Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Corporation’s Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2025, and in conjunction with the condensed Unaudited Consolidated Financial Statements and notes thereto included in Item 1 of this report. Operating results for the three months ended March 31, 2026 are not necessarily indicative of the results for the full-year ended December 31, 2026 or any future period.
Forward-Looking Statements
This report contains statements that are “forward-looking statements.” We may also make forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors, or employees. You can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume,” “outlook,” “will,” “should,” and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties, and other factors, some of which are beyond our control. These risks, uncertainties, and other factors may cause our actual results, performance, or achievements to be materially different than the anticipated future results, performance, or achievements expressed or implied by the forward-looking statements.
Some of the factors that might cause these differences include the following:
• changes in general business and economic conditions (including the impact of ongoing armed conflicts, tariffs, inflation, current or future U.S. government shutdowns, and concerns about liquidity) on a national basis and in the local markets in which we operate;
• interest rate changes or volatility, as well as changes in the balance and mix of loans and deposits;
• changes in customer behavior due to political, business and economic conditions;
• changes in loan demand and collectability;
• the possibility that future credit losses are higher than currently expected due to changes in economic assumptions or adverse economic developments;
• ongoing volatility in national and international financial markets;
• reductions in the market value or outflows of wealth management AUA;
• decreases in the value of securities and other assets;
• increases in defaults and charge-off rates;
• changes in the size and nature of our competition;
• changes in, and evolving interpretations of, existing and future laws, rules and regulations;
• changes in accounting principles, policies and guidelines;
• operational risks including, but not limited to, changes in information technology, cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest and future pandemics;
• regulatory, litigation and reputational risks; and
• changes in the assumptions used in making such forward-looking statements.
In addition, the factors described under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC, may result in these differences. You should carefully review all of these factors and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans, and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.
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Management's Discussion and Analysis
Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating the Corporation’s results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures, such as adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax expense, adjusted effective tax rate, adjusted net income, adjusted diluted earnings per common share, adjusted return on average assets, and adjusted return on average equity.
We believe these non-GAAP financial measures are utilized by regulators and market analysts to evaluate the Corporation’s results of operations and financial condition, and therefore such information is useful to investors. In addition, these non-GAAP financial measures remove the impact of infrequent items that may obscure trends in the Corporation’s underlying performance. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures, which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.
Each presentation below reconciles the “as reported” GAAP measure to the adjusted non-GAAP measure.
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Management's Discussion and Analysis
The following table presents adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax expense, adjusted effective tax rate, and adjusted net income:
(Dollars in thousands, except per share amounts)
Three months ended March 31, 2026 2025
Adjusted Noninterest Income:
Noninterest income, as reported $17,303 $22,643
Less adjustments:
Gain on sale of bank-owned properties, net — 6,994
Adjusted noninterest income (non-GAAP)
$17,303 $15,649
Adjusted Noninterest Expense:
Noninterest expense, as reported $37,765 $42,196
Less adjustments:
Pension plan settlement charge — 6,436
Adjusted noninterest expense (non-GAAP)
$37,765 $35,760
Adjusted Income Before Income Taxes:
Income before income taxes, as reported $16,063 $15,669
Less: total adjustments, pre-tax — 558
Adjusted income before income taxes (non-GAAP)
$16,063 $15,111
Adjusted Income Tax Expense:
Income tax expense, as reported $3,463 $3,490
Less: tax on total adjustments — 141
Adjusted income tax expense (non-GAAP)
$3,463 $3,349
Adjusted Effective Tax Rate:
Effective tax rate, as reported (1)
21.6 % 22.3 %
Less: impact of total adjustments — 0.1
Adjusted effective tax rate (non-GAAP) (2)
21.6 % 22.2 %
Adjusted Net Income:
Net income, as reported $12,600 $12,179
Less: total adjustments, after-tax — 417
Adjusted net income (non-GAAP)
$12,600 $11,762
(1) Calculated as income tax expense divided by income before income taxes.
