale 20,077 — 20,077 — Derivative assets 51,966 — 51,966 — Total assets at fair value on a recurring basis $ 1,072,423 $ — $ 1,072,423 $ — Liabilities: Derivative liabilities $ 52,814 $ — $ 52,814 $ — Total liabilities at fair value on a recurring basis $ 52,814 $ — $ 52,814 $ — Items Recorded at Fair Value on a Nonrecurring Basis The following table presents the carrying value of assets held at September 30, 2024, which were written down to fair value during the nine months ended September 30, 2024: (Dollars in thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Collateral dependent individually analyzed loan $ 9,976 $ — $ — $ 9,976 Loan servicing rights 7,773 — — 7,773 Total assets at fair value on a nonrecurring basis $ 17,749 $ — $ — $ 17,749 The following table presents the carrying value of assets held at December 31, 2023, which were written down to fair value during the year ended December 31, 2023. (Dollars in thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Collateral dependent individually analyzed loans $ 8,050 $ — $ — $ 8,050 Loan servicing rights 8,512 — — 8,512 Total assets at fair value on a nonrecurring basis $ 16,562 $ — $ — $ 16,562 -29- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following tables present valuation techniques and unobservable inputs for assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value: (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range of Inputs Utilized (Weighted Average) September 30, 2024 Collateral dependent individually analyzed loan $ 9,976 Appraisals of collateral Discount for costs to sell 2 % Appraisal adjustments 0 % Loan servicing rights 7,773 Discounted cash flow Discount rates 10 % - 14 % ( 10 %) Prepayment rates 5 % - 42 % ( 9 %) (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Inputs Utilized (Weighted Average) December 31, 2023 Collateral dependent individually analyzed loans $ 8,050 Appraisals of collateral Discount for costs to sell 0 % Appraisal adjustments 0 % Loan servicing rights 8,512 Discounted cash flow Discount rates 10 % - 14 % ( 10 %) Prepayment rates 6 % - 53 % ( 9 %) Items for which Fair Value is Only Disclosed The estimated fair values and related carrying amounts for financial instruments for which fair value is only disclosed are presented in the tables below: (Dollars in thousands) September 30, 2024 Carrying Amount Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash and cash equivalents $ 210,743 $ 210,743 $ 210,743 $ — $ — Loans, net of allowance for credit losses on loans (1) 5,472,240 5,297,579 — — 5,297,579 FHLB stock 57,439 57,439 — 57,439 — Investment in BOLI 105,998 105,998 — 105,998 — Financial Liabilities: Non-maturity deposits $ 3,584,267 $ 3,584,267 $ — $ 3,584,267 $ — Time deposits 1,587,623 1,581,094 — 1,581,094 — FHLB advances 1,300,000 1,309,214 — 1,309,214 — Junior subordinated debentures 22,681 19,254 — 19,254 — (1) The estimated fair value excludes a $ 19 thousand negative basis adjustment associated with fair value hedges. See Note 6 for additional disclosure. -30- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) (Dollars in thousands) December 31, 2023 Carrying Amount Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash and cash equivalents $ 90,184 $ 90,184 $ 90,184 $ — $ — Loans, net of allowance for credit losses on loans 5,606,649 5,365,396 — — 5,365,396 FHLB stock 51,893 51,893 — 51,893 — Investment in BOLI 103,736 103,736 — 103,736 — Financial Liabilities: Non-maturity deposits $ 3,559,923 $ 3,559,923 $ — $ 3,559,923 $ — Time deposits 1,788,237 1,773,643 — 1,773,643 — FHLB advances 1,190,000 1,192,262 — 1,192,262 — Junior subordinated debentures 22,681 19,228 — 19,228 — Note 8 - Deposits The following table presents a summary of deposits: (Dollars in thousands) September 30, 2024 December 31, 2023 Noninterest-bearing: Noninterest-bearing demand deposits $ 665,706 $ 693,746 Interest-bearing: Interest-bearing demand deposits 596,319 504,959 NOW accounts 685,531 767,036 Money market accounts 1,146,426 1,096,959 Savings accounts 490,285 497,223 Time deposits (1) 1,587,623 1,788,237 Total interest-bearing deposits 4,506,184 4,654,414 Total deposits $ 5,171,890 $ 5,348,160 (1) Includes wholesale brokered time deposit balances of $ 380.0 million and $ 654.1 million, respectively, as of September 30, 2024 and December 31, 2023. The