WASHINGTON TRUST BANCORP INC 10-K

ITEM 8. Financial Statements and Supplementary Data. Description Page Reports of Independent Registered Public Accounting Firm (PCAOB ID: 173 ) 69 Consolidated Balance Sheets at December 31, 2024 and 2023 72 Consolidated Statements of Income (Loss) for the Years Ended December 31, 2024, 2023 and 2022 73 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023 and 2022 74 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2024, 2023 and 2022 75 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022 76 Notes to Consolidated Financial Statements: 78 Note 1 - Summary of Significant Accounting Policies 78 Note 2 - Recently Issued Accounting Pronouncements 89 Note 3 - Securities 89 Note 4 - Loans 92 Note 5 - Allowance for Credit Losses on Loans 102 Note 6 - Premises and Equipment 103 Note 7 - Leases 104 Note 8 - Goodwill and Intangible Assets 105 Note 9 - Derivative Financial Instruments 105 Note 10 - Fair Value Measurements 109 Note 11 - Income Taxes 114 Note 12 - Deposits 116 Note 13 - Borrowings 117 Note 14 - Shareholders’ Equity 118 Note 15 - Revenue from Contracts with Customers 120 Note 16 - Employee Benefits 121 Note 17 - Share-Based Compensation Arrangements 126 Note 18 - Business Segments 129 Note 19 - Other Comprehensive Income (Loss) 133 Note 20 - Earnings Per Common Share 135 Note 21 - Commitments and Contingencies 136 Note 22 - Parent Company Financial Statements 138 -67- Management’s Annual Report on Internal Control Over Financial Reporting The management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control over financial reporting is a process designed under the supervision of the Corporation’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Corporation’s Consolidated Financial Statements for external reporting purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. As of December 31, 2024, management assessed the effectiveness of the Corporation’s internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by COSO. Based on this assessment, management concluded that the Corporation’s internal control over financial reporting as of December 31, 2024 was effective. The Corporation’s internal control over financial reporting as of December 31, 2024 has been audited by Crowe LLP, an independent registered public accounting firm, as stated in their report, which follows. This report expresses an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2024. /s/ Edward O. Handy III /s/ Ronald S. Ohsberg Edward O. Handy III Chairman and Chief Executive Officer Ronald S. Ohsberg Senior Executive Vice President, Chief Financial Officer and Treasurer February 25, 2025 -68- Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors Washington Trust Bancorp, Inc. Westerly, Rhode Island Opinion on Internal Control over Financial Reporting We have audited Washington Trust Bancorp, Inc. and Subsidiaries (the “Corporation”) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Corporation as of December 31, 2024 and 2023, the related consolidated statements of income (loss), comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”) and our report dated February 25, 2025 expressed an unqualified opinion. Basis for Opinion The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A corporation’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate . /s/ Crowe LLP Washington, D.C. February 25, 2025 -69- Report of Independent Registered Public Accounting Firm Shareholders and the Board of Directors Washington Trust Bancorp, Inc. Westerly, Rhode Island Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Washington Trust Bancorp, Inc. and Subsidiaries (the “Corporation”) as of December 31, 2024 and 2023, the related consolidated statements of income (loss), comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Corporation’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 25, 2025 expressed an unqualified opinion. Basis for Opinion These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the Audit Committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses – Qualitative Factors on Total Commercial Loans As described in Note 1 to the consolidated financial statements, the Corporation accounts for credit losses under ASC 326, Financial Instruments – Credit Losses. ASC 326 requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost at the reporting date. As of December 31, 2024, the balance of the allowance for credit losses (“ACL”) on loans was $42.0 million. Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors. The methodology for evaluating quantitative factors involves pooling loans into portfolio segments for loans that share similar risk characteristics. Pooled loan portfolio segments include commercial real estate, commercial and industrial, residential real estate, home equity and other consumer loans. For pooled loans, the Corporation utilizes a discounted cash flow (“DCF”) methodology to estimate credit losses over the expected life of the loan. The DCF methodology combines the probability of default, the loss given default, remaining life of the loan and prepayment speed assumptions to estimate a reserve for each loan. The loss rates are adjusted by current and forecasted econometric assumptions and return to the mean after the forecasted periods. These quantitative loss factors are -70- Report of Independent Registered Public Accounting Firm also supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates. Qualitative loss factors are applied to each portfolio segment with the amounts determined by historical loan charge-offs of a peer group of similar-sized regional banks. Changes in these assumptions could have a material effect on the Corporation’s financial conditions or results of operations. We identified auditing the qualitative component of the ACL on pooled loans in the commercial real estate and commercial and industrial portfolios (total commercial loans) as a critical audit matter because the methodology to determine the estimate of credit losses uses subjective judgments by management and is subject to material variability. Performing audit procedures to evaluate the qualitative factors on the commercial loans involved a high degree of auditor judgment and required significant effort, including the need to involve more experienced audit personnel. The primary procedures we performed to address this critical audit matter included: • Testing the effectiveness of controls over the evaluation of the ACL on pooled loans, including controls addressing: ◦ Methodology and accounting policies. ◦ Data inputs, judgments and calculations used to determine the qualitative loss factors. ◦ Information technology general controls and application controls. ◦ Management’s review of the qualitative factors. • Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the ACL on commercial loans collectively evaluated for impairment, which included: ◦ Evaluation of the appropriateness of the Corporation’s accounting policies and assumptions involved in the application of ASC 326. ◦ Testing the mathematical accuracy of the calculation. ◦ Testing the completeness and accuracy of data used in the calculation. ◦ Evaluation of the reasonableness of management’s judgments related to qualitative factors to determine if they are calculated to conform with management’s policies and were consistently applied period over period. Our evaluation considered the weight of evidence from internal and external sources and loan portfolio composition and performance. /s/ Crowe LLP We have served as the Corporation’s auditor since 2019. Washington, D.C. February 25, 2025 -71- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except par value) December 31, 2024 2023 Assets: Cash and due from banks $ 21,534 $ 54,970 Interest-earning deposits with correspondent banks 88,368 31,854 Short-term investments 3,987 3,360 Mortgage loans held for sale, at fair value 21,708 20,077 Mortgage loans held for sale, at lower of cost or market 281,706 — Premises and equipment held for sale, at lower of cost or market 4,788 — Available for sale debt securities, at fair value (amortized cost $ 1,049,557 ; net of allowance for credit losses on securities of $ 0 at December 31, 2024; and amortized cost of $ 1,152,629 ; net of allowance for credit losses on securities of $ 0 at December 31, 2023) 916,305 1,000,380 Federal Home Loan Bank stock, at cost 49,817 51,893 Loans: Total loans 5,137,838 5,647,706 Less: allowance for credit losses on loans 41,960 41,057 Net loans 5,095,878 5,606,649 Premises and equipment, net 26,873 32,291 Operating lease right-of-use assets 26,943 29,364 Investment in bank-owned life insurance 106,777 103,736 Goodwill 63,909 63,909 Identifiable intangible assets, net 2,885 3,711 Other assets 219,169 200,653 Total assets $ 6,930,647 $ 7,202,847 Liabilities: Deposits: Noninterest-bearing deposits $ 661,776 $ 693,746 Interest-bearing deposits 4,454,024 4,654,414 Total deposits 5,115,800 5,348,160 Federal Home Loan Bank advances 1,125,000 1,190,000 Junior subordinated debentures 22,681 22,681 Operating lease liabilities 29,578 32,027 Other liabilities 137,860 137,293 Total liabilities 6,430,919 6,730,161 Commitments and contingencies (Note 21) Shareholders’ Equity: Common stock of $ .0625 par value; authorized 60,000,000 shares; 19,561,985 shares issued and 19,273,583 shares outstanding at December 31, 2024 and 17,363,457 shares issued and 17,030,987 shares outstanding at December 31, 2023 1,223 1,085 Paid-in capital 196,947 126,150 Retained earnings 434,014 501,917 Accumulated other comprehensive loss ( 119,171 ) ( 141,153 ) Treasury stock, at cost; 288,402 shares at December 31, 2024 and 332,470 shares at December 31, 2023 ( 13,285 ) ( 15,313 ) Total shareholders’ equity 499,728 472,686 Total liabilities and shareholders’ equity $ 6,930,647 $ 7,202,847 The accompanying notes are an integral part of these consolidated financial statements. -72- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Income (Loss) (Dollars and shares in thousands, except per share amounts) Years ended December 31, 2024 2023 2022 Interest income: Interest and fees on loans $ 299,297 $ 270,330 $ 169,301 Interest on mortgage loans held for sale 1,775 980 1,165 Taxable interest on debt securities 27,850 29,059 21,827 Nontaxable interest on debt securities 8 — — Dividends on Federal Home Loan Bank stock 4,771 3,315 548 Other interest income 6,977 4,975 1,624 Total interest and dividend income 340,678 308,659 194,465 Interest expense: Deposits 146,098 120,429 26,023 Federal Home Loan Bank advances 64,539 49,589 11,713 Junior subordinated debentures 1,593 1,543 739 Total interest expense 212,230 171,561 38,475 Net interest income 128,448 137,098 155,990 Provision for credit losses 2,400 3,200 ( 1,300 ) Net interest income after provision for credit losses 126,048 133,898 157,290 Noninterest income: Wealth management revenues 39,054 35,540 38,746 Mortgage banking revenues 10,981 6,660 8,733 Card interchange fees 4,996 4,921 4,996 Service charges on deposit accounts 3,032 2,806 3,192 Loan related derivative income 467 1,390 2,756 Income from bank-owned life insurance 3,041 3,488 2,591 Realized losses on securities, net ( 31,047 ) — — Losses on sale of portfolio loans, net ( 62,888 ) — — Other income 4,567 1,335 1,588 Total noninterest (loss) income ( 27,797 ) 56,140 62,602 Noninterest expense: Salaries and employee benefits 86,260 82,458 83,804 Outsourced services 16,258 14,521 13,737 Net occupancy 9,785 9,636 9,126 Equipment 3,838 4,318 3,797 Legal, audit and professional fees 3,128 3,891 3,127 FDIC deposit insurance costs 5,513 4,667 1,687 Advertising and promotion 2,626 2,562 2,587 Amortization of intangibles 826 843 860 Other expenses 8,835 10,661 9,997 Total noninterest expense 137,069 133,557 128,722 (Loss) income before income taxes ( 38,818 ) 56,481 91,170 Income tax (benefit) expense ( 10,759 ) 8,305 19,489 Net (loss) income ($ 28,059 ) $ 48,176 $ 71,681 Net (loss) income available to common shareholders ($ 28,038 ) $ 48,091 $ 71,479 Weighted average common shares outstanding - basic 17,149 17,033 17,246 Weighted average common shares outstanding - diluted 17,149 17,062 17,381 Per share information: Basic (loss) earnings per common share ($ 1.63 ) $ 2.82 $ 4.14 Diluted (loss) earnings per common share ($ 1.63 ) $ 2.82 $ 4.11 The accompanying notes are an integral part of these consolidated financial statements. -73- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (Dollars in thousands) Years ended December 31, 2024 2023 2022 Net (loss) income ($ 28,059 ) $ 48,176 $ 71,681 Other comprehensive income (loss), net of tax: Net change in fair value of available for sale debt securities 14,152 14,442 ( 124,238 ) Net change in fair value of cash flow hedges 7,681 7,026 ( 18,632 ) Net change in defined benefit plan obligations 149 ( 4,821 ) 5,051 Total other comprehensive income (loss), net of tax 21,982 16,647 ( 137,819 ) Total comprehensive (loss) income ($ 6,077 ) $ 64,823 ($ 66,138 ) The accompanying notes are an integral part of these consolidated financial statements. -74- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Dollars and shares in thousands) Common Shares Outstanding Common Stock Paid-in Capital Retained Earnings AOCL Treasury Stock Total Balance at December 31, 2021 17,331 $ 1,085 $ 126,511 $ 458,310 ($ 19,981 ) ($ 1,117 ) $ 564,808 Net income — — — 71,681 — — 71,681 Total other comprehensive loss, net of tax — — — — ( 137,819 ) — ( 137,819 ) Cash dividends declared ($ 2.18 per share) — — — ( 37,948 ) — — ( 37,948 ) Share-based compensation — — 3,247 — — — 3,247 Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered 46 — ( 2,702 ) — — 1,881 ( 821 ) Treasury stock purchased under the 2021 Repurchase Program ( 194 ) — — — — ( 9,479 ) ( 9,479 ) Balance at December 31, 2022 17,183 $ 1,085 $ 127,056 $ 492,043 ($ 157,800 ) ($ 8,715 ) $ 453,669 Net income — — — 48,176 — — 48,176 Total other comprehensive income, net of tax — — — — 16,647 — 16,647 Cash dividends declared ($ 2.24 per share) — — — ( 38,302 ) — — ( 38,302 ) Share-based compensation — — 2,064 — — — 2,064 Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered 48 — ( 2,970 ) — — 2,216 ( 754 ) Treasury stock purchased under the 2023 Repurchase Program (1) ( 200 ) — — — — ( 8,814 ) ( 8,814 ) Balance at December 31, 2023 17,031 $ 1,085 $ 126,150 $ 501,917 ($ 141,153 ) ($ 15,313 ) $ 472,686 Net loss — — — ( 28,059 ) — — ( 28,059 ) Total other comprehensive income, net of tax — — — — 21,982 — 21,982 Cash dividends declared ($ 2.24 per share) — — — ( 39,844 ) — — ( 39,844 ) Share-based compensation — — 2,473 — — — 2,473 Common stock issued in public offering, net 2,199 137 70,384 — — — 70,521 Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered 44 1 ( 2,060 ) — — 2,028 ( 31 ) Balance at December 31, 2024 19,274 $ 1,223 $ 196,947 $ 434,014 ($ 119,171 ) ($ 13,285 ) $ 499,728 (1) Treasury stock includes $ 73 thousand of excise tax attributable to shares repurchased in 2023. The accompanying notes are an integral part of these consolidated financial statements. -75- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) Years ended December 31, 2024 2023 2022 Cash flows from operating activities: Net (loss) income ($ 28,059 ) $ 48,176 $ 71,681 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 2,400 3,200 ( 1,300 ) Net gain on sale of bank-owned property ( 988 ) — — Depreciation of premises and equipment 3,934 4,005 3,465 Net amortization of premiums and discounts on debt securities and loans 1,267 1,352 2,893 Amortization of intangibles 826 843 860 Amortization of terminated cash flow hedge loss 8,605 6,465 — Share-based compensation 2,473 2,064 3,247 Tax (expense) benefit from stock option exercises and other equity awards ( 183 ) ( 34 ) 78 Deferred income tax (benefit) expense ( 16,737 ) ( 3,690 ) 1,160 Income from bank-owned life insurance ( 3,041 ) ( 3,488 ) ( 2,591 ) Realized losses on securities, net 31,047 — — Losses on sale of portfolio loans, net 62,888 — — Net gains on loan sales, including changes in fair value ( 8,775 ) ( 4,514 ) ( 6,730 ) Proceeds from sales of loans, net 408,844 219,568 309,749 Loans originated for sale ( 402,826 ) ( 221,637 ) ( 272,855 ) Decrease (increase) in operating lease right-of-use assets 2,420 ( 2,208 ) ( 464 ) (Decrease) increase in operating lease liabilities ( 2,449 ) 2,469 547 Increase in other assets ( 11,141 ) ( 3,000 ) ( 30,804 ) Increase (decrease) in other liabilities 7,163 ( 17,968 ) 34,070 Net cash provided by operating activities 57,668 31,603 113,006 Cash flows from investing activities: Purchases of: Available for sale debt securities: Mortgage-backed ( 363,406 ) ( 39,967 ) ( 223,380 ) Available for sale debt securities: Other ( 16,351 ) ( 20,221 ) ( 10,747 ) Proceeds from sales of: Available for sale debt securities: Mortgage-backed 185,143 — — Available for sale debt securities: Other 193,267 — — Maturities, calls and principal payments of: Available for sale debt securities: Mortgage-backed 71,184 71,732 116,116 Available for sale debt securities: Other 900 750 — Net redemptions (purchases) of Federal Home Loan Bank stock 2,076 ( 8,430 ) ( 30,432 ) Net decrease (increase) in loans 165,858 ( 537,467 ) ( 832,450 ) Purchases of loans ( 1,435 ) ( 5,743 ) ( 2,773 ) Proceeds from the sale of property acquired through foreclosure or repossession 680 — — Purchases of premises and equipment ( 4,001 ) ( 5,048 ) ( 6,139 ) Net proceeds from sale of bank-owned property 1,669 — — Purchases of bank-owned life insurance — — ( 7,000 ) Proceeds from surrender of bank-owned life insurance — 1,932 — Equity investments in real estate limited partnerships ( 3,942 ) ( 8,115 ) ( 1,861 ) Purchases of other equity investments, net ( 338 ) ( 263 ) ( 375 ) Net cash provided by (used in) investing activities 231,304 ( 550,840 ) ( 999,041 ) The accompanying notes are an integral part of these consolidated financial statements. -76- Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows – (continued) (Dollars in thousands) Years ended December 31, 2024 2023 2022 Cash flows from financing activities: Net (decrease) increase in deposits ( 232,360 ) 329,198 38,911 Proceeds from Federal Home Loan Bank advances 2,385,000 3,515,000 3,156,112 Repayment of Federal Home Loan Bank advances ( 2,450,000 ) ( 3,305,000 ) ( 2,321,112 ) Treasury stock purchased — ( 8,814 ) ( 9,479 ) Net proceeds from issuance of common stock in public offering 70,521 — — Net proceeds from stock option exercises and issuance of other equity awards, net of awards surrendered ( 31 ) ( 754 ) ( 821 ) Cash dividends paid ( 38,397 ) ( 38,631 ) ( 37,647 ) Net cash (used in) provided by financing activities ( 265,267 ) 490,999 825,964 Net increase (decrease) in cash and cash equivalents 23,705 ( 28,238 ) ( 60,071 ) Cash and cash equivalents at beginning of year 90,184 118,422 178,493 Cash and cash equivalents at end of year $ 113,889 $ 90,184 $ 118,422 Noncash Activities: Loans charged-off $ 2,413 $ 577 $ 184 Portfolio loans transferred to held for sale 344,594 — — Loans transferred to property acquired through foreclosure or repossession — 683 — Premises and equipment transferred to held for sale 4,788 — — Commitment for equity investments in real estate limited partnerships 6,078 3,020 8,360 Supplemental Disclosures: Interest payments $ 217,154 $ 156,648 $ 32,096 Income tax payments 7,236 9,926 17,706 The accompanying notes are an integral part of these consolidated financial statements. -77- Notes to Consolidated Financial Statements Note 1 - Summary of Significant Accounting Policies 