(2) Calculated as income tax expense, adjusted for the tax impact of the adjustments as outlined in the table above, divided by income before income taxes, adjusted for the pre-tax impact of the adjustments as outlined in the table above.
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Management's Discussion and Analysis
The following table presents adjusted diluted earnings per common share:
(Dollars in thousands, except per share amounts)
Three months ended March 31, 2026 2025
Adjusted Diluted Earnings per Common Share:
Diluted earnings per common share, as reported (1)
$0.66 $0.63
Less: impact of total adjustments — 0.02
Adjusted diluted earnings per common share (non-GAAP) (2)
$0.66 $0.61
(1) Net income divided by weighted average diluted common and potential shares outstanding.
(2) Net income, adjusted for the after-tax impact of adjustments as outlined in the table above, divided by weighted average diluted common and potential shares outstanding.
The following table presents adjusted return on average assets and adjusted return on average equity:
(Dollars in thousands)
Three months ended March 31, 2026 2025
Adjusted Return on Average Assets (1) :
Net income, as reported $12,600 $12,179
Less: total adjustments, after-tax — 417
Adjusted net income (non-GAAP)
12,600 11,762
Total average assets, as reported 6,566,686 6,765,057
Return on average assets (2)
0.78 % 0.73 %
Adjusted return on average assets (non-GAAP) (3)
0.78 % 0.71 %
Adjusted Return on Average Equity (1) :
Net income, as reported $12,600 $12,179
Less: total adjustments, after-tax — 417
Adjusted net income (non-GAAP)
12,600 11,762
Total average equity, as reported 553,374 513,048
Return on average equity (4)
9.23 % 9.63 %
Adjusted return on average equity (non-GAAP) (5)
9.23 % 9.30 %
(1) Annualized based on the actual number of days in the period.
(2) Net income divided by total average assets.
(3) Net income, adjusted for the after-tax impact of adjustments as outlined in the table above, divided by total average assets.
(4) Net income divided by total average equity.
(5) Net income, adjusted for the after-tax impact of adjustments as outlined in the table above, divided by total average equity.
Overview
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.
Our largest source of operating income is net interest income, which is the difference between interest earned on loans and securities and interest paid on deposits and borrowings. In addition, we generate noninterest income from a number of sources, including wealth management services, mortgage banking activities, and deposit services. Our principal noninterest expenses include salaries and employee benefit costs, outsourced services (including software-as-a-service) provided by third-party vendors, occupancy and facility-related costs, and other administrative expenses.
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Management's Discussion and Analysis
We continue to leverage our strong regional brand to build market share and remain steadfast in our commitment to provide superior service. We believe the key to future growth is providing customers with convenient in-person service and digital banking solutions.
Results of Operations
Summary
The following table presents a summarized consolidated statement of operations:
(Dollars in thousands)
Change
Three months ended March 31, 2026 2025 $ %
Net interest income $40,525 $36,422 $4,103 11 %
Noninterest income 17,303 22,643 (5,340) (24)
Total revenues 57,828 59,065 (1,237) (2)
Provision for credit losses 4,000 1,200 2,800 233
Noninterest expense 37,765 42,196 (4,431) (11)
Income before income taxes 16,063 15,669 394 3
Income tax expense 3,463 3,490 (27) (1)
Net income $12,600 $12,179 $421 3 %
Adjusted net income (non-GAAP)
$12,600 $11,762 $838 7 %
Net income totaled $12.6 million for the three months ended March 31, 2026, compared to $12.2 million reported for the same period in 2025. These results included the following infrequent transactions:
• In the first quarter of 2025, sale-leaseback transactions were completed for five branch locations and a pre-tax net gain on the sale of the bank-owned properties totaling $7.0 million was recognized within noninterest income.
• Also in the first quarter of 2025 and in connection with the termination of the Corporation's qualified pension plan, a pre-tax non-cash pension plan settlement charge of $6.4 million was recognized within noninterest expenses.
Excluding these items, adjusted net income (non-GAAP) for the three months ended March 31, 2026 was $12.6 million, compared to $11.8 million for the same period in 2025, up by $838 thousand, or 7%. These results reflected higher net interest income, as well as growth in wealth management and mortgage banking revenues, partially offset by an elevated provision for credit losses and higher salaries and benefits costs.