following table presents scheduled maturities of time certificates of deposit: (Dollars in thousands) Scheduled Maturity Weighted Average Rate October 1, 2024 to December 31, 2024 $ 566,377 4.41 % 2025 860,815 4.46 2026 99,877 3.18 2027 31,043 3.27 2028 24,627 3.69 2029 and thereafter 4,884 2.75 Balance at September 30, 2024 $ 1,587,623 4.32 % Time certificates of deposit in denominations of $250 thousand or more totaled $ 330.9 million and $ 271.2 million, respectively, at September 30, 2024 and December 31, 2023. -31- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Note 9 - Borrowings Advances payable to the FHLB amounted to $ 1.3 billion and $ 1.2 billion, respectively, at September 30, 2024 and December 31, 2023. At September 30, 2024, the Corporation had interest rate swaps with a notional amount of $ 120.0 million, as well as an interest rate collar with a notional amount of $ 50.0 million, that were designated as cash flow hedges to hedge the interest rate risk associated with short-term FHLB advances. See Note 6 for additional disclosure on derivatives. The Bank had available borrowing capacity of $ 931.0 million and $ 1.1 billion, respectively, with the FHLB at September 30, 2024 and December 31, 2023. The Bank pledges certain qualified investment securities and loans as collateral to the FHLB. In addition, the Bank had access to a $ 40.0 million unused line of credit with the FHLB at both September 30, 2024 and December 31, 2023. Furthermore, the Bank had standby letters of credit with the FHLB of $ 66.0 million and $ 65.0 million, respectively, at September 30, 2024 and December 31, 2023, to collateralize institutional deposits. The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of September 30, 2024: (Dollars in thousands) Scheduled Maturity Weighted Average Rate October 1, 2024 to December 31, 2024 $ 450,000 5.38 % 2025 475,000 5.06 2026 165,000 4.54 2027 45,000 4.24 2028 85,000 4.35 2029 and thereafter 80,000 3.82 Balance at September 30, 2024 $ 1,300,000 4.96 % Note 10 - Shareholders' Equity Stock Repurchase Program The 2024 Repurchase Program authorizes the repurchase of up to 850,000 shares, or approximately 5 %, of the Bancorp’s outstanding common stock. This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The 2024 Repurchase Program commenced on January 1, 2024 and expires on December 31, 2024, and may be modified, suspended, or discontinued at any time. As of September 30, 2024, no shares have been repurchased under the 2024 Repurchase Program. -32- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Regulatory Capital Requirements Capital levels at September 30, 2024 exceeded the regulatory minimum levels to be considered “well capitalized.” The following table presents the Corporation’s and the Bank’s actual capital amounts and ratios, as well as the corresponding minimum and well capitalized regulatory amounts and ratios that were in effect during the respective periods: (Dollars in thousands) Actual For Capital Adequacy Purposes To Be “Well Capitalized” Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio September 30, 2024 Total Capital (to Risk-Weighted Assets): Corporation $ 618,974 12.21 % $ 405,397 8.00 % N/A N/A Bank 612,980 12.10 405,250 8.00 $ 506,562 10.00 % Tier 1 Capital (to Risk-Weighted Assets): Corporation 577,073 11.39 304,048 6.00 N/A N/A Bank 571,079 11.27 303,937 6.00 405,250 8.00 Common Equity Tier 1 Capital (to Risk-Weighted Assets): Corporation 555,077 10.95 228,036 4.50 N/A N/A Bank 571,079 11.27 227,953 4.50 329,265 6.50 Tier 1 Capital (to Average Assets): (1) Corporation 577,073 7.85 293,972 4.00 N/A N/A Bank 571,079 7.77 293,870 4.00 367,338 5.00 December 31, 2023 Total Capital (to Risk-Weighted Assets): Corporation 611,220 11.58 422,259 8.00 N/A N/A Bank 605,289 11.47 422,131 8.00 527,663 10.00 Tier 1 Capital (to Risk-Weighted Assets): Corporation 572,960 10.86 316,694 6.00 N/A N/A Bank 567,029 10.75 316,598 6.00 422,131 8.00 Common Equity Tier 1 Capital (to Risk-Weighted Assets): Corporation 550,964 10.44 237,521 4.50 N/A N/A Bank 567,029 10.75 237,449 4.50 342,981 6.50 Tier 1 Capital (to Average Assets): (1) Corporation 572,960 7.80 293,837 4.00 N/A N/A Bank 567,029 7.72 293,742 4.00 367,177 5.00 (1) Leverage ratio. In addition to the minimum regulatory capital required for capital adequacy outlined in