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 Washington Trust conform to GAAP and to general practices of the banking industry. The consolidated financial statements include the accounts of the Bancorp and its wholly-owned subsidiaries, except subsidiaries that are not deemed necessary to be consolidated. Through consolidation, intercompany balances and transactions have been eliminated. The Bancorp owns the common stock of two capital trusts, which have issued trust preferred securities. These capital trusts are variable interest entities in which the Bancorp is not the primary beneficiary and, therefore, are not consolidated. The capital trust’s only assets are junior subordinated debentures issued by the Bancorp, which were acquired by the capital trusts using the proceeds from the issuance of the trust preferred securities and common stock. The Bancorp’s equity interest in the capital trusts, which is classified in other assets, and the junior subordinated debentures are included in the Consolidated Balance Sheets. Interest expense on the junior subordinated debentures is included in the Consolidated Statements of Income (Loss). Reclassification Certain previously reported amounts have been reclassified to conform to the current year’s presentation. Use of Estimates In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Management considers the ACL on loans to be a material estimate that is particularly susceptible to change. Cash and Cash Equivalents Cash and cash equivalents, as referenced in the accompanying Consolidated Statements of Cash Flows, consists of cash and due from banks, interest-earning deposits with correspondent banks and short-term investments. Cash and due from Banks Cash and due from banks consists of cash on hand, cash items in process of collection, and noninterest-earning cash on deposit with correspondent banks. Interest-earning Deposits with Correspondent Banks Interest-earning deposits with correspondent banks includes cash on deposit with the FRBB and other banks, including cash pledged to derivative counterparties. Cash collateral pledged to derivative counterparties represents restricted cash balances. See Note 9 for additional disclosure regarding cash collateral pledged to derivative counterparties. Short-term Investments Short-term investments consist of highly liquid investments with a maturity date of three months or less when purchased and are considered to be cash equivalents. The Corporation’s short-term investments may be composed of overnight federal funds sold, securities purchased under resale agreements, money market mutual funds and U.S. Treasury bills. -78- Notes to Consolidated Financial Statements – (continued) Securities Management determines the appropriate classification of securities at the time of purchase. Investments in debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost. Securities not classified as held to maturity are classified as available for sale. Securities available for sale consist of debt securities that are available for sale to respond to changes in market interest rates, liquidity needs, changes in funding sources and other similar factors. These assets are specifically identified and are carried at fair value. Changes in fair value of available for sale securities, net of applicable income taxes, are reported as a separate component of shareholders’ equity. Washington Trust does not currently have securities designated as held to maturity and also does not maintain a trading portfolio. Premiums and discounts are amortized and accreted over the term of the securities on a method that approximates the level yield method. The amortization and accretion is included in interest income on securities. Interest income is recognized when earned. Realized gains or losses from sales of securities are recorded on the trade date, determined using the specific identification method and recognized within noninterest income in the Consolidated Statements of Income (Loss). The fair values of securities may be based on either quoted market prices or third-party pricing services. The Corporation excludes accrued interest from the amortized cost basis of debt securities and reports accrued interest in other assets in the Consolidated Balance Sheets. The Corporation also excludes accrued interest from the estimate of credit losses on debt securities. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a debt security placed on nonaccrual is reversed against interest income. Allowance for Credit Losses on Securities For available for sale debt securities in an unrealized loss position, management first assesses whether the Corporation intends to sell, or if it is likely that the Corporation will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through a provision for credit losses recognized in the Consolidated Statements of Income (Loss). For debt securities available for sale that do not meet either of these criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers both quantitative and qualitative factors. A substantial portion of available for sale debt securities held by the Corporation are obligations issued by U.S. government agency and U.S. government-sponsored enterprises, including mortgage-backed securities. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies and have a long history of no credit losses. For these securities, management takes into consideration the long history of no credit losses and other factors to assess the risk of nonpayment even if the U.S. government were to default. As such, the Corporation utilized a zero credit loss estimate for these securities. For available for sale debt securities that are not guaranteed by U.S. government agencies and U.S. government-sponsored enterprises, such as individual name issuer trust preferred debt securities and corporate bonds, management utilizes a third-party credit modeling tool based on observable market data, which assists management in identifying any potential credit risk associated with these available for sale debt securities. This model estimates probability of default, loss given default and exposure at default for each security. In addition, qualitative factors are also considered, including the extent to which fair value is less than amortized cost, changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If a credit loss exists based on the results of this assessment, an ACL (contra asset) is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is considered market-related and is recognized in AOCL. Changes in the ACL on available for sale debt securities are recorded as provision for credit losses. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. -79- Notes to Consolidated Financial Statements – (continued) Federal Home Loan Bank Stock The Bank is a member of the FHLB, which is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. The primary reason for the Bank’s membership is to gain access to a reliable source of wholesale funding in order to manage interest rate risk. The purchase of FHLB stock is a requirement for a member to gain access to funding and the Bank must own a minimum amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB. The Bank purchases FHLB stock in proportion to the volume of funding received and views the purchases as a necessary long-term investment for the purposes of balance sheet liquidity and not for investment return. No market exists for shares of FHLB stock and therefore, it is carried at cost. FHLB stock may be redeemed at par value five years following termination of FHLB membership, subject to limitations which may be imposed by the FHLB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLB. While the Bank currently has no intentions to terminate its FHLB membership, the ability to redeem its investment in FHLB stock would be subject to the conditions imposed by the FHLB. The Bank monitors its investment to determine if impairment exists. Based on the capital adequacy and the liquidity position of the FHLB, management believes there is no impairment related to the carrying amount of FHLB stock included in the Consolidated Balance Sheets as of December 31, 2024. Long-lived Assets Held for Sale Once all the criteria for held for sale in ASC 360 are met, assets are reclassified to held for sale and measured at lower of the assets carrying value or fair value less costs to sell. If the carrying value of the assets to be sold exceed the fair value less cost to sell, a valuation allowance is established with a corresponding loss recognized within noninterest income in the Consolidated Statements of Income (Loss). Mortgage Loans Held for Sale, at Lower of Cost or Market In the period when held for sale criteria are met, amortization ceases for any unamortized balances of deferred loan origination fees and costs. Premises and Equipment Held for Sale Depreciation ceases in the period when held for sale criteria are met. Mortgage Banking Activities Mortgage Loans Held for Sale, at Fair Value Residential real estate mortgage loans originated and intended for sale to the secondary market are classified as held for sale. ASC 825, “Financial Instruments” allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis that may otherwise not be required to be measured at fair value under other accounting standards. The Corporation has elected the fair value option for mortgage loans that are originated and intended for sale to the secondary market in order to better match changes in fair values of the loans with changes in the fair value of the derivative forward sale commitment contracts used to economically hedge them. Changes in the fair value of mortgage loans held for sale accounted for under the fair value option are included in mortgage banking revenues. Gains and losses on residential loan sales are recognized at the time of sale and are included in mortgage banking revenues. Upfront fees and costs related to mortgage loans held for sale for which the fair value option was elected are recognized in mortgage banking revenues as received / incurred and are not deferred. Commissions received on mortgage loans brokered to various investors are recognized when received and are included in mortgage banking revenues. Loan Servicing Rights When residential real estate mortgage loans held for sale are sold with servicing retained, mortgage servicing right assets are recognized as separate assets. Mortgage servicing rights are originally recorded at fair value. Fair value is based on a valuation model that incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, ancillary income, prepayment speeds, and default rates and losses. Mortgage servicing rights are included in other assets and are amortized as an offset to mortgage banking revenues over the period of estimated net servicing income. -80- Notes to Consolidated Financial Statements – (continued) Mortgage servicing rights are periodically evaluated for impairment based on their fair value. Impairment is measured on an aggregated basis by stratifying the rights based on homogeneous characteristics such as note rate and loan type. Any impairment is recognized through a valuation allowance and as a reduction to mortgage banking revenues. Loan Servicing Fee Income Servicing fee income is recorded for fees earned for servicing loans for investors. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and recognized when earned within mortgage banking revenues. Loans Portfolio Loans Loans are carried at the principal amount outstanding, adjusted by partial charge-offs and net of unamortized deferred loan origination fees and costs. Interest income is accrued on a level yield basis based upon principal amounts outstanding, except for loans on nonaccrual status. Deferred loan origination fees and costs are amortized as an adjustment to yield over the term of the related loans. For purchased loans, which did not show signs of credit deterioration at the time of purchase, interest income is also accrued on a level yield basis based upon principal amounts outstanding and is then further adjusted by accretion of any discount or amortization of any premium associated with the loans. 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. Troubled Loan Modifications 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. If both of the aforementioned criteria are met, then the modification is considered a TLM and subject to the enhanced disclosure requirements. In the course of resolving problem loans, the Corporation may choose to modify the contractual terms of loans to borrowers who are experiencing financial difficulty. Such 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. Debt could be bifurcated with separate terms for each tranche of the TLM. Executing a TLM in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection. The following is a description of each type of modifications for a TLM: • Principal forgiveness results in the reduction in the outstanding principal balance of the loan and can result voluntarily through renegotiated contractual terms with the borrower or involuntarily through a bankruptcy proceeding. • An interest rate reduction results in the contractual interest rate being reduced from the original agreement. • A maturity extension represents an extension of the term of the loan beyond its original contractual maturity date. • An other-than-insignificant payment delay is a deferral arrangement with the borrower, which allows them to delay a scheduled loan payment to a later date. The Corporation considers that a three months or less payment delay generally would be considered insignificant. • A combination includes loans that have undergone more than one of the above loan modification types. 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 -81- Notes to Consolidated Financial Statements – (continued) 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. 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. Allowance for Credit Losses on Loans The ACL on loans is established through a provision for credit losses recognized in the Consolidated Statements of Income (Loss). The ACL on loans is also increased by recoveries of amounts previously charged-off and is reduced by charge-offs on loans. Loan charge-offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Full or partial charge-offs on collateral dependent individually analyzed loans are generally recognized when the collateral is deemed to be insufficient to support the carrying value of the loan. The ACL on loans is management’s estimate of expected lifetime credit losses on loans carried at amortized cost. The Corporation made an accounting policy election to exclude accrued interest from the amortized cost basis of loans and reports accrued interest in other assets in the Consolidated Balance Sheets. The Corporation also excludes accrued interest from the estimate of credit losses on loans. 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. Historical credit loss experience provides the basis for the calculation of loss given default and the estimation of expected credit losses. As discussed further below, adjustments to historical information are made for differences in specific risk characteristics that may not be reflected in historical loss rates. Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors. In accordance with the Corporation’s ACL policy, the methodology is reviewed no less than annually. The methodology for evaluating quantitative factors consists of two basic components. The first component involves pooling loans into portfolio segments for loans that share similar risk characteristics. Pooled loan portfolio segments include CRE (including a commercial construction sub-segment), C&I, residential real estate, home equity and other consumer loans. The second component involves identifying individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments. Individually analyzed loans 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. For loans that are individually analyzed, the ACL is measured using a DCF method based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or, if the loan is collateral dependent, at the fair value of the collateral. Factors management considers when measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due. For collateral dependent loans for which repayment is to be provided substantially through the sale of the collateral, management adjusts the fair value for estimated costs to sell. For collateral dependent loans for which repayment is to be provided substantially through the operation of the collateral, estimated costs to sell are not incorporated into the measurement. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the collateral. For pooled loans, the Corporation utilizes a DCF methodology to estimate credit losses over the expected life of the loan. The life of the loan excludes expected extensions, renewals and modifications, unless the extension or renewal options are included in the original or modified contract terms and not unconditionally cancellable by the Corporation. The methodology incorporates a probability of default and loss given default framework. Default triggers include the loan has become past due by 90 or more days, a charge-off has occurred, the loan has been placed on nonaccrual status, the loan has been modified as a TLM, or the loan is risk-rated as special mention or classified. Loss given default is estimated based on historical credit loss -82- Notes to Consolidated Financial Statements – (continued) experience. Probability of default is estimated utilizing a regression model that incorporates econometric factors. Econometric factors are selected based on the correlation of the factor to historical credit losses for each portfolio segment. The following table summarizes the econometric factors utilized for each loan portfolio segment as of the dates indicated: Econometric Factors Loan portfolio segment At December 31, 2024 At December 31, 2023 CRE NUR & GDP NUR & GDP C&I NUR & GDP NUR & GDP Residential real estate NUR & HPI NUR & HPI Home equity NUR & HPI NUR & HPI Other consumer GDP GDP To estimate the probability of default, the model utilizes forecasted econometric factors over a one-year reasonable and supportable forecast period. After the forecast period, the econometric factors revert to their historical mean on a straight-line basis over a one-year reversion period resulting in a constant default rate after the reversion period. The DCF methodology combines the probability of default, the loss given default, prepayment speeds and the remaining life of the loan to estimate a reserve for each loan. The sum of all the loan level reserves are aggregated for each portfolio segment and a loss rate factor is derived. Quantitative loss factors are also supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates. The qualitative risk factors management considers include: 1) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; 2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; 3) changes in the nature and volume of the portfolio and in the terms of loans; 4) changes in the experience, ability, and depth of lending management and other relevant staff; 5) changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or rated loans; 6) changes in the quality of the institution’s credit review system; 7) changes in the value of underlying collateral for collateral dependent loans; 8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and 9) the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio. Qualitative loss factors are applied to each portfolio segment with the range of amounts determined by historical loan charge-offs of a peer group of similar-sized regional banks. Because the methodology is based upon historical experience and trends, current economic data, reasonable and supportable forecasts, as well as management’s judgment, factors may arise that result in different estimations. Deteriorating conditions or assumptions could lead to further increases in the ACL on loans, conversely improving conditions or assumptions could lead to further reductions in the ACL on loans. In addition, various regulatory agencies periodically review the ACL on loans. Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination. The ACL on loans is an estimate, and ultimate losses may vary from management’s estimate. Allowance for Credit Losses 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. Unfunded commitments for home equity lines of credit and commercial demand loans are considered unconditionally cancellable for regulatory capital purposes and, therefore, are excluded from the calculation to estimate the ACL on unfunded commitments. For each portfolio, estimated loss rates and funding factors are applied to the corresponding balance of unfunded commitments. The estimated loss rates applied to unfunded commitments are the same quantitative and qualitative loss rates applied to the corresponding on-balance sheet amounts in determining the ACL on loans. The estimated funding factor applied to unfunded commitments represents the likelihood that the funding will occur and is based upon the Corporation’s average historical utilization rate for each portfolio. -83- Notes to Consolidated Financial Statements – (continued) The ACL on unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. The ACL on unfunded commitments is adjusted through a provision for credit losses recognized in the Consolidated Statements of Income (Loss). Premises and Equipment Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation. Depreciation for financial reporting purposes is calculated on the straight-line method over the estimated useful lives of assets. For leasehold improvements, the estimated useful life is the shorter of the expected lease term or the estimated useful life of the improvement. Expected lease terms include lease renewal options to the extent that the exercise of such renewals is reasonably assured. The estimated useful lives of premises and improvements range from 5 to 40 years. For furniture, fixtures and equipment, the estimated useful lives range from 3 to 20 years. Repairs and maintenance costs are charged to noninterest expense as incurred. Leases The Corporation has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception. Operating leases are recorded on the balance sheet, through the recognition of an operating lease ROU asset and an operating lease liability at the commencement date of the new lease. ROU assets represent a right to use an underlying asset for the contractual lease term. Operating lease liabilities represent an obligation to make lease payments arising from the lease. The Corporation’s leases do not provide an implicit interest rate, therefore the Corporation uses its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities. The Corporation’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Corporation’s lease agreements do not contain any residual value guarantees. Operating leases with terms of 12 months or less are included in ROU assets and operating lease liabilities recorded in the Consolidated Balance Sheets. Operating lease terms include options to extend when it is reasonably certain that the Corporation will exercise such options, determined on a lease-by-lease basis. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease components, such as consumer price index adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities. Bank-Owned Life Insurance The investment in BOLI represents the cash surrender value of life insurance policies on the lives of certain employees who have provided positive consent allowing the Bank to be the beneficiary of such policies. Increases in the cash value of the policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income taxes. The financial strength of the insurance carrier is reviewed prior to the purchase of BOLI and annually thereafter. Goodwill and Identifiable Intangible Assets Goodwill represents the excess of the purchase price over the net fair value of the acquired businesses. Goodwill is not amortized, but is tested for impairment at the reporting unit level (defined as the segment level), at least annually in the fourth quarter or more frequently whenever events or circumstances occur that indicate that it is more-likely-than-not that an impairment loss has occurred. In assessing impairment, management has the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of such events or circumstances, we determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we would not be required to perform an impairment test. The quantitative impairment analysis requires a comparison of each reporting unit’s fair value to its carrying value to identify potential impairment. Goodwill impairment exists when a reporting unit’s carrying value of goodwill exceeds its implied fair value. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes, but may not be limited to, the selection of appropriate discount rates, the identification of relevant market comparables and the development of cash flow projections. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weightings that are most representative of fair value. -84- Notes to Consolidated Financial Statements – (continued) Intangible assets identified in acquisitions consist of advisory contracts. The value attributed to intangible assets was based on the time period over which they are expected to generate economic benefits. Intangible assets are amortized over their estimated lives using a method that approximates the amount of economic benefits that are realized by the Corporation. Intangible assets with definite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If applicable, management tests each of the intangibles by comparing the carrying value of the intangible asset to the sum of undiscounted cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its undiscounted cash flows, then an impairment loss would be recognized for the amount by which the carrying amount exceeds its fair value. Impairment would result in a write-down to the estimated fair value based on the anticipated discounted future cash flows. The remaining useful life of the intangible assets that are being amortized is also evaluated to determine whether events and circumstances warrant a revision to the remaining period of amortization. Property Acquired through Foreclosure Property acquired through foreclosure is initially recorded at fair value less estimated costs to sell, resulting in a new cost basis. Fair value of such assets is determined based on independent appraisals and other relevant factors. The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) at the time of foreclosure is charged to the ACL on loans. Subsequent to foreclosure, a valuation allowance on the asset is established for declines in fair value. Any subsequent increases in fair value are recorded as a reduction to the valuation allowance, but not below zero. Upon sale of foreclosed property, any excess of the carrying value over the sales proceeds is recognized as a loss on sale. Any excess of sales proceeds over the carrying value of the foreclosed property is first applied as a recovery to the valuation allowance, if any, with the remainder being recognized as a gain on sale. Changes to the valuation allowance, operating expenses associated with ownership of these properties, and gains or losses recognized upon sale are included in other noninterest expense in the Consolidated Statements of Income (Loss). Investments in Real Estate Limited Partnerships The Bank invests in real estate limited partnerships that renovate, own and operate low-income housing complexes. The Bank neither actively participates in the management of nor has a controlling interest in the real estate limited partnerships. The carrying value of such investments is recorded in other assets on the Consolidated Balance Sheets. Investments in real estate limited partnerships are accounted for using the proportional amortization method. Unfunded commitments for future capital contributions are recognized and recorded in other liabilities on the Consolidated Balance Sheets. Under the proportional amortization method, the investment is amortized over the same tax period and in proportion to the total tax benefits expected to be allocated to the Bank. The amortization is recognized as a component of income tax expense in the Consolidated Statements of Income (Loss). In addition, operating losses and tax credits generated by the partnership are also recorded as a reduction to income tax expense. Other Equity Investments The Corporation invests in equity investments without readily determinable fair value. Such equity investments are classified within other assets in the Consolidated Balance Sheets. The Corporation has elected to carry equity investments without readily determinable fair value at cost, less impairment, if any, plus or minus changes in observable prices. A qualitative impairment analysis for equity investments without readily determinable fair value is performed quarterly. If the equity investment is deemed to be impaired, an impairment loss is recognized in the amount by which the carrying value of the equity investment exceeds its estimated fair value. The impairment loss is recognized as a reduction of other noninterest income in the Consolidated Statements of Income (Loss). An impairment loss can be reversed in a subsequent period if there are observable transactions for the identical or similar investment of the same issuer at an amount that is greater than the carrying value of the investment that was established when the impairment loss was recognized. The reversal of any impairment loss or other changes resulting from observable transactions are recognized in other noninterest income in the Consolidated Statements of Income (Loss). Impairment of Long - Lived Assets Other than Goodwill Long-lived assets, including premises and equipment, operating lease ROU assets and investments in real estate limited partnerships, are tested for impairment whenever events or changes in business circumstances indicate that the carrying amount may not be fully recoverable. If impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less -85- Notes to Consolidated Financial Statements – (continued) costs of disposal. An impairment loss is recognized within noninterest expense in the Consolidated Statements of Income (Loss). A previously recognized impairment loss cannot be reversed in a subsequent period. Transfers and Servicing of Assets and Extinguishments of Liabilities The accounting for transfers and servicing of financial assets and extinguishments of liabilities is based on consistent application of a financial components approach that focuses on control. This approach distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right to pledge or exchange the transferred assets with no conditions that constrain the transferee and provide more than a trivial benefit to the Corporation, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with a pledge of collateral. Wealth Management AUA AUA represents assets held in a fiduciary or agency capacity for wealth management clients and are not included in the Consolidated Balance Sheets, as these are not assets of the Corporation. Revenue from Contracts with Customers ASC 606, Revenue from Contracts with Customers, provides a revenue recognition framework for contracts with customers unless those contracts are within the scope of other accounting standards. The Corporation recognizes revenue from contracts with customers by identifying the performance obligations in its contracts, determining the transaction price in the contract, allocating the transaction price to each performance obligation contained within the contract, as applicable, and then recognizing revenue from its contracts with customers when it satisfies its performance obligations . The performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Revenue that is earned at a point in time is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction. This includes card interchange fees (fee income related to debit card transactions), certain service charges on deposits accounts such as overdraft charges, ATM fees for customers, stop-payment fees, and certain other income such as wire transfer fees and ATM fees for non-customers. Revenue that is earned over time is generally recognized over the term of the contract as services are performed and performance obligations are satisfied. Such revenue includes wealth management revenues, monthly service charges on deposit accounts and certain other income such as safe deposit box rental fees. In certain cases, other parties are involved with providing services to our customers. If the Corporation is a principal in the transaction (providing services itself or through a third party on its behalf), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Corporation is an agent in the transaction (referring customers to another party to provide services), the Corporation reports its net fee or commission retained as revenue. For certain commissions and incentives, 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. Contract cost assets are included in other assets in the Consolidated Balance Sheets. The amortization of contract cost assets is recorded within salaries and employee benefits expense in the Consolidated Statements of Income (Loss). Pension Costs Pension benefits are accounted for using the net periodic benefit cost method, which recognizes the compensation cost of an employee’s pension benefit over that employee’s approximate service period. Pension benefit costs and benefit obligations incorporate various actuarial and other assumptions, including discount rates, mortality, rates of return on plan assets and compensation increases. Management evaluates these assumptions on an annual basis and makes modifications to the -86- Notes to Consolidated Financial Statements – (continued) assumptions based on current rates and trends when it is appropriate to so do. The effect of modifications to those assumptions is recorded in other comprehensive income (loss) and amortized to net periodic cost over future periods. The service cost component of net periodic benefit cost is recognized within salaries and employee benefits expense in the Consolidated Statements of Income (Loss). All other components of net periodic benefit cost are recognized in other noninterest expense in the Consolidated Statements of Income (Loss). The funded status of defined benefit pension plans, measured as the difference between the fair value of plan assets and the projected benefit obligation, is recognized in the Consolidated Balance Sheets. The changes in the funded status of the defined benefit plans, including actuarial gains and losses and prior service costs and credits, are recognized in comprehensive income in the year in which the changes occur. Share-Based Compensation Share-based compensation plans provide for awards of stock options and other equity incentives, including restricted stock units and performance share units. Compensation expense for awards is recognized over the service period based on the fair value at the date of grant and is included in salaries and employee benefits expense in the Consolidated Statements of Income (Loss). Grant date fair value for stock options is estimated using the Black-Scholes option-pricing model. Awards of restricted stock units and performance share units are valued at the fair market value of the Bancorp’s common stock as of the award date. Performance share unit compensation expense is based on the most recent performance assumption available and is adjusted as assumptions change. Forfeitures are recognized when they occur. Vesting of the awards may accelerate or may be subject to proportional vesting if there is a change in control, disability, retirement or death. Vested equity awards are issued from treasury stock, when available, or from authorized but unissued stock. Excess tax benefits (expenses) result when tax return deductions differ from recognized share-based compensation cost that are determined using the grant-date fair value approach for financial statement purposes. Excess tax benefits (expenses) related to the settlement of share-based awards are recorded as a decrease (increase) to income tax expense in the Consolidated Income Statements and are classified in the Consolidated Statements of Cash Flows as an operating activity. Dividends declared on restricted stock units issued under the 2013 Stock Option and Incentive Plan are nonforfeitable and paid quarterly in conjunction with dividends declared and paid to common shareholders. Dividends declared on restricted stock units issued under the 2022 Long Term Incentive Plan are accrued at each dividend declaration date and paid upon the issuance of the shares after the award vests. Dividends on performance share units are accrued at each dividend declaration date based on the most recent performance assumptions available and paid upon the issuance of the shares after the award vest. Income Taxes Income tax expense is determined based on the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact of tax legislation changes is recognized as a component of income tax expense in the period of enactment. Valuation allowances are established when necessary to reduce deferred tax assets to an amount, which is more-likely-than-not to be realizable. Additionally, a liability for unrecognized tax benefits is recorded for uncertain tax positions taken by the Corporation on its tax returns for which there is less than a 50% likelihood of being recognized upon a tax examination. Interest related to unrecognized tax benefits is recorded in income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. Segment Reporting The Corporation manages its operations through two reportable business segments, consisting of Commercial Banking and Wealth Management Services, as determined by the Corporation’s designated CODM. Additional information on the Corporation’s reportable business segments is presented in Note 18. -87- Notes to Consolidated Financial Statements – (continued) An allocation methodology is utilized to allocate income and expenses to the business segments. 