The following table presents a summary of performance metrics and ratios:
Three months ended March 31, 2026 2025
Diluted earnings per common share $0.66 $0.63
Adjusted diluted earnings per common share (non-GAAP)
$0.66 $0.61
Return on average assets (net income divided by average assets) 0.78 % 0.73 %
Adjusted return on average assets (non-GAAP)
0.78 % 0.71 %
Return on average equity (net income divided by average equity) 9.23 % 9.63 %
Adjusted return on average equity (non-GAAP)
9.23 % 9.30 %
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Management's Discussion and Analysis
Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis
The following table presents daily average balance, interest, and yield/rate information, as well as net interest margin on an FTE basis. Tax-exempt income is converted to an FTE basis using the statutory federal income tax rate. Unrealized gains (losses) on available for sale securities, changes in fair value on mortgage loans held for sale, and basis adjustments associated with fair value hedges are excluded from the average balance and yield calculations. Nonaccrual loans are included in amounts presented for loans. Interest income attributable to nonaccrual loans is included in accordance with accounting policy as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Three months ended March 31, 2026 2025 Change
(Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate
Assets:
Cash, federal funds sold, and short-term investments $101,091 $909 3.65 % $185,724 $1,993 4.35 % ($84,633) ($1,084) (0.70 %)
Mortgage loans held for sale 24,760 375 6.14 105,253 958 3.69 (80,493) (583) 2.45
Taxable debt securities 1,022,612 8,768 3.48 1,042,687 8,827 3.43 (20,075) (59) 0.05
Nontaxable debt securities 650 8 4.99 650 8 4.99 — — —
Total securities
1,023,262 8,776 3.48 1,043,337 8,835 3.43 (20,075) (59) 0.05
FHLB stock
30,566 585 7.76 43,491 1,022 9.53 (12,925) (437) (1.77)
Commercial real estate 2,148,792 28,718 5.42 2,138,301 30,354 5.76 10,491 (1,636) (0.34)
Commercial & industrial 571,498 7,921 5.62 538,083 7,874 5.93 33,415 47 (0.31)
Total commercial 2,720,290 36,639 5.46 2,676,384 38,228 5.79 43,906 (1,589) (0.33)
Residential real estate 2,035,597 22,723 4.53 2,120,452 23,354 4.47 (84,855) (631) 0.06
Home equity 316,660 4,931 6.32 296,735 5,061 6.92 19,925 (130) (0.60)
Other 16,589 215 5.26 17,349 217 5.07 (760) (2) 0.19
Total consumer
333,249 5,146 6.26 314,084 5,278 6.82 19,165 (132) (0.56)
Total loans
5,089,136 64,508 5.14 5,110,920 66,860 5.31 (21,784) (2,352) (0.17)
Total interest-earning assets
6,268,815 75,153 4.86 6,488,725 79,668 4.98 (219,910) (4,515) (0.12)
Noninterest-earning assets 297,871 276,332 21,539
Total assets
$6,566,686 $6,765,057 ($198,371)
Liabilities and Shareholders’ Equity:
Interest-bearing demand deposits (in-market) $748,233 $5,889 3.19 % $628,490 $5,876 3.79 % $119,743 $13 (0.60 %)
NOW accounts 676,240 259 0.16 679,138 343 0.20 (2,898) (84) (0.04)
Money market accounts 1,162,609 7,788 2.72 1,232,042 10,028 3.30 (69,433) (2,240) (0.58)
Savings accounts 810,040 3,418 1.71 564,002 1,851 1.33 246,038 1,567 0.38
Time deposits (in-market) 1,190,414 10,016 3.41 1,204,779 11,304 3.81 (14,365) (1,288) (0.40)
Interest-bearing in-market deposits 4,587,536 27,370 2.42 4,308,451 29,402 2.77 279,085 (2,032) (0.35)
Wholesale brokered time deposits — — — 188,386 2,346 5.05 (188,386) (2,346) (5.05)
Total interest-bearing deposits 4,587,536 27,370 2.42 4,496,837 31,748 2.86 90,699 (4,378) (0.44)
FHLB advances
660,667 6,777 4.16 959,889 10,946 4.62 (299,222) (4,169) (0.46)
Junior subordinated debentures
22,681 310 5.54 22,681 347 6.20 — (37) (0.66)
Total interest-bearing liabilities
5,270,884 34,457 2.65 5,479,407 43,041 3.19 (208,523) (8,584) (0.54)
Noninterest-bearing demand deposits 604,302 620,849 (16,547)