the table above, the Corporation and the Bank are required to maintain a minimum capital conservation buffer, in the form of common equity, of 2.50%, resulting in a requirement for the Corporation and the Bank to effectively maintain total capital, Tier 1 capital, and common equity Tier 1 capital ratios of 10.50%, 8.50%, and 7.00%, respectively. The Corporation and the Bank must maintain the capital conservation buffer to avoid restrictions on the ability to pay dividends and discretionary bonuses. The Corporation’s and the Bank’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at September 30, 2024 and December 31, 2023. The Bancorp owns the common stock of two capital trusts, which have issued trust preferred securities. In accordance with GAAP, the capital trusts are treated as unconsolidated subsidiaries. At both September 30, 2024 and December 31, 2023, $ 22.0 million in trust preferred securities were included in the Tier 1 capital of the Corporation for regulatory capital reporting purposes pursuant to the capital adequacy guidelines of the Federal Reserve. In accordance with regulatory capital rules, the Corporation elected the option to delay the estimated impact of ASC 326 on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. As a -33- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) result, capital ratios exclude the full impact of the increased ACL on loans and unfunded loan commitments attributed to the adoption of ASC 326, adjusted for an approximation of the after-tax provision for credit losses attributable to ASC 326 relative to the incurred loss methodology during the two-year deferral period. The cumulative difference at the end of the deferral period is being phased-in to regulatory capital over the three-year transition period, which began January 1, 2022. Note 11 - Revenue from Contracts with Customers The following tables summarize total revenues as presented in the Unaudited Consolidated Statements of Income and the related amounts that are from contracts with customers within the scope of ASC 606. As shown below, a substantial portion of our revenues are specifically excluded from the scope of ASC 606. For the three months ended September 30, 2024 2023 (Dollars in thousands) Revenue (1) ASC 606 Revenue (2) Revenue (1) ASC 606 Revenue (2) Net interest income $ 32,262 $ — $ 33,751 $ — Noninterest income: Wealth management revenues 9,989 9,989 8,948 8,948 Mortgage banking revenues 2,866 — 2,108 — Card interchange fees 1,321 1,321 1,267 1,267 Service charges on deposit accounts 784 784 674 674 Loan related derivative income 126 — 1,082 — Income from bank-owned life insurance 770 — 710 — Other income 416 313 437 329 Total noninterest income 16,272 12,407 15,226 11,218 Total revenues $ 48,534 $ 12,407 $ 48,977 $ 11,218 (1) As reported in the Unaudited Consolidated Statements of Income. (2) Revenue from contracts with customers in scope of ASC 606. For the nine months ended September 30, 2024 2023 (Dollars in thousands) Revenue (1) ASC 606 Revenue (2) Revenue (1) ASC 606 Revenue (2) Net interest income $ 95,512 $ — $ 104,444 $ — Noninterest income: Wealth management revenues 29,005 29,005 26,659 26,659 Mortgage banking revenues 8,133 — 5,106 — Card interchange fees 3,741 3,741 3,667 3,667 Service charges on deposit accounts 2,238 2,238 2,118 2,118 Loan related derivative income 459 — 1,278 — Income from bank-owned life insurance 2,262 — 2,754 — Other income 4,257 869 1,252 949 Total noninterest income 50,095 35,853 42,834 33,393 Total revenues $ 145,607 $ 35,853 $ 147,278 $ 33,393 (1) As reported in the Unaudited Consolidated Statements of Income. (2) Revenue from contracts with customers in scope of ASC 606. -34- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table presents revenue from contracts with customers based on the timing of revenue recognition: (Dollars in thousands) Three Months Nine Months Periods ended September 30, 2024 2023 2024 2023 Revenue recognized at a point in time: Card interchange fees $ 1,321 $ 1,267 $ 3,741 $ 3,667 Service charges on deposit accounts 502 423 1,417 1,406 Other income 253 267 691 764 Revenue recognized over time: Wealth management revenues 9,989 8,948 29,005 26,659 Service charges on deposit accounts 282 251 821 712 Other income 60 62 178 185 Total revenues from contracts with customers in scope of