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. Earnings Per Common Share EPS is calculated utilizing the two-class method. The two-class method is an earnings allocation formula that determines earnings per share of each class of stock according to dividends and participation rights in undistributed earnings. Share‑based awards that entitle holders to receive nonforfeitable dividends before vesting are considered participating securities (i.e., restricted stock units awarded under the 2013 Stock Option and Incentive Plan), not subject to performance-based measures. Undistributed income is allocated to common shareholders and participating securities under the two-class method based upon the proportion of each to the total weighted average shares available. Under the two-class method, basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS is computed using the weighted-average number of shares determined for the basic EPS computation plus the dilutive effect on common shares outstanding, using the treasury stock method. Comprehensive Income (Loss) Comprehensive income (loss) is defined as all changes in equity, except for those resulting from transactions with shareholders. Net income is a component of comprehensive income (loss). All other components are referred to in the aggregate as other comprehensive income (loss). Other comprehensive income (loss) includes the after-tax effect of net changes in the fair value of securities available for sale, net changes in fair value of cash flow hedges and net changes in defined benefit pension plan obligations. Guarantees Standby letters of credit are considered a guarantee of the Corporation. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Under the standby letters of credit, the Corporation is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer’s failure to perform under the terms of the underlying contract with the beneficiary. Derivative Instruments and Hedging Activities Derivatives are recognized as either assets or liabilities and are measured at fair value. Derivative assets are included in other assets and derivative liabilities are included in other liabilities in the Consolidated Balance Sheets. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation. For derivatives designated as cash flow hedges, the changes in the fair value are recorded in other comprehensive income (loss) and subsequently reclassified to earnings when gains or losses are realized. When a cash flow hedge is discontinued, but the hedged cash flows or forecasted transaction is still expected to occur, changes in value that were accumulated in other comprehensive income (loss) are amortized or accreted into earnings over the same periods that the hedged transactions will affect earnings. For derivatives designated as fair value hedges, the hedged item is measured at fair value through a basis adjustment recognized on the balance sheet. The changes in fair 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. For derivatives not designated as hedges, changes in fair value of the derivative instruments are recognized in earnings, in noninterest income. Net accrued interest receivable or payable on derivatives that qualify for hedge accounting are recorded in interest income or interest expense based on the item being hedged. Net accrued interest receivable or payable on derivatives that do not qualify for hedge accounting are reported in noninterest income. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820, “Fair Value Measurements and Disclosures”, establishes a -88- Notes to Consolidated Financial Statements – (continued) framework for measuring fair value and expands disclosures about fair value measurements. The required disclosures about fair value measurements have been included in Note 10. Note 2 - Recently Issued Accounting Pronouncements Accounting Standards Adopted in 2024 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 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. The Corporation adopted the provisions of ASU 2023-07 on December 31, 2024 on a retrospective basis. The adoption of ASU 2023-07 did not have a material impact on the Corporation’s financial statements. See Note 18 for additional information on business segments. Accounting Standards Pending Adoption 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. Income Statement - Reporting Comprehensive Income - Subtopic 220 Accounting Standards Update No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) - Disaggregation of Income Statement Expenses” (“ASU 2024-03”), was issued in November 2024 to enhance and provide additional disclosure on certain costs and expenses. The effective date of ASU 2024-03 was further clarified in a subsequent ASU issued in January 2025. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The provisions under ASU 2024-03 can be applied on either a prospective or retrospective basis. ASU 2024-03 is not expected to have a material impact on the Corporation’s financial statements. 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) December 31, 2024 Amortized Cost Unrealized Gains Unrealized Losses ACL Fair Value Available for Sale Debt Securities: Obligations of U.S. government agencies and U.S. government-sponsored enterprises $ 41,751 $ — ($ 3,139 ) $ — $ 38,612 Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 984,546 52 ( 129,451 ) — 855,147 Obligations of states and political subdivisions 650 5 — — 655 Individual name issuer trust preferred debt securities 9,414 — ( 193 ) — 9,221 Corporate bonds 13,196 — ( 526 ) — 12,670 Total available for sale debt securities $ 1,049,557 $ 57 ($ 133,309 ) $ — $ 916,305 -89- Notes to Consolidated Financial Statements – (continued) (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 Accrued interest receivable on available for sale debt securities totaled $ 3.2 million and $ 3.7 million, respectively, as of December 31, 2024 and 2023. At December 31, 2024 and 2023, securities with a fair value of $ 310.5 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 13 for additional discussion of FHLB borrowings. In December 2024, the Bank sold available for sale debt securities with an amortized cost balance of $ 409.5 million (fair value of $ 378.4 million) and reinvested $ 378.4 million into purchases of available for sale debt securities. The sale of debt securities resulted in a net realized pre-tax loss of $ 31.0 million that was recognized in the December 2024. See Note 14 for additional disclosure regarding the Corporation’s public offering of common stock. The following table summarizes amounts related to the sale of available for debt securities: (Dollars in thousands) For the periods ended December 31, 2024 2023 2022 Proceeds from sales $ 378,410 $ — $ — Gross realized gains $ — $ — $ — Gross realized losses ( 31,047 ) — — Net realized losses on securities ($ 31,047 ) $ — $ — 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) December 31, 2024 Amortized Cost Fair Value Due in one year or less $ 73,288 $ 63,717 Due after one year to five years 306,246 269,810 Due after five years to ten years 244,841 212,662 Due after ten years 425,182 370,116 Total securities $ 1,049,557 $ 916,305 Included in the above table are debt securities with an amortized cost balance of $ 50.0 million and a fair value of $ 46.2 million at December 31, 2024 that are callable at the discretion of the issuers. Final maturities of the callable securities range from 7 months to 20 years, with call features ranging from 1 month to 8 years. -90- Notes to Consolidated Financial Statements – (continued) 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 December 31, 2024 # Fair Value Unrealized Losses # Fair Value Unrealized Losses # Fair Value Unrealized Losses Obligations of U.S. government agencies and U.S. government-sponsored enterprises 2 $ 15,289 ($ 12 ) 6 $ 23,323 ($ 3,127 ) 8 $ 38,612 ($ 3,139 ) Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 57 384,164 ( 3,632 ) 93 466,741 ( 125,819 ) 150 850,905 ( 129,451 ) Individual name issuer trust preferred debt securities — — — 3 9,221 ( 193 ) 3 9,221 ( 193 ) Corporate bonds — — — 4 12,670 ( 526 ) 4 12,670 ( 526 ) Total temporarily impaired securities 59 $ 399,453 ($ 3,644 ) 106 $ 511,955 ($ 129,665 ) 165 $ 911,408 ($ 133,309 ) (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 temporarily impaired securities 9 $ 63,711 ($ 438 ) 181 $ 914,700 ($ 152,072 ) 190 $ 978,411 ($ 152,510 ) There were no debt securities on nonaccrual status at December 31, 2024 and 2023 and, therefore there was no accrued interest related to debt securities reversed against interest income for 2024 and 2023. As of December 31, 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 December 31, 2024 and 2023. Obligations of U.S. Government Agencies 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 highly rated by major credit rating agencies and have a long history of no credit losses. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at December 31, 2024. As disclosed in Note 1, the Corporation utilizes a zero credit loss estimate for these securities. -91- Notes to Consolidated Financial Statements – (continued) Individual Name Issuer Trust Preferred Debt Securities These securities in an unrealized loss position at December 31, 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 December 31, 2024, there was one individual name issuer trust preferred debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 107 thousand that was rated below investment grade by S&P. We noted no downgrades to below investment grade between December 31, 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 December 31, 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 December 31, 2024, there was one corporate bond debt security with an amortized cost of $ 2.0 million and unrealized losses of $ 27 thousand that was rated below investment grade by S&P. We noted no downgrades to below investment grade between December 31, 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 a summary of loans: (Dollars in thousands) December 31, 2024 2023 Commercial: Commercial real estate (1) $ 2,154,504 $ 2,106,359 Commercial & industrial (2) 542,474 605,072 Total commercial 2,696,978 2,711,431 Residential Real Estate: Residential real estate (3) 2,126,171 2,604,478 Consumer: Home equity 297,119 312,594 Other (4) 17,570 19,203 Total consumer 314,689 331,797 Total loans (5) $ 5,137,838 $ 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 real estate. (3) Residential real estate consists of mortgage and homeowner construction loans secured by one- to four-family residential properties. Also, includes a $ 1.5 million negative basis adjustment associated with fair value hedges at December 31, 2024. See Note 9 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 $ 10.9 million and $ 13.0 million, respectively, at December 31, 2024 and 2023 and net unamortized premiums on loans purchased from and serviced by other financial institutions of $ 242 thousand and $ 286 thousand, respectively, at December 31, 2024 and 2023. The carrying value of loans excludes accrued interest receivable of $ 22.1 million and $ 22.9 million, respectively, as of December 31, 2024 and 2023. -92- Notes to Consolidated Financial Statements – (continued) As of December 31, 2024 and 2023, loans amounting to $ 2.8 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 13 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 December 31, 2024 Current 30-59 60-89 90 or More Total Past Due Total Loans Commercial: Commercial real estate $ 2,154,504 $ — $ — $ — $ — $ 2,154,504 Commercial & industrial 541,574 518 382 — 900 542,474 Total commercial 2,696,078 518 382 — 900 2,696,978 Residential Real Estate: Residential real estate 2,118,430 3,476 1,892 2,373 7,741 2,126,171 Consumer: Home equity 294,172 1,630 410 907 2,947 297,119 Other 17,176 44 350 — 394 17,570 Total consumer 311,348 1,674 760 907 3,341 314,689 Total loans $ 5,125,856 $ 5,668 $ 3,034 $ 3,280 $ 11,982 $ 5,137,838 (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 December 31, 2024 and 2023, were nonaccrual loans of $ 6.4 million and $ 6.9 million, respectively. In addition, all loans 90 days or more past due at December 31, 2024 and 2023 were classified as nonaccrual. -93- Notes to Consolidated Financial Statements – (continued) Nonaccrual Loans The following is a summary of nonaccrual loans, segregated by class of loans: (Dollars in thousands) December 31, 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 $ 10,053 $ — $ 10,053 $ 10,997 $ 21,830 $ 32,827 Commercial & industrial 515 — 515 — 682 682 Total commercial 10,568 — 10,568 10,997 22,512 33,509 Residential Real Estate: Residential real estate 9,743 1,024 10,767 8,495 1,131 9,626 Consumer: Home equity 1,972 — 1,972 1,483 — 1,483 Other — — — — — — Total consumer 1,972 — 1,972 1,483 — 1,483 Total $ 22,283 $ 1,024 $ 23,307 $ 20,975 $ 23,643 $ 44,618 Accruing loans 90 days or more past due $ — $ — Nonaccrual loans of $ 16.9 million and $ 37.7 million, respectively, at December 31, 2024 and 2023 were current as to the payment of principal and interest. As of December 31, 2024 and 2023, nonaccrual loans secured by one- to four-family residential property amounting to $ 1.0 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 December 31, 2024. The following table presents interest income recognized on nonaccrual loans: (Dollars in thousands) Interest Income Recognized Years Ended December 31, 2024 2023 2022 Commercial: Commercial real estate $ 197 $ 2,719 $ — Commercial & industrial 8 59 — Total commercial 205 2,778 — Residential Real Estate: Residential real estate 542 466 398 Consumer: Home equity 161 107 62 Other — 4 3 Total consumer 161 111 65 Total $ 908 $ 3,355 $ 463 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 -94- Notes to Consolidated Financial Statements – (continued) 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. The following table presents the carrying value at December 31, 2024, of TLMs made during the year, segregated by class of loans and type of concession granted: (Dollars in thousands) Maturity Extension Other-than-Insignificant Payment Delay Combination (1) Total % of Total Loan Class (2) Commercial: Commercial real estate $ 3,340 $ — $ 6,713 $ 10,053 — % Commercial & industrial 515 5,000 — 5,515 1 Total commercial 3,855 5,000 6,713 15,568 1 Residential Real Estate: Residential real estate — 260 — 260 — Total $ 3,855 $ 5,260 $ 6,713 $ 15,828 — % (1) Combination includes an interest rate reduction, payment deferral and maturity extension. (2) Percentage of TLMs to the total loans outstanding within the respective loan class. The following table presents the carrying value at December 31, 2023, of TLMs made during the year, segregated by class of loans and type of concession granted: (Dollars in thousands) Maturity Extension Other-than-Insignificant Payment Delay Combination (1) Total % of Total Loan Class (2) Commercial: Commercial real estate $ 13,780 $ — $ 8,050 $ 21,830 1 % Commercial & industrial — — — — — Total commercial 13,780 — 8,050 21,830 1 Total $ 13,780 $ — $ 8,050 $ 21,830 — % (1) Combination includes an interest rate reduction, payment deferral and maturity extension. (2) Percentage of TLMs to the total loans outstanding within the respective loan class. The following tables present the financial effect of TLMs made during the periods indicated, segregated by class of loans: Year ended December 31, 2024 Financial Effect Interest Rate Reduction: Commercial real estate Provided interest rate reduction by a weighted average rate of 3 % Maturity Extension: Commercial real estate Provided maturity extension for a weighted average period of 12 months Commercial & industrial Provided maturity extension for a weighted average period of 120 months Other-than-Insignificant Payment Delay: Commercial real estate Provided payment delay for a weighted average period of 5 months Commercial & industrial Provided payment delay for a weighted average period of 12 months Residential real estate Provided payment delay for a weighted average period of 6 months -95- Notes to Consolidated Financial Statements – (continued) Year ended December 31, 2023 Financial Effect Interest Rate Reduction: Commercial real estate Provided interest rate reduction by a weighted average rate of 3 % Maturity Extension: Commercial real estate Provided maturity extension for a weighted average period of 10 months Other-than-Insignificant Payment Delay: Commercial real estate Provided payment delay for a weighted average period of 12 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 December 31, 2024 Current 30-59 60-89 Over 90 Total Past Due Total Loans Commercial: Commercial real estate $ 10,053 $ — $ — $ — $ — $ 10,053 Commercial & industrial 5,000 515 — — 515 5,515 Total commercial 15,053 515 — — 515 15,568 Residential Real Estate: Residential real estate 260 — — — — 260 Total loans $ 15,313 $ 515 $ — $ — $ 515 $ 15,828 At December 31, 2024, a $ 515 thousand C&I loan and a $ 260 thousand residential real estate loan, which were modified as TLMs in the previous 12 months, had a subsequent payment default. (Dollars in thousands) Days Past Due December 31, 2023 Current 30-59 60-89 Over 90 Total Past Due Total Loans Commercial: Commercial real estate $ 21,830 $ — $ — $ — $ — $ 21,830 Commercial & industrial — — — — — — Total commercial 21,830 — — — — 21,830 Total loans $ 21,830 $ — $ — $ — $ — $ 21,830 At December 31, 2023, 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 December 31, 2024. Individually Analyzed Loans Individually analyzed loans include nonaccrual commercial loans, TLMs and certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans. As of December 31, 2024 and 2023, the carrying value of individually analyzed loans amounted to $ 16.6 million and $ 34.6 million, respectively. The carrying value of collateral dependent individually analyzed loans was $ 11.6 million and $ 34.6 million, respectively, at December 31, 2024 and 2023. 