Other liabilities 138,126 151,753 (13,627)
Shareholders’ equity 553,374 513,048 40,326
Total liabilities and shareholders’ equity
$6,566,686 $6,765,057 ($198,371)
Net interest income (FTE)
$40,696 $36,627 $4,069
Interest rate spread 2.21 % 1.79 % 0.42 %
Net interest margin 2.63 % 2.29 % 0.34 %
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Management's Discussion and Analysis
Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency:
(Dollars in thousands)
Three months ended March 31, 2026 2025 Change
Commercial loans $168 $206 ($38)
Nontaxable debt securities 1 1 —
Total $169 $207 ($38)
Net Interest Income
Net interest income, the primary source of our operating income, totaled $40.5 million for the three months ended March 31, 2026, compared to $36.4 million, for the same period in 2025.
Net interest income is affected by factors including, but not limited to, the level of and changes in interest rates, changes in the amount and composition of interest-earning assets and interest-bearing liabilities, loan and deposit pricing strategies and competitive conditions, loan prepayment speeds, and the level of nonaccrual loans.
NIM is calculated as net interest income on a fully-taxable equivalent basis as a percentage of average interest-earning assets.
The improvement in net interest income, FTE net interest income and NIM discussed below largely reflected continued benefits from the December 2024 balance sheet repositioning transactions.
The following discussion presents net interest income on an FTE basis by adjusting income and yields on tax-exempt loans to be comparable to taxable loans.
FTE net interest income for the three months ended March 31, 2026 amounted to $40.7 million, up by $4.1 million from the same period in 2025. For the three months ended March 31, 2026, decreases in average interest-bearing liability balances net of decreases in average interest-earning assets increased net interest income by $793 thousand. Decreases in funding costs outpaced decreases in asset yields, increasing net interest income by $3.3 million for the three months ended March 31, 2026.
NIM was 2.63% for the three months ended March 31, 2026, up by 34 basis points from 2.29% for the same period in 2025.
Total average securities for the three months ended March 31, 2026 decreased by $20.1 million from the same period a year earlier primarily due to routine pay-downs. The FTE rate of return on the securities portfolio for the three months ended March 31, 2026 was 3.48%, up by 5 basis points from the same period in 2025.
Total average loan balances for the three months ended March 31, 2026 decreased by $21.8 million from the comparable 2025 period, largely reflecting a decrease in the residential real estate loan portfolio. The yield on total loans for the three months ended March 31, 2026 was 5.14%, down by 17 basis points from the same period in 2025.
FHLB advances and brokered time deposits are utilized as wholesale funding sources. The average balance of FHLB advances for the three months ended March 31, 2026 decreased by $299.2 million from the comparable period in 2025. The average rate paid on such advances for the three months ended March 31, 2026 was 4.16%, down by 46 basis points from the same period in 2025. There were no wholesale brokered time deposits for the three months ended March 31, 2026, compared to $188.4 million for the three months ended March 31, 2025 that had an average rate of 5.05%. The decline in wholesale funding balances reflected the benefits from the balance sheet repositioning transactions mentioned above, as well as increases in the average balances of in-market deposits. Rates paid on wholesale funding have declined from the prior year reflecting lower market interest rates.