ASC 606 $ 12,407 $ 11,218 $ 35,853 $ 33,393 Receivables for revenue from contracts with customers primarily consist of amounts due for wealth management services performed for which the Corporation’s performance obligations have been fully satisfied. Receivables amounted to $ 5.9 million and $ 5.5 million, respectively, at September 30, 2024 and December 31, 2023 and were included in other assets in the Unaudited Consolidated Balance Sheets. Deferred revenues, which are considered contract liabilities under ASC 606, represent advance consideration received from customers for which the Corporation has a remaining performance obligation to fulfill. Contract liabilities are recognized as revenue over the life of the contract as the performance obligations are satisfied. The balances of contract liabilities were insignificant at both September 30, 2024 and December 31, 2023 and were included in other liabilities in the Unaudited Consolidated Balance Sheets. For commission and incentive costs that are in scope of ASC 606, such as those paid to employees in our wealth management services and commercial banking segments in order to obtain customer contracts, contract cost assets are established. The contract cost assets are capitalized and amortized over the estimated useful life that the asset is expected to generate benefits. The carrying value of contract cost assets amounted to $ 2.0 million at both September 30, 2024 and December 31, 2023 and were included in other assets in the Unaudited Consolidated Balance Sheets. The amortization of contract cost assets is recorded within salaries and employee benefits expense in the Unaudited Consolidated Statements of Income. Note 12 - Defined Benefit Pension Plans Washington Trust maintains a qualified pension plan for the benefit of certain eligible employees who were hired prior to October 1, 2007. Washington Trust also has non-qualified retirement plans to provide supplemental retirement benefits to certain employees, as defined in the plans. These defined benefit pension plans were previously amended to freeze benefit accruals after a 10-year transition period, which ended in December 2023. In the fourth quarter of 2023, the Corporation’s Board of Directors approved a resolution to terminate the qualified pension plan, and participants were notified of the termination. Work on the qualified pension plan termination process continues to progress and the qualified pension plan’s assets are expected to be distributed in 2025, pending completion of applicable regulatory approvals. The qualified pension plan liability is expected to be settled in 2025 through a combination of lump sum payments to participants and purchase of a group annuity contract from a highly-rated insurance company. Upon settlement in 2025, the Corporation expects to recognize a pre-tax pension settlement charge that will include a non-cash charge for the recognition of all pre-tax actuarial losses accumulated in AOCL at that time. The actual amount of the settlement charge will depend on various factors, including interest rates, plan asset returns, the lump sum election rate and annuity pricing. -35- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The following table presents components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss), on a pre-tax basis: (Dollars in thousands) Qualified Pension Plan Non-Qualified Retirement Plans Three Months Nine Months Three Months Nine Months Periods ended September 30, 2024 2023 2024 2023 2024 2023 2024 2023 Net Periodic Benefit Cost: Service cost (1) $ 125 $ 351 $ 375 $ 1,052 $ — $ 39 $ — $ 117 Interest cost (2) 833 884 2,499 2,655 162 176 487 529 Expected return on plan assets (2) ( 1,028 ) ( 1,147 ) ( 3,084 ) ( 3,442 ) — — — — Recognized net actuarial loss (2) — — — — 31 59 92 178 Net periodic benefit cost ($ 70 ) $ 88 ($ 210 ) $ 265 $ 193 $ 274 $ 579 $ 824 (1) Included in salaries and employee benefits expense in the Unaudited Consolidated Statements of Income. Service cost for 2024 represents administrative expenses related to the termination of the qualified pension plan. (2) Included in other expenses in the Unaudited Consolidated Statements of Income. The following table presents the measurement date and weighted-average assumptions used to determine net periodic benefit cost: Qualified Pension Plan