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 -96- Notes to Consolidated Financial Statements – (continued) date. See Note 10 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) December 31, 2024 December 31, 2023 Carrying Value Related Allowance Carrying Value Related Allowance Commercial: Commercial real estate (1) $ 10,053 $ 1,252 $ 32,827 $ 97 Commercial & industrial (2) 515 259 682 — Total commercial 10,568 1,511 33,509 97 Residential Real Estate: Residential real estate (3) 1,023 — 1,131 — Total $ 11,591 $ 1,511 $ 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 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. -97- Notes to Consolidated Financial Statements – (continued) The Corporation’s procedures call for loan risk ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, management reviews a watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate, 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. -98- Notes to 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, 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 $ 172,931 $ 432,763 $ 598,805 $ 362,292 $ 125,834 $ 405,381 $ 9,879 $ 989 $ 2,108,874 Special mention — 6,116 — — — 2,237 — — 8,353 Classified 31,010 — — — — 6,267 — — 37,277 Total CRE 203,941 438,879 598,805 362,292 125,834 413,885 9,879 989 2,154,504 Gross charge-offs — — — — — 1,961 — — 1,961 C&I: Pass 38,128 51,162 136,449 23,474 36,954 159,522 76,857 469 523,015 Special mention — — 3,593 1,172 1,398 6,428 5,381 — 17,972 Classified 811 — — 161 — 515 — — 1,487 Total C&I 38,939 51,162 140,042 24,807 38,352 166,465 82,238 469 542,474 Gross charge-offs 33 — — — — 175 — — 208 Residential Real Estate: Residential real estate: Current (1) 74,458 383,983 746,566 375,848 173,676 365,380 — — 2,119,911 Past due — 287 1,434 — 1,290 4,730 — — 7,741 Total residential real estate 74,458 384,270 748,000 375,848 174,966 370,110 — — 2,127,652 Gross charge-offs — — — — — — — — — Consumer: Home equity: Current 12,850 18,301 12,749 6,165 2,282 4,815 225,522 11,488 294,172 Past due — 61 — — 142 630 871 1,243 2,947 Total home equity 12,850 18,362 12,749 6,165 2,424 5,445 226,393 12,731 297,119 Gross charge-offs — — — — — — — — — Other: Current 4,176 4,497 2,331 2,175 757 2,989 251 — 17,176 Past due 24 — 370 — — — — — 394 Total other 4,200 4,497 2,701 2,175 757 2,989 251 — 17,570 Gross charge-offs 229 10 — — 2 3 — — 244 Total loans, amortized cost $ 334,388 $ 897,170 $ 1,502,297 $ 771,287 $ 342,333 $ 958,894 $ 318,761 $ 14,189 $ 5,139,319 Total gross charge-offs $ 262 $ 10 $ — $ — $ 2 $ 2,139 $ — $ — $ 2,413 (1) Excludes a $ 1.5 million negative basis adjustment associated with fair value hedges. See Note 9 for additional disclosure. -99- Notes to 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 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 -100- Notes to Consolidated Financial Statements – (continued) with extensions of maturity dates of more than three months are reported as originations in the period extended. Loan Servicing Activities Loans sold with servicing retained result in the capitalization of loan servicing rights. The following table presents an analysis of loan servicing rights: (Dollars in thousands) Loan Servicing Rights Valuation Allowance Total Balance at December 31, 2021 $ 9,821 $ — $ 9,821 Loan servicing rights capitalized 957 — 957 Amortization ( 1,763 ) — ( 1,763 ) Balance at December 31, 2022 9,015 — 9,015 Loan servicing rights capitalized 1,069 — 1,069 Amortization ( 1,538 ) — ( 1,538 ) Increase in impairment reserve — ( 34 ) ( 34 ) Balance at December 31, 2023 8,546 ( 34 ) 8,512 Loan servicing rights capitalized 688 — 688 Amortization ( 1,567 ) — ( 1,567 ) Decrease in impairment reserve — 34 34 Balance at December 31, 2024 $ 7,667 $ — $ 7,667 The following table presents estimated aggregate amortization expense related to loan servicing assets: (Dollars in thousands) Years ending December 31: 2025 $ 1,186 2026 1,003 2027 848 2028 716 2029 606 2030 and thereafter 3,308 Total estimated amortization expense $ 7,667 Loans sold to others may be serviced by the Corporation on a fee basis under various agreements. Loans serviced for others are not included in the Consolidated Balance Sheets. The following table presents the balance of loans serviced for others by loan portfolio: (Dollars in thousands) December 31, 2024 2023 Residential real estate $ 1,409,920 $ 1,454,342 Commercial 179,626 135,954 Total $ 1,589,546 $ 1,590,296 -101- Notes to Consolidated Financial Statements – (continued) 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 year ended December 31, 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 ( 1,961 ) ( 208 ) ( 2,169 ) — — ( 244 ) ( 244 ) ( 2,413 ) Recoveries — 22 22 160 197 37 234 416 Provision 4,302 ( 625 ) 3,677 ( 731 ) ( 214 ) 168 ( 46 ) 2,900 Ending Balance $ 26,485 $ 7,277 $ 33,762 $ 6,832 $ 1,031 $ 335 $ 1,366 $ 41,960 The following table presents the activity in the ACL on loans for the year ended December 31, 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 ( 373 ) ( 37 ) ( 410 ) — — ( 167 ) ( 167 ) ( 577 ) Recoveries — 12 12 3 10 32 42 57 Provision 6,082 ( 2,243 ) 3,839 ( 340 ) ( 77 ) 128 51 3,550 Ending Balance $ 24,144 $ 8,088 $ 32,232 $ 7,403 $ 1,048 $ 374 $ 1,422 $ 41,057 The following table presents the activity in the ACL on loans for the year ended December 31, 2022: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 18,933 $ 10,832 $ 29,765 $ 7,860 $ 1,069 $ 394 $ 1,463 $ 39,088 Charge-offs — ( 36 ) ( 36 ) — — ( 148 ) ( 148 ) ( 184 ) Recoveries 445 29 474 21 12 45 57 552 Provision ( 943 ) ( 469 ) ( 1,412 ) ( 141 ) 34 90 124 ( 1,429 ) Ending Balance $ 18,435 $ 10,356 $ 28,791 $ 7,740 $ 1,115 $ 381 $ 1,496 $ 38,027 -102- Notes to Consolidated Financial Statements – (continued) Note 6 - Premises and Equipment The following presents a summary of premises and equipment: (Dollars in thousands) December 31, 2024 2023 Land $ 3,920 $ 6,042 Premises and improvements 36,499 48,573 Furniture, fixtures and equipment 21,482 23,980 Total premises and equipment 61,901 78,595 Less: accumulated depreciation 35,028 46,304 Total premises and equipment, net $ 26,873 $ 32,291 The following table presents a summary of depreciation expense: (Dollars in thousands) Year ended December 31, Fixed Asset Type Income Statement Line Item 2024 2023 2022 Premises and improvements Net occupancy $ 1,907 $ 1,840 $ 1,668 Furniture, fixtures and equipment Equipment 2,027 2,165 1,797 Total depreciation expense $ 3,934 $ 4,005 $ 3,465 In the second quarter of 2024, the Bank sold an operations facility and a net gain of $ 988 thousand was recognized within other noninterest income. For the years ended 2023 and 2022, there were no sales of premises and equipment and therefore, no gains or losses were recognized in those periods. In the fourth quarter of 2024, land and premises associated with five branch locations with a total net book value of $ 4.8 million were reclassified to held for sale, as the Bank committed to sell these assets and lease them back from the buyers. The sales-leaseback transactions for four of the five locations were completed on January 30, 2025. See Note 7 for additional information related to the leaseback of the assets. -103- Notes to Consolidated Financial Statements – (continued) Note 7 - Leases The Corporation has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception. Operating lease ROU assets amounted to $ 26.9 million and $ 29.4 million, respectively, as of December 31, 2024 and 2023. Operating lease liabilities totaled $ 29.6 million and $ 32.0 million, respectively, as of December 31, 2024 and 2023. As of both December 31, 2024 and 2023, there were no operating leases that had not yet commenced. The following table presents information regarding the Corporation’s operating leases: At December 31, 2024 2023 Weighted average discount rate 3.80 % 3.80 % Range of lease expiration dates 4 months - 23 years 3 months - 24 years Range of lease renewal options 1 year - 5 years 3 years - 5 years Weighted average remaining lease term 12.6 years 13.1 years The following table presents the undiscounted annual lease payments under the terms of the Corporation’s operating leases at December 31, 2024, including a reconciliation to the present value of operating lease liabilities recognized in the Consolidated Balance Sheets: (Dollars in thousands) Years ending December 31: 2025 $ 3,984 2026 3,587 2027 3,043 2028 2,701 2029 2,571 2030 and thereafter 21,445 Total operating lease payments 37,331 Less: interest 7,753 Present value of operating lease liabilities (1) $ 29,578 (1) Includes short-term operating lease liabilities of $ 2.9 million. The following table presents the components of total lease expense and operating cash flows: (Dollars in thousands) Year ended December 31, 2024 2023 2022 Lease Expense: Operating lease expense $ 4,482 $ 4,476 $ 4,159 Variable lease expense 170 201 104 Total lease expense (1) $ 4,652 $ 4,677 $ 4,263 Cash Paid: Cash paid reducing operating lease liabilities $ 4,510 $ 4,275 $ 4,076 (1) Included in net occupancy expenses in the Consolidated Statements of Income (Loss). On January 30, 2025, the Bank completed sales-leaseback transactions for four branch locations and recognized additional operating lease ROU assets of $ 9.4 million and operating lease liabilities of $ 9.4 million. The leases expire in 17 years and include the option to renew for two additional 15 -year terms. -104- Notes to Consolidated Financial Statements – (continued) Note 8 - Goodwill and Intangible Assets The following table presents the carrying value of goodwill at the reporting unit (or business segment) level: (Dollars in thousands) December 31, 2024 2023 Commercial Banking Segment $ 22,591 $ 22,591 Wealth Management Services Segment 41,318 41,318 Total goodwill $ 63,909 $ 63,909 The balance of goodwill in the Commercial Banking segment arose from the acquisition of First Financial Corp. in 2002. The balance of goodwill in the Wealth Management Services segment arose from the 2005 acquisition of Weston and the 2015 acquisition of Halsey. The following table presents the components of intangible assets: (Dollars in thousands) December 31, 2024 2023 Gross carrying amount $ 20,803 $ 20,803 Accumulated amortization 17,918 17,092 Net amount $ 2,885 $ 3,711 The balance of intangible assets at December 31, 2024 includes wealth management advisory contracts resulting from the 2005 acquisition of Weston and the 2015 acquisition of Halsey. The wealth management advisory contracts resulting from the Weston acquisition are being amortized over a 20 -year life using a declining balance method, based on expected attrition for the current customer base derived from historical runoff data. The wealth management advisory contracts resulting from the acquisition of Halsey are being amortized on a straight-line basis over a 15 -year life. Amortization expense for the years ended December 31, 2024, 2023, and 2022, amounted to $ 826 thousand, $ 843 thousand and $ 860 thousand, respectively. The following table presents estimated annual amortization expense for intangible assets at December 31, 2024: (Dollars in thousands) Years ending December 31, 2025 $ 702 2026 476 2027 476 2028 476 2029 476 2030 and thereafter 279 Note 9 - 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. -105- Notes to Consolidated Financial Statements – (continued) 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 December 31, 2024 and 2023, the Corporation had interest rate swap contracts that were designated as cash flow hedges. In addition, at December 31, 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. The changes in fair value of these derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) and subsequently reclassified to earnings when gains or losses are realized (i.e., in the same period during which the hedged transactions affect earnings.) The Corporation also had an interest rate swap contract that was designated as a cash flow hedge to hedge the interest rate risk associated with a pool of variable rate commercial loans. On March 31, 2023, the Corporation terminated this interest rate swap contract and the derivative liability was derecognized. The loss on this interest rate swap included in the AOCL component of shareholders’ equity was updated to its termination date fair value of $ 26.5 million, or $ 20.1 million after tax. This loss 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 December 31, 2024, the remaining unamortized balance of the loss included in the AOCL component of shareholders’ equity was $ 11.4 million, or $ 8.5 million after tax. Fair Value Hedging Instruments As of December 31, 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”). The hedged item is measured at fair value through a basis adjustment recognized on the balance sheet. The changes in fair 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 -106- Notes to Consolidated Financial Statements – (continued) 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 that are originated and intended 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 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. The following table presents the notional amounts and fair values of derivative instruments in the Consolidated Balance Sheets: (Dollars in thousands) December 31, 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 $ 1,529 $ 229 $ 120,000 $ 802 $ 1,119 Interest rate collar 50,000 — 30 — — — Derivatives Designated as Fair Value Hedging Instruments: Interest rate risk management contracts: Interest rate swaps 100,000 1,477 — — — — Derivatives not Designated as Hedging Instruments: Loan related derivative contracts: Interest rate contracts with customers 886,912 2,468 51,372 938,872 6,594 52,102 Mirror interest rate contracts with counterparties 886,912 51,176 2,529 938,872 51,859 6,757 Risk participation agreements 343,935 29 — 321,055 66 1 Mortgage loan commitments: Interest rate lock commitments 20,238 248 — 20,980 504 1 Forward sale commitments 52,100 163 291 50,117 18 711 Gross amounts 57,090 54,451 59,843 60,691 Less: amounts offset (2) 2,788 2,788 7,877 7,877 Derivative balances, net of offset 54,302 51,663 51,966 52,814 Less: collateral pledged (3) — — — — Net amounts $ 54,302 $ 51,663 $ 51,966 $ 52,814 (1) The fair value of derivative assets includes accrued interest receivable of $ 120 thousand and $ 239 thousand, respectively, at December 31, 2024 and 2023. There was no accrued interest payable included in the fair value of derivative liabilities at December 31, 2024 and 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. -107- Notes to Consolidated Financial Statements – (continued) The following table presents the balance sheet location, carrying value, and cumulative basis adjustment of the hedged item associated with fair value hedges: (Dollars in thousands) December 31, 2024 December 31, 2023 Balance Sheet Location Carrying Value of Hedged Item (1) Cumulative Basis Adjustment Carrying Value of Hedged Item Cumulative Basis Adjustment Residential real estate loans $ 98,519 ($ 1,481 ) $ — $ — (1) Represents the carrying value of the hedged item associated with fair value hedges on a closed-pool of fixed-rate residential real estate loans that are expected to be outstanding for the designated hedged periods. The amortized cost balance of the closed-pool of residential real estate loans used in the fair value hedges was $ 733.2 million at December 31, 2024. The following table presents the effect of derivative instruments in the Consolidated Statements of Changes in Shareholders’ Equity: (Dollars in thousands) Amounts Recognized in Other Comprehensive Income (Loss), Net of Tax Years ended December 31, 2024 2023 2022 Derivatives Designated as Cash Flow Hedging Instruments: Interest rate risk management contracts: Interest rate swaps $ 7,703 $ 7,026 ($ 18,632 ) Interest rate collar ( 22 ) — — Total $ 7,681 $ 7,026 ($ 18,632 ) The following table presents the effect of derivative instruments in the Consolidated Statements of Income (Loss): (Dollars in thousands) Amount of Gain (Loss) Recognized in the Consolidated Statements of Income (Loss) Years ended December 31, Statement of Income Location 2024 2023 2022 Derivatives Designated as Cash Flow Hedging Instruments: Interest rate risk management contracts: Interest rate swaps Interest income: Interest and fees on loans ($ 8,605 ) ($ 9,228 ) ($ 2,758 ) Interest rate swaps Interest expense: FHLB advances 1,775 1,665 ( 70 ) Derivatives Designated as Fair Value Hedging Instruments: Interest rate risk management contracts: Interest rate swaps Interest income: Interest and fees on loans 1,477 — — Hedged item Interest income: Interest and fees on loans ( 1,481 ) — — Derivatives not Designated as Hedging Instruments: Loan related derivative contracts: Interest rate contracts with customers Loan related derivative income ( 28,561 ) ( 1,408 ) ( 92,730 ) Mirror interest rate contracts with counterparties Loan related derivative income 28,963 3,211 94,759 Risk participation agreements Loan related derivative income 65 ( 413 ) 727 Mortgage loan commitments: Interest rate lock commitments Mortgage banking revenues ( 256 ) 363 ( 1,116 ) Forward sale commitments Mortgage banking revenues 514 61 4,530 Total ($ 6,109 ) ($ 5,749 ) $ 3,342 For derivatives designated as cash flow hedging instruments in the table above, the amounts represent the pre-tax reclassifications from AOCL into earnings. -108- Notes to Consolidated Financial Statements – (continued) Note 10 - 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 that are originated and intended for sale to the secondary market, 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, loan servicing rights, property acquired through foreclosure or repossession, and mortgage loans reclassified to held for sale from portfolio. 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 that are originated and intended for sale to the secondary market to better match changes in fair value of the loans with changes in the fair value of the forward sale commitment contracts used to economically hedge them. The following table presents a summary of mortgage loans held for sale accounted for under the fair value option: (Dollars in thousands) December 31, 2024 2023 Aggregate fair value $ 21,708 $ 20,077 Aggregate principal balance 21,420 19,480 Difference between fair value and principal balance $ 288 $ 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 Consolidated Statements of Income (Loss). Changes in fair value amounted to a decrease in mortgage banking revenues of $ 310 thousand in 2024, compared to an increase in mortgage banking revenues of $ 470 thousand in 2023. There were no mortgage loans held for sale 90 days or more past due as of December 31, 2024 and 2023. Valuation Techniques for Items Recorded at Fair Value on a Recurring Basis Available for Sale 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 December 31, 2024 and 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. -109- Notes to Consolidated Financial Statements – (continued) 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 December 31, 2024 and 2023. Mortgage Loans Held for Sale, at Fair Value The Corporation has elected the fair value option for mortgage loans that are originated and intended for sale to the secondary market. 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. 