Average in-market interest-bearing deposits, which excludes wholesale brokered deposits, for the three months ended March 31, 2026 increased by $279.1 million from the same period in 2025, largely reflecting increases in average balances of savings accounts and interest-bearing demand deposits. The average rate paid on in-market interest-bearing deposits for the three months ended March 31, 2026 was 2.42%, down by 35 basis points from the same period in 2025, largely reflecting
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Management's Discussion and Analysis
lower market interest rates. The average balance of noninterest-bearing demand deposits for the three months ended March 31, 2026 decreased by $16.5 million from the same period in 2025.
Volume / Rate Analysis - Interest Income and Expense (FTE Basis)
The following table presents certain information on an FTE basis regarding changes in our interest income and interest expense for the period indicated. The net change attributable to both volume and rate has been allocated proportionately.
(Dollars in thousands) Three Months Ended March 31, 2026 vs. 2025
Change Due to
Volume Rate Net Change
Interest on Interest-Earning Assets:
Cash, federal funds sold, and other short-term investments ($801) ($283) ($1,084)
Mortgage loans held for sale (993) 410 (583)
Taxable debt securities (180) 121 (59)
Nontaxable debt securities — — —
Total securities (180) 121 (59)
FHLB stock
(269) (168) (437)
Commercial real estate 150 (1,786) (1,636)
Commercial & industrial 472 (425) 47
Total commercial
622 (2,211) (1,589)
Residential real estate (942) 311 (631)
Home equity 326 (456) (130)
Other (10) 8 (2)
Total consumer 316 (448) (132)
Total loans (4) (2,348) (2,352)
Total interest income (2,247) (2,268) (4,515)
Interest on Interest-Bearing Liabilities:
Interest-bearing demand deposits (in-market) 1,023 (1,010) 13
NOW accounts (2) (82) (84)
Money market accounts (544) (1,696) (2,240)
Savings accounts 947 620 1,567
Time deposits (in-market) (131) (1,157) (1,288)
Interest-bearing in-market deposits 1,293 (3,325) (2,032)
Wholesale brokered time deposits (1,173) (1,173) (2,346)
Total interest-bearing deposits 120 (4,498) (4,378)
FHLB advances
(3,160) (1,009) (4,169)
Junior subordinated debentures — (37) (37)
Total interest expense (3,040) (5,544) (8,584)
Net interest income (FTE)
$793 $3,276 $4,069
Provision for Credit Losses
The provision for credit losses results from management’s review of the adequacy of the ACL. The ACL is management’s estimate, at the reporting date, of expected lifetime credit losses and includes consideration of current forecasted economic conditions. Estimating an appropriate level of ACL necessarily involves a high degree of judgment.
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Management's Discussion and Analysis
The following table presents the provision for credit losses:
(Dollars in thousands)
Change
Three months ended March 31, 2026 2025 $ %
Provision for credit losses on loans $3,900 $1,400 $2,500 179 %
Provision for credit losses on unfunded commitments 100 (200) $300 150
Provision for credit losses $4,000 $1,200 $2,800 233 %
The provision for credit losses for the three months ended March 31, 2026, largely reflected an increase in specific reserves on two CRE office segment loans, which was partially offset by a decline in loan portfolio balances. See additional discussion regarding these two loans under the caption “Nonaccrual Loans.”
Net charge-offs totaled $10 thousand for the three months ended March 31, 2026, compared to $2.3 million for the same period in 2025. See additional discussion regarding the ACL under the caption “Asset Quality” below.
Noninterest Income
Noninterest income is an important source of revenue for Washington Trust. The principal categories of noninterest income are shown in the following table:
(Dollars in thousands)
Change
Three months ended March 31, 2026 2025 $ %
Noninterest income:
Wealth management revenues $10,647 $9,891 $756 8 %
Mortgage banking revenues
3,045 2,304 741 32
Card interchange fees 1,385 1,509 (124) (8)
Service charges on deposit accounts 785 744 41 6
Loan related derivative income
227 101 126 125
Income from bank-owned life insurance 885 769 116 15
Gain on sale of bank-owned properties, net — 6,994 (6,994) (100)
Other income 329 331 (2) (1)
Total noninterest income
$17,303 $22,643 ($5,340) (24 %)
Adjusted noninterest income (non-GAAP)
$17,303 $15,649 $1,654 11 %
Noninterest Income Analysis
Total noninterest income amounted to $17.3 million for the three months ended March 31, 2026, compared to $22.6 million for the same period in 2025. Total noninterest income in 2025 was impacted by the gain on sale-leaseback transactions as described under the caption “Summary” above. Excluding the impact of this infrequent transaction, adjusted noninterest income (non-GAAP) for the three months ended March 31, 2026 was up by $1.7 million, or 11%, from the same period in 2025.