Non-Qualified Retirement Plans For the nine months ended September 30, 2024 2023 2024 2023 Measurement date Dec 31, 2023 Dec 31, 2022 Dec 31, 2023 Dec 31, 2022 Equivalent single discount rate for benefit obligations 4.51 % 5.54 % 5.15 % 5.50 % Equivalent single discount rate for service cost N/A 5.60 N/A 5.61 Equivalent single discount rate for interest cost 4.51 5.43 5.11 5.40 Expected long-term return on plan assets 4.75 5.25 N/A N/A Rate of compensation increase 0.50 5.00 N/A 5.00 -36- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Note 13 - Business Segments The Corporation manages its operations through two reportable business segments, consisting of Commercial Banking and Wealth Management Services. Management uses an allocation methodology to allocate income and expenses to the business lines. Direct activities are assigned to the appropriate business segment to which the activity relates. Indirect activities, such as corporate, technology and other support functions, are allocated to business segments primarily based upon full-time equivalent employee computations. Commercial Banking The Commercial Banking segment includes commercial, residential, and consumer lending activities; mortgage banking activities; deposit generation; cash management activities; banking activities, including customer support and the operation of ATMs, telephone banking, internet banking, and mobile banking services; as well as investment portfolio and wholesale funding activities. Wealth Management Services The Wealth Management Services segment includes investment management; holistic financial planning services; personal trust and estate services, including services as trustee, personal representative, and custodian; settlement of decedents’ estates; and institutional trust services, including custody and fiduciary services. The following tables present the statement of operations and total assets for Washington Trust’s reportable segments: (Dollars in thousands) Commercial Banking Wealth Management Services Consolidated Total Three months ended September 30, 2024 2023 2024 2023 2024 2023 Net interest income $ 32,262 $ 33,741 $ — $ 10 $ 32,262 $ 33,751 Provision for credit losses 200 500 — — 200 500 Net interest income after provision for credit losses 32,062 33,241 — 10 32,062 33,251 Noninterest income 6,177 6,105 10,095 9,121 16,272 15,226 Noninterest expenses: Depreciation and amortization expense 878 892 306 346 1,184 1,238 Other noninterest expenses 26,523 25,719 6,797 7,433 33,320 33,152 Total noninterest expenses 27,401 26,611 7,103 7,779 34,504 34,390 Income before income taxes 10,838 12,735 2,992 1,352 13,830 14,087 Income tax expense 2,193 2,621 656 305 2,849 2,926 Net income $ 8,645 $ 10,114 $ 2,336 $ 1,047 $ 10,981 $ 11,161 Total assets at period end $ 7,082,826 $ 7,127,117 $ 58,745 $ 56,358 $ 7,141,571 $ 7,183,475 Expenditures for long-lived assets 1,271 498 2 6 1,273 504 -37- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) (Dollars in thousands) Commercial Banking Wealth Management Services Consolidated Total Nine months ended September 30, 2024 2023 2024 2023 2024 2023 Net interest income $ 95,512 $ 104,407 $ — $ 37 $ 95,512 $ 104,444 Provision for credit losses 1,400 2,000 — — 1,400 2,000 Net interest income after provision for credit losses 94,112 102,407 — 37 94,112 102,444 Noninterest income 18,400 15,679 31,695 27,155 50,095 42,834 Noninterest expenses: Depreciation and amortization expense 2,663 2,582 934 1,059 3,597 3,641 Other noninterest expenses 78,690 74,801 20,490 22,528 99,180 97,329 Total noninterest expenses 81,353 77,383 21,424 23,587 102,777 100,970 Income before income taxes 31,159 40,703 10,271 3,605 41,430 44,308 Income tax expense 6,441 8,226 2,257 853 8,698 9,079 Net income $ 24,718 $ 32,477 $ 8,014 $ 2,752 $ 32,732 $ 35,229 Total assets at period end $ 7,082,826 $ 7,127,117 $ 58,745 $ 56,358 $ 7,141,571 $ 7,183,475 Expenditures for long-lived assets 3,427 3,493 92 31 3,519 3,524 Note 14 - Other Comprehensive Income (Loss) The following tables present the activity in other comprehensive income (loss): Three months ended September 30, 2024 2023 (Dollars in thousands) Pre-tax Amounts Income Tax Expense Net of Tax Pre-tax Amounts Income Tax Benefit (Expense) Net of Tax Available for Sale Debt Securities: Change in fair value of available for sale