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 December 31, 2024 and 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 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) December 31, 2024 Assets: Available for sale debt securities: Obligations of U.S. government agencies and U.S government-sponsored enterprises $ 38,612 $ — $ 38,612 $ — Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 855,147 — 855,147 — Obligations of states and political subdivisions 655 — 655 — Individual name issuer trust preferred debt securities 9,221 — 9,221 — Corporate bonds 12,670 — 12,670 — Mortgage loans held for sale 21,708 — 21,708 — Derivative assets 54,302 — 54,302 — Total assets at fair value on a recurring basis $ 992,315 $ — $ 992,315 $ — Liabilities: Derivative liabilities $ 51,663 $ — $ 51,663 $ — Total liabilities at fair value on a recurring basis $ 51,663 $ — $ 51,663 $ — -110- Notes to 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 $ — Valuation Techniques for Items Recorded at Fair Value on a Nonrecurring Basis 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 originally recorded at fair value and then 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. Loan servicing rights are categorized as Level 3. Mortgage Loans Held for Sale, at Lower of Cost or Market Following the public offering of common stock by the Corporation disclosed in Note 14 and pursuant to the terms of a sales agreement effective December 30, 2024, the Bank committed to sell residential mortgage loans with an amortized cost balance of $ 344.6 million that were held in portfolio. These loans were reclassified to held for sale and written down to a fair value of $ 281.7 million, resulting in a net pre-tax loss of $ 62.9 million that was recognized in December 2024. The fair value of these loans was based on the terms of the sales agreement with an unrelated third party and therefore are categorized as Level 2. The sale of these loans was completed on January 24, 2025. -111- Notes to Consolidated Financial Statements – (continued) Items Recorded at Fair Value on a Nonrecurring Basis The following table presents the carrying value of assets held at December 31, 2024, which were written down to fair value during the twelve months ended December 31, 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 loans $ 9,057 $ — $ — $ 9,057 Mortgage loans held for sale, at lower of cost or market 281,706 — 281,706 — Total assets at fair value on a nonrecurring basis $ 290,763 $ — $ 281,706 $ 9,057 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 The following tables present valuation techniques and unobservable inputs for assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value: (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Inputs Utilized December 31, 2024 Collateral dependent individually analyzed loans $ 9,057 Appraisals of collateral Discount for costs to sell 14 % - 49 % ( 16 %) Appraisal adjustments 0 % - 10 % ( 7 %) (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 Rate 10 % - 14 % ( 10 %) Prepayment rates 6 % - 53 % ( 9 %) -112- Notes to Consolidated Financial Statements – (continued) 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) 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) December 31, 2024 Financial Assets: Cash and cash equivalents $ 113,889 $ 113,889 $ 113,889 $ — $ — Loans, net of allowance for credit losses on loans (1) 5,095,878 4,952,110 — — 4,952,110 FHLB stock 49,817 49,817 — 49,817 — Investment in BOLI 106,777 106,777 — 106,777 — Financial Liabilities: Non-maturity deposits $ 3,626,152 $ 3,626,152 $ — $ 3,626,152 $ — Time deposits 1,489,648 1,479,267 — 1,479,267 — FHLB advances 1,125,000 1,125,819 — 1,125,819 — Junior subordinated debentures 22,681 19,602 — 19,602 — (1) The estimated fair value excludes a $ 1.5 million negative basis adjustment associated with fair value hedges. See Note 9 for additional disclosure. (Dollars in thousands) 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) December 31, 2023 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 — -113- Notes to Consolidated Financial Statements – (continued) Note 11 - Income Taxes The following table presents the components of income tax expense (benefit): (Dollars in thousands) Years ended December 31, 2024 2023 2022 Current Tax Expense: Federal $ 5,166 $ 10,494 $ 16,127 State 812 1,501 2,202 Total current tax expense 5,978 11,995 18,329 Deferred Tax (Benefit) Expense: Federal ( 14,618 ) 412 1,012 State ( 2,119 ) ( 4,102 ) 148 Total deferred tax (benefit) expense (1) ( 16,737 ) ( 3,690 ) 1,160 Total income tax (benefit) expense ($ 10,759 ) $ 8,305 $ 19,489 (1) The deferred income tax benefit recognized in 2024 was largely associated with loans that were reclassified to held for sale and written down to fair value in December 2024. Total income tax expense varies from the amount determined by applying the Federal income tax rate to income before income taxes. The following table presents the reasons for the differences: Years ended December 31, 2024 2023 2022 (Dollars in thousands) Amount Rate Amount Rate Amount Rate Tax (benefit) expense at Federal statutory rate ($ 8,152 ) 21.0 % $ 11,861 21.0 % $ 19,146 21.0 % (Decrease) increase in taxes resulting from: State income tax (benefit) expense, net of federal tax benefit ( 1,460 ) 3.8 1,107 2.0 1,856 2.1 BOLI ( 639 ) 1.6 ( 732 ) ( 1.3 ) ( 544 ) ( 0.6 ) Tax-exempt income, net ( 460 ) 1.2 ( 543 ) ( 1.0 ) ( 721 ) ( 0.8 ) Investments in low-income housing tax credits and other benefits, net ( 420 ) 1.1 ( 357 ) ( 0.6 ) ( 261 ) ( 0.3 ) Share-based compensation 151 ( 0.4 ) 29 0.1 ( 68 ) ( 0.1 ) Revaluation of net deferred tax assets for changes in state tax rates 323 ( 0.8 ) ( 4,093 ) ( 7.2 ) — — State valuation allowance adjustment, net 1,628 ( 4.2 ) 2,153 3.8 — — State net operating loss carryforward, net of federal tax ( 1,528 ) 3.9 ( 1,312 ) ( 2.3 ) — — Other ( 202 ) 0.5 192 0.2 81 0.1 Total income tax (benefit) expense ($ 10,759 ) 27.7 % $ 8,305 14.7 % $ 19,489 21.4 % On October 6, 2023 the Commonwealth of Massachusetts enacted into law a tax bill, which made changes to how corporations calculate their Massachusetts taxable income. The law enacted a single sales factor apportionment formula and prescribed a method for sourcing of income from investment and trading activities, effective on January 1, 2025. Upon the enactment in 2023, the Corporation was required to revalue its deferred tax assets and liabilities reflecting the updated apportionment formula and income sourcing method. -114- Notes to Consolidated Financial Statements – (continued) The following table presents the approximate tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities: (Dollars in thousands) December 31, 2024 2023 Deferred Tax Assets: Net unrealized losses on available for sale debt securities $ 33,646 $ 38,823 Loss on portfolio loans reclassified to held for sale 15,093 — Allowance for credit losses on loans 10,595 10,470 Operating lease liabilities 7,469 8,167 Deferred compensation liabilities 5,439 5,258 State net operating loss carryforwards 2,840 1,312 Cash flow hedges 2,595 5,250 Deferred loan origination fees 1,857 2,356 Share-based compensation 1,779 1,806 Capital loss carryforward 1,550 — Defined benefit pension obligations 1,246 1,425 Nonaccrual interest 606 511 Other 1,462 1,583 Deferred tax assets 86,177 76,961 Less: valuation allowance ( 3,780 ) ( 2,153 ) Deferred tax assets, net of valuation allowance 82,397 74,808 Deferred Tax Liabilities: Operating lease ROU assets ( 6,803 ) ( 7,488 ) Deferred loan origination costs ( 6,784 ) ( 7,365 ) Depreciation of premises and equipment ( 1,956 ) ( 1,897 ) Loan servicing rights ( 1,936 ) ( 2,171 ) Amortization of intangibles ( 729 ) ( 946 ) Deferred compensation assets ( 577 ) ( 467 ) Contract cost incentives ( 529 ) ( 440 ) Other ( 61 ) ( 226 ) Deferred tax liabilities ( 19,375 ) ( 21,000 ) Net deferred tax asset $ 63,022 $ 53,808 The Corporation’s net deferred tax asset is included in other assets in the Consolidated Balance Sheets. Net deferred tax assets increased by $ 9.2 million during 2024 and included establishment of a deferred tax asset associated with loans that were reclassified to held for sale and written down to fair value in December 2024. This deferred tax asset was realized in January 2025 when the loan sale was completed. See Note 10 for additional disclosure on loans reclassified to held for sale. Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets are realized primarily through future reversals of existing taxable temporary differences or by offsetting projected future taxable income. The valuation allowance amounted to $ 3.8 million and $ 2.2 million, respectively, at December 31, 2024 and 2023 and reflected management’s estimate regarding the realizability of a portion of the Corporation’s state deferred tax assets, largely associated with state net operating loss carryforwards. These operating loss carryforwards have various expirations beginning in 2042, the majority of which are subject to annual usage limitations. Management’s assessment considered the Corporation’s forecasted future taxable income, existing taxable temporary differences along with tax planning strategies. Management believes deferred tax assets, net of the valuation allowance, are more-likely-than-not to be realized. -115- Notes to Consolidated Financial Statements – (continued) The Corporation had no unrecognized tax benefits as of December 31, 2024 and 2023. The Corporation files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Generally, the Corporation is no longer subject to U.S. federal income and state tax examinations by tax authorities for years before 2021. Note 12 - Deposits The following table presents a summary of deposits: (Dollars in thousands) December 31, 2024 2023 Noninterest-bearing: Noninterest-bearing demand deposits $ 661,776 $ 693,746 Interest-bearing: Interest-bearing demand deposits 592,904 504,959 NOW accounts 692,812 767,036 Money market accounts 1,154,745 1,096,959 Savings accounts 523,915 497,223 Time deposits (1) 1,489,648 1,788,237 Total interest-bearing deposits 4,454,024 4,654,414 Total deposits $ 5,115,800 $ 5,348,160 (1) Includes wholesale brokered time deposit balances of $ 297.5 million and $ 654.1 million, respectively, as of December 31, 2024 and 2023. The following table presents scheduled maturities of time certificates of deposit: (Dollars in thousands) Scheduled Maturity Weighted Average Rate Years ending December 31: 2025 $ 1,280,528 4.25 % 2026 140,662 3.21 2027 38,168 3.35 2028 24,199 3.71 2029 6,091 2.70 2030 and thereafter — — Balance at December 31, 2024 $ 1,489,648 4.11 % Time certificates of deposit in denominations of $250 thousand or more totaled $ 353.9 million and $ 271.2 million, respectively, at December 31, 2024 and 2023. -116- Notes to Consolidated Financial Statements – (continued) Note 13 - Borrowings Federal Home Loan Bank Advances Advances payable to the FHLB amounted to $ 1.1 billion and $ 1.2 billion, respectively, at December 31, 2024 and 2023. See Note 9 for additional disclosure on derivatives designated as cash flow hedges that were executed to hedge the interest rate risk associated with short-term FHLB advances. The Bank pledges certain qualified investment securities and loans as collateral to the FHLB. As of December 31, 2024 and 2023, the Bank had available borrowing capacity of $ 753.0 million and $ 1.1 billion, respectively, with the FHLB. In addition, the Bank had access to a $ 40.0 million unused line of credit with the FHLB at both December 31, 2024 and 2023. Furthermore, the Bank had standby letters of credit with the FHLB of $ 66.0 million and $ 65.0 million, respectively, at December 31, 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 December 31, 2024: (Dollars in thousands) Scheduled Maturity Weighted Average Rate 2025 $ 750,000 4.91 % 2026 165,000 4.54 2027 45,000 4.24 2028 85,000 4.35 2029 80,000 3.82 2030 and thereafter — — Total $ 1,125,000 4.71 % Junior Subordinated Debentures Junior subordinated debentures amounted to $ 22.7 million at December 31, 2024 and 2023. The Bancorp sponsored the creation of Trust I and Trust II, Delaware statutory trusts created for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Bancorp. The Bancorp is the owner of all of the common securities of the trusts. In accordance with GAAP, the trusts are treated as unconsolidated subsidiaries. The $ 8.3 million of junior subordinated debentures associated with Trust I mature on September 15, 2035 and bear interest at a rate equal to the three-month SOFR rate plus 1.71 %, or 6.07 % and 7.10 %, respectively, as of December 31, 2024 and 2023. The $ 14.4 million of junior subordinated debentures associated with Trust II mature on November 23, 2035 and bear interest at a rate equal to the three-month SOFR rate plus 1.71 %, or 6.23 % and 7.09 %, respectively, as of December 31, 2024 and 2023. The debentures may be redeemed at par at the Bancorp’s option, subject to the approval of the applicable banking regulator to the extent required under applicable guidelines or policies. See Note 14 for additional discussion of the regulatory capital treatment of trust preferred securities. -117- Notes to Consolidated Financial Statements – (continued) Note 14 - Shareholders' Equity Common Stock Issued in Public Offering On December 16, 2024, the Corporation completed an underwritten public offering of 2,198,528 shares of its common stock at a public offering price of $ 34.00 per share, and disclosed that the use of proceeds would include investments in the Bank and Bank balance sheet optimization strategies involving the sale of lower-yielding loans and securities, the purchase of debt securities with current market yields, and the repayment of wholesale funding balances. The net proceeds received from the offering, after deducting underwriting discounts and commissions and operating expenses payable by the Corporation, were $ 70.5 million. Stock Repurchase Program For the year ended December 31, 2024, there were no shares repurchased under the 2024 Repurchase Program. The 2024 Repurchase Program expired on December 31, 2024. For the year ended December 31, 2023, the Corporation repurchased 200,000 shares at an average price of $ 43.70 and a total cost of $ 8.8 million, under its 2023 Repurchase Program. The total cost included $ 73 thousand of excise tax attributable to shares that were repurchased in 2023. The 2023 Repurchase Program expired on December 31, 2023. For the year ended December 31, 2022, the Corporation repurchased 194,162 shares at an average price of $ 48.82 and a total cost of $ 9.5 million, under its 2021 Repurchase Program. The 2021 Repurchase Program expired on December 31, 2022. Dividends The primary source of liquidity for the Bancorp is dividends received from the Bank. The Bancorp and the Bank are regulated entities and their abilities to pay dividends are subject to regulatory review and restriction. Certain regulatory and statutory restrictions exist regarding dividends, loans, and advances from the Bank to the Bancorp. Generally, the Bank has the ability to pay dividends to the Bancorp subject to minimum regulatory capital requirements. The FDIC and the FRBB have the authority to use their enforcement powers to prohibit a bank or bank holding company, respectively, from paying dividends if, in their opinion, the payment of dividends would constitute an unsafe or unsound practice. Payment of dividends by a bank is also restricted pursuant to various state regulatory limitations. Dividends paid by the Bank to the Bancorp amounted to $ 40.8 million and $ 38.8 million, respectively, for the years ended December 31, 2024 and 2023. Regulatory Capital Requirements The Bancorp and the Bank are subject to various regulatory capital requirements administered by the FRBB and the FDIC, respectively. Regulatory authorities can initiate certain mandatory actions if the Bancorp or the Bank fail to meet minimum capital requirements, which could have a direct material effect on the Corporation’s financial statements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. These quantitative measures, to ensure capital adequacy, require minimum amounts and ratios. Capital levels at December 31, 2024 exceeded the regulatory minimum levels to be considered “well capitalized.” -118- Notes to Consolidated Financial Statements – (continued) The following table presents the Corporation’s and the Bank’s actual capital amounts and ratios, as well as the corresponding minimum and well capitalized regulatory amounts and ratios that were in effect during the respective periods: (Dollars in thousands) Actual For Capital Adequacy Purposes To Be “Well Capitalized” Under Prompt Corrective Action Regulations Amount Ratio Amount Ratio Amount Ratio December 31, 2024 Total Capital (to Risk-Weighted Assets): Corporation $ 617,762 12.47 % $ 396,309 8.00 % N/A N/A Bank 612,603 12.37 396,150 8.00 $ 495,187 10.00 % Tier 1 Capital (to Risk-Weighted Assets): Corporation 576,731 11.64 297,232 6.00 N/A N/A Bank 571,572 11.54 297,112 6.00 396,150 8.00 Common Equity Tier 1 Capital (to Risk-Weighted Assets): Corporation 554,734 11.20 222,924 4.50 N/A N/A Bank 571,572 11.54 222,834 4.50 321,872 6.50 Tier 1 Capital (to Average Assets): (1) Corporation 576,731 8.13 283,730 4.00 N/A N/A Bank 571,572 8.06 283,628 4.00 354,536 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 December 31, 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 December 31, 2024 and 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. -119- Notes to Consolidated Financial Statements – (continued) In accordance with regulatory capital rules, the Corporation elected the option to delay the estimated impact of ASC 326 on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. As a result, capital ratios exclude the full impact of the increased ACL on loans and unfunded loan commitments attributed to the adoption of ASC 326, adjusted for an approximation of the after-tax provision for credit losses attributable to ASC 326 relative to the incurred loss methodology during the two-year deferral period. The cumulative difference quantified at the end of the deferral period was fully phased-in to regulatory capital on January 1, 2025. Note 15 - Revenue from Contracts with Customers The following table summarizes total revenues as presented in the Consolidated Statements of Income (Loss) 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. Years ended December 31, 2024 2023 2022 (Dollars in thousands) Revenue (1) ASC 606 Revenue (2) Revenue (1) ASC 606 Revenue (2) Revenue (1) ASC 606 Revenue (2) Net interest income $ 128,448 $ — $ 137,098 $ — $ 155,990 $ — Noninterest income: Wealth management revenues 39,054 39,054 35,540 35,540 38,746 38,746 Mortgage banking revenues 10,981 — 6,660 — 8,733 — Card interchange fees 4,996 4,996 4,921 4,921 4,996 4,996 Service charges on deposit accounts 3,032 3,032 2,806 2,806 3,192 3,192 Loan related derivative income 467 — 1,390 — 2,756 — Income from bank-owned life insurance 3,041 — 3,488 — 2,591 — Realized losses on securities, net ( 31,047 ) — — — — — Losses on sale of portfolio loans, net ( 62,888 ) — — — — — Other income 4,567 1,142 1,335 1,226 1,588 1,219 Total noninterest income ( 27,797 ) 48,224 56,140 44,493 62,602 48,153 Total revenues $ 100,651 $ 48,224 $ 193,238 $ 44,493 $ 218,592 $ 48,153 (1) As reported in the Consolidated Statements of Income (Loss). (2) Revenue from contracts with customers in scope of ASC 606. The following table presents revenue from contracts with customers segregated by revenue recognition timing: (Dollars in thousands) Years ended December 31, 2024 2023 2022 Revenue recognized at a point in time: Card interchange fees $ 4,996 $ 4,921 $ 4,996 Service charges on deposit accounts 1,922 1,842 2,512 Other income 903 983 967 Revenue recognized over time: Wealth management revenues 39,054 35,540 38,746 Service charges on deposit accounts 1,110 964 680 Other income 239 243 252 Total revenues from contracts with customers in scope of ASC 606 $ 48,224 $ 44,493 $ 48,153 Receivables for revenue from contracts with customers consist primarily of amounts due for wealth management services performed for which the Corporation’s performance obligations have been fully satisfied. Receivables amounted to $ 6.0 million and $ 5.5 million, respectively, at December 31, 2024 and 2023 and were included in other assets in the Consolidated Balance Sheets. -120- Notes to Consolidated Financial Statements – (continued) 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 December 31, 2024 and 2023 and were included in other liabilities in the Consolidated Balance Sheets. For commissions and incentives that are in scope of ASC 606, such as those paid to employees in our wealth management services and commercial banking segments in order to obtain customer contracts, contract cost assets are established. The contract cost assets are capitalized and amortized over the estimated useful life that the asset is expected to generate benefits. The carrying value of contract cost assets amounted to $ 2.1 million and $ 2.0 million, respectively, at December 31, 2024 and 2023 and were included in other assets in the Consolidated Balance Sheets. The amortization of contract cost assets is recorded within salaries and employee benefits expense Consolidated Statements of Income (Loss). Note 16 - Employee Benefits Defined Benefit Pension Plans Washington Trust has 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 effective December 31, 2023 and participants were notified of the termination. In the first quarter of 2025, the qualified pension plan liability will be settled after plan assets are distributed through a combination of lump sum payments to participants and the purchase of a group annuity contract from a highly-rated insurance company. This results in a pre-tax non-cash pension settlement charge of approximately $ 