Wealth management revenues represent our largest source of noninterest income. A substantial portion of wealth management revenues is dependent on the value of wealth management AUA and is closely tied to the performance of the financial markets. This portion of wealth management revenues is referred to as “asset-based” and includes trust and investment management fees. Wealth management revenues also include “transaction-based” revenues that are not primarily derived from the value of assets.
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Management's Discussion and Analysis
The categories of wealth management revenues are shown in the following table:
(Dollars in thousands)
Change
Three months ended March 31, 2026 2025 $ %
Wealth management revenues:
Asset-based revenues $10,580 $9,769 $811 8 %
Transaction-based revenues 67 122 (55) (45)
Total wealth management revenues $10,647 $9,891 $756 8 %
The following table presents wealth management AUA balances:
(Dollars in thousands)
March 31,
2026 December 31,
2025 March 31,
2025
AUA (market value as of the date indicated)
$7,495,602 $7,777,250 $6,818,390
Wealth management revenues for the three months ended March 31, 2026 increased by $756 thousand, or 8%, from the same period in 2025, largely reflecting an increase in asset-based revenues. The increase in asset-based revenues correlated with the change in average AUA balances. The average balance of AUA for the three months ended March 31, 2026 increased by 10% over the average balance for the same period in 2025, primarily reflecting net investment appreciation of AUA.
Mortgage banking revenues are dependent on mortgage origination volume and are sensitive to interest rates and the condition of housing markets. The composition of mortgage banking revenues and the volume of loans sold to the secondary market are shown in the following table:
(Dollars in thousands)
Change
Three months ended March 31, 2026 2025 $ %
Mortgage banking revenues:
Realized gains on loan sales, net (1)
$2,370 $1,575 $795 50 %
Changes in fair value, net (2)
164 133 31 23
Loan servicing fee income, net (3)
511 596 (85) (14)
Total mortgage banking revenues $3,045 $2,304 $741 32 %
Loans sold to the secondary market (4)
$121,523 $75,499 $46,024 61 %
(1) Includes gains on loan sales, commission income on loans originated for others, servicing right gains, and gains (losses) on forward loan commitments.
(2) Represents fair value changes on mortgage loans held for sale and forward loan commitments.
(3) Represents loan servicing fee income, net of servicing right amortization and valuation adjustments.
(4) Includes brokered loans (loans originated for others).
For the three months ended March 31, 2026, mortgage banking revenues were up by $741 thousand, or 32%, compared to the same period in 2025, largely reflecting an increase in sales volume.
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Management's Discussion and Analysis
Noninterest Expense
The following table presents noninterest expense comparisons:
(Dollars in thousands)
Change
Three months ended March 31, 2026 2025 $ %
Noninterest expense:
Salaries and employee benefits $24,340 $22,422 $1,918 9 %
Outsourced services 4,383 4,346 37 1
Net occupancy 2,890 2,741 149 5
Equipment 903 891 12 1
Legal, audit, and professional fees 936 750 186 25
FDIC deposit insurance costs
935 1,262 (327) (26)
Advertising and promotion 547 410 137 33
Amortization of intangibles 155 204 (49) (24)
Pension plan settlement charge — 6,436 (6,436) (100)
Other 2,676 2,734 (58) (2)
Total noninterest expense $37,765 $42,196 ($4,431) (11 %)
Adjusted noninterest expense (non-GAAP)
$37,765 $35,760 $2,005 6 %
Noninterest Expense Analysis
Total noninterest expense amounted to $37.8 million for the three months ended March 31, 2026, compared to $42.2 million for the same period in 2025. Total noninterest expense in 2025 was impacted by the settlement charge associated with termination of the Corporation’s qualified pension plan, as described under the caption “Summary” above. Excluding the impact of this infrequent transaction, adjusted noninterest expense (non-GAAP) for the three months ended March 31, 2026, was up by $2.0 million, or 6%, from the same period in 2025.