debt securities $ 40,608 ($ 10,354 ) $ 30,254 ($ 43,139 ) $ 10,354 ($ 32,785 ) Cash Flow Hedges: Change in fair value of cash flow hedges ( 3,164 ) 806 ( 2,358 ) 2,196 ( 527 ) 1,669 Net cash flow hedge losses reclassified into earnings 1,677 ( 427 ) 1,250 1,533 ( 369 ) 1,164 Net change in fair value of cash flow hedges ( 1,487 ) 379 ( 1,108 ) 3,729 ( 896 ) 2,833 Defined Benefit Plan Obligations: Amortization of net actuarial losses 31 ( 9 ) 22 59 ( 14 ) 45 Total other comprehensive income (loss) $ 39,152 ($ 9,984 ) $ 29,168 ($ 39,351 ) $ 9,444 ($ 29,907 ) -38- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) Nine months ended September 30, 2024 2023 (Dollars in thousands) Pre-tax Amounts Income Tax Benefit (Expense) Net of Tax Pre-tax Amounts Income Tax Expense Net of Tax Securities available for sale: Change in fair value of available for sale debt securities $ 26,866 ($ 6,851 ) $ 20,015 ($ 38,703 ) $ 9,289 ($ 29,414 ) Cash flow hedges: Change in fair value of cash flow hedges 283 ( 73 ) 210 4,938 ( 1,185 ) 3,753 Net cash flow hedge losses reclassified into earnings 4,966 ( 1,264 ) 3,702 6,043 ( 1,451 ) 4,592 Net change in fair value of cash flow hedges 5,249 ( 1,337 ) 3,912 10,981 ( 2,636 ) 8,345 Defined benefit plan obligations: Amortization of net actuarial losses 92 ( 24 ) 68 178 ( 43 ) 135 Total other comprehensive income (loss) $ 32,207 ($ 8,212 ) $ 23,995 ($ 27,544 ) $ 6,610 ($ 20,934 ) The following tables present the changes in AOCL by component, net of tax: (Dollars in thousands) Net Unrealized Losses on Available For Sale Debt Securities Net Unrealized Losses on Cash Flow Hedges Net Unrealized Losses on Defined Benefit Plan Obligations Total For the three months ended September 30, 2024 Balance at June 30, 2024 ($ 126,830 ) ($ 10,599 ) ($ 8,897 ) ($ 146,326 ) Other comprehensive income (loss) before reclassifications 30,254 ( 2,358 ) — 27,896 Amounts reclassified from AOCL — 1,250 22 1,272 Net other comprehensive income (loss) 30,254 ( 1,108 ) 22 29,168 Balance at September 30, 2024 ($ 96,576 ) ($ 11,707 ) ($ 8,875 ) ($ 117,158 ) (Dollars in thousands) Net Unrealized Losses on Available For Sale Debt Securities Net Unrealized Losses on Cash Flow Hedges Net Unrealized Losses on Defined Benefit Plan Obligations Total For the nine months ended September 30, 2024 Balance at December 31, 2023 ($ 116,591 ) ($ 15,619 ) ($ 8,943 ) ($ 141,153 ) Other comprehensive income before reclassifications 20,015 210 — 20,225 Amounts reclassified from AOCL — 3,702 68 3,770 Net other comprehensive income 20,015 3,912 68 23,995 Balance at September 30, 2024 ($ 96,576 ) ($ 11,707 ) ($ 8,875 ) ($ 117,158 ) (Dollars in thousands) Net Unrealized Losses on Available For Sale Debt Securities Net Unrealized Losses on Cash Flow Hedges Net Unrealized Losses on Defined Benefit Plan Obligations Total For the three months ended September 30, 2023 Balance at June 30, 2023 ($ 127,662 ) ($ 17,133 ) ($ 4,032 ) ($ 148,827 ) Other comprehensive (loss) income before reclassifications ( 32,785 ) 1,669 — ( 31,116 ) Amounts reclassified from AOCL — 1,164 45 1,209 Net other comprehensive (loss) income ( 32,785 ) 2,833 45 ( 29,907 ) Balance at September 30, 2023 ($ 160,447 ) ($ 14,300 ) ($ 3,987 ) ($ 178,734 ) -39- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) (Dollars in thousands) Net Unrealized Losses on Available For Sale Debt Securities Net Unrealized Losses on Cash Flow Hedges Net Unrealized Losses on Defined Benefit Plan Obligations Total For the nine months ended September 30, 2023 Balance at December 31, 2022 ($ 131,033 ) ($ 22,645 ) ($ 4,122 ) ($ 157,800 ) Other comprehensive (loss) income before reclassifications ( 29,414 ) 3,753 — ( 25,661 ) Amounts reclassified from AOCL — 4,592 135 4,727 Net other comprehensive (loss) income ( 29,414 ) 8,345 135 ( 20,934 ) Balance at September 30, 2023 ($ 160,447 ) ($ 14,300 ) ($ 3,987 ) ($ 178,734 ) Note 15 - Earnings per Common Share The following table presents the calculation of EPS: (Dollars and shares in thousands, except per share amounts) Three Months Nine Months Periods ended September 30, 2024 2023 2024 2023 Earnings for basic and diluted earnings per common share: Net income $ 10,981 $ 11,161 $ 32,732 $ 35,229 Less: dividends and undistributed earnings allocated to participating securities ( 8 ) ( 21 ) — ( 69 ) Net income available