6.4 million being recognized in the Consolidated Statements of Income (Loss) the first quarter of 2025. The settlement charge includes the recognition of pre-tax actuarial losses accumulated in AOCL and the effects of the remeasurement of plan assets and and liability upon settlement. As a result of the plan’s over-funded status, remaining surplus plan assets of approximately $ 10.3 million are expected to be transferred directly to the Corporation’s 401(k) Plan (a qualified replacement plan) to fund future non-elective employer contributions. The qualified pension plan is funded on a current basis, in compliance with the requirements of ERISA. Pension benefit costs and benefit obligations incorporate various actuarial and other assumptions, including discount rates, mortality, rates of return on plan assets and compensation increases. Washington Trust evaluates these assumptions annually. The actuarial assumptions also included considerations for the termination of the qualified pension plan. -121- Notes to Consolidated Financial Statements – (continued) The following table presents the plans’ projected benefit obligations, fair value of plan assets and funded (unfunded) status: (Dollars in thousands) Qualified Pension Plan Non-Qualified Retirement Plans At December 31, 2024 2023 2024 2023 Change in Benefit Obligation: Benefit obligation at beginning of period $ 75,284 $ 66,656 $ 13,195 $ 13,562 Service cost (1) 500 1,403 — 156 Interest cost 3,331 3,540 649 706 Actuarial (gain) loss ( 3,021 ) 8,522 ( 176 ) ( 279 ) Benefits paid ( 5,586 ) ( 4,570 ) ( 948 ) ( 950 ) Administrative expenses ( 841 ) ( 267 ) — — Benefit obligation at end of period 69,667 75,284 12,720 13,195 Change in Plan Assets: Fair value of plan assets at beginning of period 82,837 81,553 — — Actual return on plan assets 991 6,121 — — Employer contributions — — 948 950 Benefits paid ( 5,586 ) ( 4,570 ) ( 948 ) ( 950 ) Administrative expenses ( 841 ) ( 267 ) — — Fair value of plan assets at end of period 77,401 82,837 — — Funded (unfunded) status at end of period (2) $ 7,734 $ 7,553 ($ 12,720 ) ($ 13,195 ) (1) Service cost for 2024 represents administrative expenses related to the termination of the qualified pension plan. (2) Funded status of the qualified pension plan is included in other assets in the Consolidated Balance Sheets. Unfunded status of the non-qualified retirement plans is included in other liabilities in the Consolidated Balance Sheets. The non-qualified retirement plans provide for the designation of assets in rabbi trusts. Securities available for sale and other short-term investments designated for this purpose, with the carrying value of $ 13.0 million and $ 13.6 million are included in the Consolidated Balance Sheets at December 31, 2024 and 2023, respectively. The following table presents the amounts included in AOCL related to the qualified pension plan and non-qualified retirement plans: (Dollars in thousands) Qualified Pension Plan Non-Qualified Retirement Plans At December 31, 2024 2023 2024 2023 Net actuarial loss included in AOCL, pre-tax $ 8,936 $ 8,837 $ 2,640 $ 2,939 The accumulated benefit obligation for the qualified pension plan was $ 69.7 million and $ 75.3 million, respectively, at December 31, 2024 and 2023. The accumulated benefit obligation for the non-qualified retirement plans amounted to $ 12.7 million and $ 13.2 million, respectively, at December 31, 2024 and 2023. -122- Notes to 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 Years ended December 31, 2024 2023 2022 2024 2023 2022 Net Periodic Benefit Cost: Service cost (1) $ 500 $ 1,403 $ 2,062 $ — $ 156 $ 218 Interest cost (2) 3,331 3,540 2,368 649 706 423 Expected return on plan assets (2) ( 4,111 ) ( 4,590 ) ( 4,634 ) — — — Recognized net actuarial loss (2) — — 1,020 123 237 692 Net periodic benefit cost ( 280 ) 353 816 772 1,099 1,333 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss) (on a pre-tax basis): Net loss (gain) 99 6,991 ( 2,074 ) ( 299 ) ( 516 ) ( 4,572 ) Recognized in other comprehensive income (loss) 99 6,991 ( 2,074 ) ( 299 ) ( 516 ) ( 4,572 ) Total recognized in net periodic benefit cost and other comprehensive income (loss) ($ 181 ) $ 7,344 ($ 1,258 ) $ 473 $ 583 ($ 3,239 ) (1) Included in salaries and employee benefits expense in the Consolidated Statements of Income (Loss). Service cost for 2024 represents administrative expenses related to the termination of the qualified pension plan. (2) Included in other expenses in the Consolidated Statements of Income (Loss). Assumptions The following table presents the measurement date and weighted-average assumptions used to determine benefit obligations at December 31, 2024 and 2023: Qualified Pension Plan Non-Qualified Retirement Plans 2024 2023 2024 2023 Measurement date Dec 31, 2024 Dec 31, 2023 Dec 31, 2024 Dec 31, 2023 Discount rate 4.53 % 4.51 % 5.60 % 5.10 % Rate of compensation increase N/A 0.50 N/A N/A The following table presents the measurement date and weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2024, 2023 and 2022: Qualified Pension Plan Non-Qualified Retirement Plans 2024 2023 2022 2024 2023 2022 Measurement date Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Equivalent single discount rate for benefit obligations 4.51 % 5.54 % 3.00 % 5.15 % 5.50 % 2.89 % Equivalent single discount rate for service cost N/A 5.60 3.11 5.27 5.61 3.16 Equivalent single discount rate for interest cost 4.51 5.43 2.67 5.11 5.40 2.48 Expected long-term return on plan assets 4.75 5.25 5.25 N/A N/A N/A Rate of compensation increase 0.50 5.00 3.75 N/A 5.00 3.75 The expected long-term rate of return on plan assets is based on what the Corporation believes is realistically achievable based on the types of assets held by the plan and the plan’s investment practices. The assumption is updated annually, taking into account the asset allocation, historical asset return trends on the types of assets held and the current and expected economic conditions. Decreases in the long-term rate of return assumption on plan assets increase pension costs. Increases in the long-term rate of return on plan assets have the opposite effect. -123- Notes to Consolidated Financial Statements – (continued) The discount rate assumption for defined benefit pension plans is reset on the measurement date. Discount rates are selected for each plan by matching expected future benefit payments stream to a yield curve based on a selection of high-quality fixed-income debt securities. Decreases in discount rates increase the present value of pension obligations and increase our pension costs, while increases in discount rates have the opposite effect. The "spot rate approach" was utilized in the calculation of interest and service cost. The spot rate approach applies separate discount rates for each projected benefit payment in the calculation of interest and service cost. This approach provides a more precise measurement of service and interest cost by improving the correlation between projected benefit cash flows and their corresponding spot rates. Plan Assets The following tables present the fair values of the qualified pension plan’s assets: (Dollars in thousands) Fair Value Measurements Using Fair Value December 31, 2024 Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 29,950 $ — $ — $ 29,950 Obligations of U.S. government-sponsored enterprises — 42,052 — 42,052 Obligations of states and political subdivisions — 816 — 816 Corporate bonds — 496 — 496 Mutual funds 4,087 — — 4,087 Total plan assets $ 34,037 $ 43,364 $ — $ 77,401 (Dollars in thousands) Fair Value Measurements Using Fair Value December 31, 2023 Level 1 Level 2 Level 3 Assets: Cash and cash equivalents $ 16,820 $ — $ — $ 16,820 Obligations of U.S. government-sponsored enterprises — 58,147 — 58,147 Obligations of states and political subdivisions — 1,459 — 1,459 Corporate bonds — 1,974 — 1,974 Mutual funds 4,437 — — 4,437 Total plan assets $ 21,257 $ 61,580 $ — $ 82,837 The qualified pension plan uses fair value measurements to record fair value adjustments to the securities held in its investment portfolio. When available, the qualified pension plan uses quoted market prices to determine the fair value of securities; such items are classified as Level 1. This category includes cash and cash equivalents, as well as exchange-traded mutual funds. Level 2 securities in the qualified pension plan include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose values are 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, obligations of states and political subdivisions and corporate bonds. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities may be classified as Level 3. As of December 31, 2024 and 2023, the qualified pension plan did not have any securities in the Level 3 category. -124- Notes to Consolidated Financial Statements – (continued) The following table presents the asset allocations of the qualified pension plan, by asset category: December 31, 2024 2023 Asset Category: Cash and cash equivalents 38.7 % 20.3 % Fixed income securities (1) 56.0 74.3 Mutual funds 5.3 5.4 Total 100.0 % 100.0 % (1) Includes obligations of U.S. government agencies and U.S. government-sponsored enterprises, obligations of states and political subdivisions and corporate bonds. The assets of the qualified defined benefit pension plan trust are managed to ensure that all present and future benefit obligations are met as they come due. It seeks to achieve this goal while trying to mitigate volatility in plan funded status and expense by aligning the characteristics of the plan assets to that of the plan liabilities. At December 31, 2024, the qualified pension plan was well-funded. In addition, the plan termination process is expected to be completed in 2025 after the plan assets are distributed through lump sum payments to participants and the purchase of a group annuity contract from a highly-rated insurance company. Our investment approach took into consideration the expected distribution of plan assets in the first quarter of 2025, and as a result we increased our allocation in cash and cash equivalents and reduced fixed income securities balances to more closely align with lump sum payments expected to be paid to plan participants. Cash inflow includes investment income from portfolio holdings, while cash outflow is for the purpose of paying plan benefits and certain plan expenses. As early as possible each year, the trustee is advised of the estimations of benefit payments. Cash Flows Contributions The Code permits flexibility in plan contributions so that normally a range of contributions is possible. The Corporation does not expect to make contributions to the qualified pension plan in the future due to the plan’s termination that is expected to be completed in 2025 and the plan’s funded status. In addition, the Corporation expects to contribute $ 859 thousand in benefit payments to the non-qualified retirement plans in 2025. Estimated Future Benefit Payments The following table presents the benefit payments, which reflect expected future service, as appropriate, expected to be paid: (Dollars in thousands) Qualified Pension Plan Non-Qualified Retirement Plans Years ending December 31, 2025 (1) $ 69,667 $ 978 2026 — 1,015 2027 — 1,029 2028 — 1,014 2029 — 1,017 2030 and thereafter — 4,806 (1) As noted above, the termination of the qualified pension plan is expected to be completed in 2025. 401(k) Plan The Corporation’s 401(k) Plan, which covers substantially all employees, provides a matching contribution of up to a maximum of 3 % of an employee’s eligible compensation. In addition, effective January 1, 2024, participating employees receive a non-elective employer contribution of 4 % of eligible compensation. Prior to January 1, 2024, only employees who were ineligible for participation in the qualified defined benefit pension plan received the non-elective employer contribution of 4%. Total employer contributions under this plan amounted to $ 4.2 million, $ 3.5 million and $ 3.2 million in 2024, 2023 and 2022, respectively. -125- Notes to Consolidated Financial Statements – (continued) Deferred Compensation Plan The Amended and Restated Nonqualified Deferred Compensation Plan provides supplemental retirement and tax benefits to directors and certain officers. The plan is funded primarily through pre-tax contributions made by the participants. The assets and liabilities of the Deferred Compensation Plan are recorded at fair value in the Consolidated Balance Sheets. The participants in the plan bear the risk of market fluctuations of the underlying assets. The accrued liability related to this plan amounted to $ 21.5 million and $ 20.6 million, respectively, at December 31, 2024 and 2023, and is included in other liabilities on the accompanying Consolidated Balance Sheets. The corresponding invested assets are reported in other assets in the Consolidated Balance Sheets. Note 17 - Share-Based Compensation Arrangements The Corporation’s equity compensation plans include the 2003 Stock Incentive Plan, the 2013 Stock Option and Incentive Plan and the 2022 Long Term Incentive Plan, which have been approved by the Corporation’s Board of Directors and shareholders. Awards are being granted only from the 2022 Long Term Incentive Plan, as there are no securities available for future grants under the 2003 Stock Incentive Plan or 2013 Stock Option and Incentive Plan. The maximum number of shares of common stock that may be issued under the 2022 Long Term Incentive Plan is 731,474 at December 31, 2024 and is subject to adjustment in accordance with the terms of this plan. The types of permitted equity awards under the 2022 Long Term Incentive Plan include stock options (both incentive and non-qualified options), stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, cash-based awards, and dividend equivalent rights. See Item 12 for additional information regarding the equity compensation plans. Reserved Shares As of December 31, 2024, a total of 1,091,406 common stock shares were reserved for issuance under the 2003 Stock Incentive Plan, 2013 Stock Option and Incentive Plan and 2022 Long Term Incentive Plan. Share-based Compensation Expense The following table presents share-based compensation expense and the related income tax benefits recognized in the Consolidated Statements of Income (Loss) for stock options, restricted stock units and performance share units: (Dollars in thousands) Years ended December 31, 2024 2023 2022 Share-based compensation expense $ 2,473 $ 2,064 $ 3,247 Related income tax benefits (1) $ 441 $ 492 $ 857 (1) Includes $ 183 thousand and $ 34 thousand, respectively, of excess tax expense recognized upon the settlement of share-based compensation awards in 2024 and 2023, compared to $ 78 thousand of excess tax benefits in 2022. As of December 31, 2024, there was $ 4.1 million of total unrecognized compensation cost related to share-based compensation arrangements, including stock options, restricted stock units and performance share units granted under the Plans. That cost is expected to be recognized over a weighted average period of 2.1 years. Stock Options The exercise price of each stock option may not be less than the fair market value of the Bancorp’s common stock on the date of grant, and options shall have a term of no more than ten years. Stock options are designated as either non-qualified or incentive stock options. For the years ended 2024, 2023 and 2022, all stock options granted by the Corporation were designated as non-qualified stock options. Washington Trust uses historical data to estimate stock option exercise and employee departure behavior in the option-pricing model. The expected term of options granted was derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. Expected volatility was based on historical volatility of Washington Trust shares. The risk-free rate for periods within the contractual life of the stock option was based on the U.S. Treasury yield curve in effect at the date of grant. -126- Notes to Consolidated Financial Statements – (continued) The following presents the assumptions used in determining the grant date fair value of the stock option awards granted to certain key employees: 2024 2023 2022 Options granted 64,050 49,000 57,700 Cliff vesting period (years) 3 3 3 Expected term (years) 7 6.5 6.5 Expected dividend yield 4.99 % 4.38 % 3.90 % Weighted average expected volatility 35.63 % 33.15 % 31.67 % Weighted average risk-free interest rate 4.50 % 4.85 % 4.15 % Weighted average grant-date fair value $ 7.89 $ 6.71 $ 12.01 The following table presents a summary of stock options outstanding as of and for the year ended December 31, 2024: Number of Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (000’s) Options outstanding at beginning of period 409,857 $ 44.52 Granted 64,050 31.83 Exercised ( 10,200 ) 32.23 Forfeited or expired ( 31,487 ) 45.74 Options outstanding at end of period 432,220 $ 42.84 6.08 $ 206 Options exercisable at end of period 271,270 $ 47.25 4.37 $ — The total intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date. The following table presents additional information concerning options outstanding and options exercisable at December 31, 2024: Options Outstanding Options Exercisable Exercise Price Ranges Number of Shares Weighted Average Remaining Life (Years) Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price $ 20.01 to $ 30.00 47,100 8.80 $ 26.42 — $ — $ 30.01 to $ 40.00 136,339 7.17 32.67 72,289 33.42 $ 40.01 to $ 50.00 122,594 5.45 47.34 72,794 46.54 $ 50.01 to $ 60.00 126,187 4.50 55.59 126,187 55.59 Total 432,220 6.08 $ 42.84 271,270 $ 47.25 The total intrinsic value of stock options exercised in 2024 was $ 56 thousand. There were no stock options exercised in 2023. The total intrinsic value of stock options exercised in 2022 was $ 142 thousand. Restricted Stock Units In 2024, 2023 and 2022, the Corporation granted to directors and certain key employees 74,751 , 30,862 and 21,467 restricted stock units, respectively, with 3 -year cliff vesting. -127- Notes to Consolidated Financial Statements – (continued) The following table presents a summary of restricted stock units as of and for the year ended December 31, 2024: Number of Shares Weighted Average Grant Date Fair Value Beginning of period 68,174 $ 42.21 Granted 74,751 26.61 Vested ( 24,008 ) 48.04 Forfeited ( 10,327 ) 33.81 End of period 108,590 $ 30.98 Performance Share Units The Corporation granted performance share units to certain key employees providing the opportunity to earn shares of common stock over a 3 -year performance period. The number of shares to be vested will be contingent upon the Corporation’s attainment of certain performance measures as detailed in the performance share unit award agreements. The following table presents a summary of outstanding performance share units as of December 31, 2024: Grant Date Fair Value per Share Weighted Average Current Performance Assumption Expected Number of Shares Performance share units awarded in: 2024 $ 24.70 100 % 39,053 2023 47.35 97 % 37,848 2022 59.31 79 % 19,192 Total 96,093 The following table presents a summary of performance share units as of and for the year ended December 31, 2024: Number of Shares Weighted Average Grant Date Fair Value Beginning of period 97,272 $ 50.40 Granted 44,650 24.70 Vested ( 23,434 ) 46.77 Forfeited (1) ( 22,395 ) 45.31 End of period 96,093 $ 40.53 (1) The number of forfeited shares also includes adjustments made to performance measure estimates on outstanding awards that have not yet vested. -128- Notes to Consolidated Financial Statements – (continued) Note 18 - Business Segments The Corporation manages its operations through two reportable business segments, consisting of Commercial Banking and Wealth Management Services. The Corporation’s reportable business segments are determined by the Senior Executive Vice President, Chief Financial Officer and Treasurer, the designated CODM. An allocation methodology is utilized to allocate income and expenses to the business segments. 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. 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. 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 CODM evaluates the financial performance of each business segment, which is measured based upon the business segment’s net income. Components of net income for the business segments that are reviewed by the CODM include net interest income, provision for credit losses, noninterest income, noninterest expense, and income tax expense. The CODM, in conjunction with management committees (such as the ALCO) and certain members of executive management, evaluates financial performance to make decisions related to the products and services that are offered, pricing, and the allocation of resources, for each business segment. -129- Notes to Consolidated Financial Statements – (continued) The following tables presents the components of net income (loss), as well as other supplemental information for Washington Trust’s reportable business segments: (Dollars in thousands) Year ended December 31, 2024 Commercial Banking Wealth Management Services Consolidated Total Total interest income and dividend income $ 340,678 $ — $ 340,678 Total interest expense 212,230 — 212,230 Net interest income 128,448 — 128,448 Provision for credit losses 2,400 — 2,400 Net interest income after provision for credit losses 126,048 — 126,048 Noninterest (loss) income ( 69,609 ) 41,812 ( 27,797 ) Noninterest expenses: Salaries and employee benefits 66,482 19,778 86,260 Outsourced services 12,340 3,918 16,258 Net occupancy 8,726 1,059 9,785 Equipment 3,486 352 3,838 Legal, audit and professional fees 2,473 655 3,128 FDIC deposit insurance costs 5,513 — 5,513 Advertising and promotion 2,252 374 2,626 Amortization of intangibles — 826 826 Other expenses 7,517 1,318 8,835 Total noninterest expense 108,789 28,280 137,069 (Loss) income before income taxes ( 52,350 ) 13,532 ( 38,818 ) Income tax (benefit) expense ( 13,530 ) 2,771 ( 10,759 ) Net (loss) income ($ 38,820 ) $ 10,761 ($ 28,059 ) Supplemental Information: Total assets at period end $ 6,870,612 $ 60,035 $ 6,930,647 Expenditures for long-lived assets 3,862 139 4,001 Depreciation expense (1) 3,530 404 3,934 (1) Included in net occupancy and equipment expenses in the table above. The sale of securities and reclassification of residential mortgage loans to held for sale in connection with the balance sheet repositioning transactions that were executed in December 2024 impacted the results for the Commercial Banking segment. See additional discussion of the impact of these transactions in Notes 3 and 10. -130- Notes to Consolidated Financial Statements – (continued) (Dollars in thousands) Year ended December 31, 2023 Commercial Banking Wealth Management Services Consolidated Total Total interest and dividend income $ 308,622 $ 37 $ 308,659 Total interest expense 171,561 — 171,561 Net interest income 137,061 37 137,098 Provision for credit losses 3,200 — 3,200 Net interest income after provision for credit losses 133,861 37 133,898 Noninterest income 20,006 36,134 56,140 Noninterest expenses: Salaries and employee benefits 62,013 20,445 82,458 Outsourced services 10,972 3,549 14,521 Net occupancy 8,313 1,323 9,636 Equipment 3,841 477 4,318 Legal, audit and professional fees 2,751 1,140 3,891 FDIC deposit insurance costs 4,667 — 4,667 Advertising and promotion 2,140 422 2,562 Amortization of intangibles — 843 843 Other expenses 8,269 2,392 10,661 Total noninterest expense 102,966 30,591 133,557 Income before income taxes 50,901 5,580 56,481 Income tax expense 7,028 1,277 8,305 Net income $ 43,873 $ 4,303 $ 48,176 Supplemental Information: Total assets at period end $ 7,146,096 $ 56,751 $ 7,202,847 Expenditures for long-lived assets 5,013 35 5,048 Depreciation expense (1) 3,460 545 4,005 (1) Included in net occupancy and equipment expenses in the statement of operations above. -131- Notes to Consolidated Financial Statements – (continued) (Dollars in thousands) Year ended December 31, 2022 Commercial Banking Wealth Management Services Consolidated Total Total interest and dividend income $ 194,449 $ 16 $ 194,465 Total interest expense 38,409 66 38,475 Net interest income (expense) 156,040 ( 50 ) 155,990 Provision for credit losses ( 1,300 ) — ( 1,300 ) Net interest income (expense) after provision for credit losses 157,340 ( 50 ) 157,290 Noninterest income 23,088 39,514 62,602 Noninterest expenses: Salaries and employee benefits 62,026 21,778 83,804 Outsourced services 10,333 3,404 13,737 Net occupancy 7,696 1,430 9,126 Equipment 3,324 473 3,797 Legal, audit and professional fees 2,344 783 3,127 FDIC deposit insurance costs 1,687 — 1,687 Advertising and promotion 2,138 449 2,587 Amortization of intangibles — 860 860 Other expenses 7,425 2,572 9,997 Total noninterest expense 96,973 31,749 128,722 Income before income taxes 83,455 7,715 91,170 Income tax expense 17,557 1,932 19,489 Net income $ 65,898 $ 5,783 $ 71,681 Supplemental Information: Total assets at period end $ 6,585,310 $ 74,741 $ 6,660,051 Expenditures for long-lived assets 5,475 664 6,139 Depreciation expense (1) 2,948 517 3,465 (1) Included in net occupancy and equipment expenses in the statement of operations above. -132- Notes to Consolidated Financial Statements – (continued) Note 19 - Other Comprehensive Income (Loss) The following tables present the activity in other comprehensive income (loss): (Dollars in thousands) Year ended December 31, 2024 Pre-tax Amounts Income Tax Expense Net of Tax Available for Sale Debt Securities: Changes in fair value of available for sale debt securities ($ 12,050 ) $ 2,657 ($ 9,393 ) Net realized losses on securities reclassified into earnings 31,047 ( 7,502 ) 23,545 Net change in fair value of available for sale debt securities 18,997 ( 4,845 ) 14,152 Cash Flow Hedges: Changes in fair value of cash flow hedges 3,506 ( 918 ) 2,588 Net cash flow hedge losses reclassified into earnings 6,830 ( 1,737 ) 5,093 Net change in the fair value of cash flow hedges 10,336 ( 2,655 ) 7,681 Defined Benefit Plan Obligations: Defined benefit plan obligation adjustment 77 ( 19 ) 58 Amortization of net actuarial losses (2) 123 ( 32 ) 91 Net change in defined benefit plan obligations 200 ( 51 ) 149 Total other comprehensive income $ 29,533 ($ 7,551 ) $ 21,982 (Dollars in thousands) Year ended December 31, 2023 Pre-tax Amounts Income Tax Expense Net of Tax Available for Sale Debt Securities: Changes in fair value of available for sale debt securities $ 20,163 ($ 5,721 ) $ 14,442 Cash Flow Hedges: Changes in fair value of cash flow hedges 1,647 ( 346 ) 1,301 Net cash flow hedge losses reclassified into earnings 7,563 ( 1,838 ) 5,725 Net change in the fair value of cash flow hedges 9,210 ( 2,184 ) 7,026 Defined Benefit Plan Obligations: Defined benefit plan obligation adjustment ( 6,712 ) 1,712 ( 5,000 ) Amortization of net actuarial losses 237 ( 58 ) 179 Net change in defined benefit plan obligations ( 6,475 ) 1,654 ( 4,821 ) Total other comprehensive income $ 22,898 ($ 6,251 ) $ 16,647 -133- Notes to Consolidated Financial Statements – (continued) (Dollars in thousands) Year ended December 31, 2022 Pre-tax Amounts Income Tax Benefit Net of Tax Available for Sale Debt Securities: Changes in fair value of available for sale debt securities ($ 163,471 ) $ 39,233 ($ 124,238 ) Cash Flow Hedges: Changes in fair value of cash flow hedges ( 27,344 ) 6,563 ( 20,781 ) Net cash flow hedge gains reclassified into earnings 2,828 ( 679 ) 2,149 Net change in the fair value of cash flow hedges ( 24,516 ) 5,884 ( 18,632 ) Defined Benefit Plan Obligations: Defined benefit plan obligation adjustment 4,934 ( 1,184 ) 3,750 Amortization of net actuarial losses 1,712 ( 411 ) 1,301 Net change in defined benefit plan obligations 6,646 ( 1,595 ) 5,051 Total other comprehensive loss ($ 181,341 ) $ 43,522 ($ 137,819 ) 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 Balance at December 31, 2023 ($ 116,591 ) ($ 15,619 ) ($ 8,943 ) ($ 141,153 ) Other comprehensive (loss) income before reclassifications ( 9,393 ) 2,588 58 ( 6,747 ) Amounts reclassified from AOCL 23,545 5,093 91 28,729 Net other comprehensive income 14,152 7,681 149 21,982 Balance at December 31, 2024 ($ 102,439 ) ($ 7,938 ) ($ 8,794 ) ($ 119,171 ) (Dollars in thousands) Net Unrealized Losses on Available for Sale Debt Securities Net Unrealized Losses on Cash Flow Hedges Net Unrealized Losses on Defined Benefit Plan Obligations Total Balance at December 31, 2022 ($ 131,033 ) ($ 22,645 ) ($ 4,122 ) ($ 157,800 ) Other comprehensive income (loss) before reclassifications 14,442 1,301 ( 5,000 ) 10,743 Amounts reclassified from AOCL — 5,725 179 5,904 Net other comprehensive income (loss) 14,442 7,026 ( 4,821 ) 16,647 Balance at December 31, 2023 ($ 116,591 ) ($ 15,619 ) ($ 8,943 ) ($ 141,153 ) -134- Notes to Consolidated Financial Statements – (continued) (Dollars in thousands) Net Unrealized Gains (Losses)on Available for Sale Debt Securities Net Unrealized Losses on Cash Flow Hedges Net Unrealized Losses on Defined Benefit Plan Obligations Total Balance at December 31, 2021 ($ 6,795 ) ($ 4,013 ) ($ 9,173 ) ($ 19,981 ) Other comprehensive (loss) income before reclassifications ( 124,238 ) ( 20,781 ) 3,750 ( 141,269 ) Amounts reclassified from AOCL — 2,149 1,301 3,450 Net other comprehensive (loss) income ( 124,238 ) ( 18,632 ) 5,051 ( 137,819 ) Balance at December 31, 2022 ($ 131,033 ) ($ 22,645 ) ($ 4,122 ) ($ 157,800 ) Note 20 - Earnings per Common Share The following table presents the calculation of EPS: (Dollars and shares in thousands, except per share amounts) Years ended December 31, 2024 2023 2022 Earnings for basic and diluted EPS calculations: Net (loss) income ($ 28,059 ) $ 48,176 $ 71,681 Less: dividends and undistributed earnings allocated to participating securities 21 ( 85 ) ( 202 ) Net (loss) income available to common shareholders ($ 28,038 ) $ 48,091 $ 71,479 Shares for basic and diluted EPS calculations: Weighted average common shares outstanding for basic EPS 17,149 17,033 17,246 Dilutive effect of common stock equivalents — 29 135 Weighted average common and potential common shares outstanding for diluted EPS 17,149 17,062 17,381 EPS: Basic (loss) earnings per common share ($ 1.63 ) $ 2.82 $ 4.14 Diluted (loss) earnings per common share ($ 1.63 ) $ 2.82 $ 4.11 Awards excluded from the calculation of diluted EPS: Weighted average anti-dilutive common stock equivalents (1) 481 466 150 (1) For 2024, the dilutive effect of common stock equivalents was excluded from the calculation of diluted EPS because the Corporation reported a net loss and the inclusion would have an anti-dilutive effect. For 2023 and 2022, weighted average anti-dilutive common stock equivalents represent share-based compensation awards not included in the calculation of common shares outstanding for purposes of calculating diluted EPS as the grant prices were greater than the average market price of Bancorp’s common stock, and therefore were anti-dilutive. -135- Notes to Consolidated Financial Statements – (continued) Note 21 - Commitments and Contingencies Financial Instruments with Off-Balance 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 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 9 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 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 December 31, 2024 and 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) December 31, 2024 2023 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $ 968,858 $ 1,185,196 Standby letters of credit 12,455 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 year ended December 31, 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 ( 269 ) ( 233 ) ( 502 ) 3 — ( 1 ) ( 1 ) ( 500 ) Ending Balance $ 822 $ 589 $ 1,411 $ 18 $ — $ 11 $ 11 $ 1,440 -136- Notes to Consolidated Financial Statements – (continued) The activity in the ACL on unfunded commitments for the year ended December 31, 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 ( 145 ) ( 166 ) ( 311 ) ( 35 ) — ( 4 ) ( 4 ) ( 350 ) Ending Balance $ 1,091 $ 822 $ 1,913 $ 15 $ — $ 12 $ 12 $ 1,940 The activity in the ACL on unfunded commitments for the year ended December 31, 2022 is presented below: (Dollars in thousands) Commercial Consumer CRE C&I Total Commercial Residential Real Estate Home Equity Other Total Consumer Total Beginning Balance $ 1,267 $ 816 $ 2,083 $ 62 $ — $ 16 $ 16 $ 2,161 Provision ( 31 ) 172 141 ( 12 ) — — — 129 Ending Balance $ 1,236 $ 988 $ 2,224 $ 50 $ — $ 16 $ 16 $ 2,290 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. Other Matters On September 27, 2023, the Bank entered into a settlement with the DOJ through an agreement to resolve allegations that it violated fair lending laws in the state of Rhode Island from 2016 to 2021. Under the settlement, the Bank agreed to provide $ 7.0 million in loan subsidies over a five-year period with the goal of increasing home mortgage loans, home improvement loans, and home refinance loans in specific census tracts in Rhode Island. Loan subsidies may include originating a loan for a home purchase, refinancing or home improvement at an interest rate below the otherwise prevailing market interest rate offered by Washington Trust and payment of the initial mortgage insurance premium on loans subject to such mortgage insurance. The cost of such subsidies will generally be recognized over the life of the respective loans. Loan subsidies may also include down payment assistance and closing cost assistance. The Bank also agreed to commit $ 2.0 million for focused community outreach and marketing efforts over a five-year period. The expenses associated with community outreach and marketing efforts are being recorded in the period in which the activities occur and are consistent with historical spending levels. In addition, the Bank committed to opening two full-service branches in specific census tracts in Rhode Island, including the previously announced new branch in Olneyville, Rhode Island. The settlement included no civil penalties levied against the Bank. Other When selling a residential real estate mortgage loan or acting as originating agent on behalf of a third party, Washington Trust generally makes various representations and warranties. The specific representations and warranties depend on the nature of the transaction and the requirements of the buyer. Contractual liability may arise when the representations and warranties are breached. In the event of a breach of these representations and warranties, Washington Trust may be required to either repurchase the residential real estate mortgage loan (generally at unpaid principal balance plus accrued interest) with the identified defects or indemnify (“make-whole”) the investor for its losses. In the case of a repurchase, the Corporation will bear any subsequent credit loss on the residential real estate mortgage loan. Washington Trust has experienced an insignificant number of repurchase demands over a period of many years. The carrying value of loans repurchased due to representation and warranty claims was $ 1.5 million as of both December 31, 2024 and 2023. Washington Trust has recorded a reserve for its exposure to losses for premium recapture and the obligation to indemnify or repurchase previously sold residential real estate mortgage loans. The reserve balance amounted to -137- Notes to Consolidated Financial Statements – (continued) $ 245 thousand at both December 31, 2024 and 2023, and is included in other liabilities in the Consolidated Balance Sheets. Any change in the estimate is recorded in mortgage banking revenues in the Consolidated Statements of Income (Loss). Note 22 - Parent Company Financial Statements The following tables present parent company only condensed financial statements of the Bancorp, reflecting the investment in the Bank on the equity basis of accounting. The Statements of Changes in Shareholders’ Equity for the parent company only are identical to the Consolidated Statements of Changes in Shareholders’ Equity and are therefore not presented. Balance Sheets (Dollars in thousands) December 31, 2024 2023 Assets: Cash on deposit with bank subsidiary $ 5,099 $ 4,701 Investment in subsidiaries at equity value: Bank 516,566 488,751 Non-bank 684 685 Dividends receivable from bank subsidiary 10,200 9,925 Other assets 1,871 1,603 Total assets $ 534,420 $ 505,665 Liabilities and Shareholders’ Equity: Junior subordinated debentures $ 22,681 $ 22,681 Dividends payable 11,469 10,021 Other liabilities 542 277 Shareholders’ equity 499,728 472,686 Total liabilities and shareholders’ equity $ 534,420 $ 505,665 Statements of Income (Dollars in thousands) Years ended December 31, 2024 2023 2022 Income: Dividends from subsidiaries: Bank $ 40,800 $ 38,822 $ 53,240 Non-bank 48 46 20 Other losses ( 100 ) ( 300 ) — Total income 40,748 38,568 53,260 Expenses: Interest on junior subordinated debentures 1,593 1,543 739 Other expenses 530 681 591 Total expenses 2,123 2,224 1,330 Income before income taxes 38,625 36,344 51,930 Income tax benefit 456 542 273 Income before equity in undistributed (losses) earnings of subsidiaries 39,081 36,886 52,203 Equity in undistributed (losses) earnings of subsidiaries: Bank ( 67,139 ) 11,290 19,565 Non-bank ( 1 ) — ( 87 ) Net (loss) income ($ 28,059 ) $ 48,176 $ 71,681 -138- Notes to Consolidated Financial Statements – (continued) Statements of Cash Flows (Dollars in thousands) Years ended December 31, 2024 2023 2022 Cash flows from operating activities: Net (loss) income ($ 28,059 ) $ 48,176 $ 71,681 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Equity in undistributed (earnings) losses of subsidiaries: Bank 67,139 ( 11,290 ) ( 19,565 ) Non-bank 1 — 87 Tax (expense) benefit from stock option exercises and other equity awards ( 183 ) ( 34 ) 78 Deferred income tax (benefit) expense ( 7 ) ( 56 ) 5 (Increase) decrease in dividend receivable ( 275 ) 653 2,386 Decrease (increase) in other assets 77 8 ( 175 ) Increase in accrued expenses and other liabilities 266 113 93 Other, net 184 36 ( 97 ) Net cash provided by operating activities 39,143 37,606 54,493 Cash flows from investing activities: Equity investment in subsidiary bank ( 70,500 ) — — Repayment of equity investment in subsidiary — — 1,096 Purchases of other equity investments, net ( 338 ) ( 263 ) ( 375 ) Net cash (used in) provided by investing activities ( 70,838 ) ( 263 ) 721 Cash flows from financing activities: Treasury stock purchased — ( 8,814 ) ( 9,479 ) Net proceeds from issuance of common stock in public offering 70,521 — — Net proceeds from stock option exercises and issuance of other equity awards, net of awards surrendered ( 31 ) ( 754 ) ( 821 ) Cash dividends paid ( 38,397 ) ( 38,631 ) ( 37,647 ) Net cash provided by (used in) financing activities 32,093 ( 48,199 ) ( 47,947 ) Net increase (decrease) in cash 398 ( 10,856 ) 7,267 Cash at beginning of year 4,701 15,557 8,290 Cash at end of year $ 5,099 $ 4,701 $ 15,557 -139- ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.