to common shareholders $ 10,973 $ 11,140 $ 32,732 $ 35,160 Shares: Weighted average common shares outstanding for basic EPS 17,058 17,019 17,048 17,034 Dilutive effect of common stock equivalents 82 22 67 29 Weighted average common shares outstanding for diluted EPS 17,140 17,041 17,115 17,063 Earnings per common share: Basic EPS $ 0.64 $ 0.65 $ 1.92 $ 2.06 Diluted EPS $ 0.64 $ 0.65 $ 1.91 $ 2.06 Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 403,995 and 450,943 , respectively, for the three and nine months ended September 30, 2024, compared to 468,524 and 452,472 , respectively, for the same periods in 2023. Note 16 - Commitments and Contingencies Financial Instruments with Off-Balance Sheet Risk The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage the Corporation’s exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit, as well as derivative financial instruments, such as mortgage loan commitments, loan related derivative contracts and interest rate risk management contracts. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. See Note 6 for additional disclosure pertaining to derivative financial instruments. Financial Instruments Whose Contract Amounts Represent Credit Risk (Unfunded Commitments) Commitments to Extend Credit Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, total commitment -40- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) amounts do not necessarily represent future cash requirements. Each borrower’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the borrower. Standby Letters of Credit Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support the financing needs of the Bank’s commercial customers. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The collateral supporting those commitments is essentially the same as for other commitments. Most standby letters of credit extend for one year. At September 30, 2024 and December 31, 2023, there were no liabilities to beneficiaries resulting from standby letters of credit. Should the Corporation be required to make payments to the beneficiary, repayment from the customer to the Corporation is required. The following table presents the contractual and notional amounts of financial instruments with off-balance sheet risk: (Dollars in thousands) September 30, 2024 December 31, 2023 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $ 1,068,899 $ 1,185,196 Standby letters of credit 12,216 9,323 ACL on Unfunded Commitments The ACL on unfunded commitments is management’s estimate of expected lifetime credit losses over the expected contractual term in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. The activity in the ACL on unfunded commitments for the three months ended September 30, 2024 is presented below: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 906 $ 799 $ 1,705 $ 24 $ — $ 11 $ 11 $ 1,740 Provision ( 76 ) ( 22 ) ( 98 ) ( 2 ) — — — ( 100 ) Ending Balance $ 830 $ 777 $ 1,607 $ 22 $ — $ 11 $ 11 $ 1,640 The activity in the ACL on unfunded commitments for the nine months ended September 30, 2024 is presented below: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 1,091 $ 822 $ 1,913 $ 15 $ — $ 12 $ 12 $ 1,940 Provision ( 261 ) ( 45 ) ( 306 ) 7 — ( 1 ) ( 1 ) ( 300 ) Ending Balance $ 830 $ 777 $ 1,607 $ 22 $ — $ 11 $ 11 $ 1,640 The activity in the ACL on unfunded commitments for the three months ended September 30, 2023 is presented below: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 1,483 $ 877 $ 2,360 $ 15 $ — $ 15 $ 15 $ 2,390 Provision ( 387 ) ( 9 ) ( 396 ) ( 1 ) — ( 3 ) ( 3 ) ( 400 ) Ending Balance $ 1,096 $ 868 $ 1,964 $ 14 $ — $ 12 $ 12 $ 1,990 -41- Condensed Notes to Unaudited Consolidated Financial Statements – (continued) The activity in the ACL on unfunded commitments for the nine months ended September 30, 2023 is presented below: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 1,236 $ 988 $ 2,224 $ 50 $ — $ 16 $ 16 $ 2,290 Provision ( 140 ) ( 120 ) ( 260 ) ( 36 ) — ( 4 ) ( 4 ) ( 300 ) Ending Balance $ 1,096 $ 868 $ 1,964 $ 14 $ — $ 12 $ 12 $ 1,990 Other Contingencies Litigation The Corporation is involved in various claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such matters will not materially affect the consolidated balance sheets or statements of income of the Corporation. -42- Management's Discussion and Analysis