Salaries and employee benefits expense, the largest component of total noninterest expense, for the three months ended March 31, 2026 increased by $1.9 million, or 9%, compared to the same period in 2025. This primarily reflected merit increases and the addition of resources in our commercial banking and wealth management business lines, as well as volume-related increases in mortgage originator commission expense.
FDIC insurance costs for the three months ended March 31, 2026 decreased by $327 thousand, or 26%, compared to the same period in 2025, reflecting a decrease in average assets from a year ago and a lower FDIC deposit assessment rate.
Income Taxes
The following table presents the Corporation’s income tax provision and applicable tax rates for the periods indicated:
(Dollars in thousands)
Three months ended March 31, 2026 2025
Income tax expense $3,463 $3,490
Adjusted income tax expense (non-GAAP)
3,463 3,349
Effective tax rate 21.6 % 22.3 %
Adjusted effective tax rate (non-GAAP)
21.6 % 22.2 %
Blended statutory rate 25.0 % 25.3 %
The effective tax rates differed from the federal rate of 21%, primarily due to state income tax expense, which was partially offset by benefits from tax-exempt income, income from BOLI, and federal tax credits. The blended statutory rates include the federal income tax rate of 21% and a blended state income tax rate net of a federal tax benefit.
The decrease in the effective tax rate reflected changes in state tax expense and increased federal tax credit benefits.
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Management's Discussion and Analysis
The Corporation’s net deferred tax assets are reported in other assets and amounted to $36.6 million at March 31, 2026, down from $36.9 million at December 31, 2025. Management believes deferred tax assets, net of the valuation allowance, are more-likely-than-not to be realized.
Segment Reporting
The Corporation manages its operations through two reportable business segments, consisting of Banking and Wealth Management Services. See Note 12 to the Unaudited Consolidated Financial Statements for additional disclosure related to business segments.
Banking
The following table presents a summarized statement of operations for the Banking business segment:
(Dollars in thousands)
Change
Three months ended March 31, 2026 2025 $ %
Net interest income $40,525 $36,422 $4,103 11 %
Provision for credit losses 4,000 1,200 2,800 233
Net interest income after provision for credit losses
36,525 35,222 1,303 4
Noninterest income 6,430 12,635 (6,205) (49)
Noninterest expense 30,102 32,546 (2,444) (8)
Income before income taxes 12,853 15,311 (2,458) (16)
Income tax expense 2,734 3,347 (613) (18)
Net income $10,119 $11,964 ($1,845) (15 %)
Net interest income for the Banking segment for the three months ended March 31, 2026 increased by $4.1 million from the same period in 2025. Net interest income benefited from lower rates paid on, and decreases in, average interest-bearing liability balances, which was partially offset by lower yields on, and decreases in, average interest-earning asset balances. See additional discussion under the caption “Net Interest Income” above.
The provision for credit losses for the three months ended March 31, 2026 increased by $2.8 million from the same period in 2025. See additional discussion under the caption “Provision for Credit Losses” above.
Noninterest income derived from the Banking segment was $6.4 million for the three months ended March 31, 2026, compared to $12.6 million for the same period in 2025. Included in the three months ended March 31, 2025 was a $7.0 million net gain recognized on sale-leaseback transactions. Excluding this item, Banking noninterest income increased by $789 thousand, largely reflecting increases in mortgage banking revenues. See additional disclosure under the caption “Noninterest Income” above.
Banking noninterest expenses for the three months ended March 31, 2026 totaled $30.1 million compared to $32.5 million for the same period in 2025. Included in the three months ended March 31, 2025 was $4.9 million of the total pension plan settlement charge that was allocated to the Banking segment. Excluding this item, noninterest expenses for the Banking segment increased by $2.5 million, reflecting increases in salaries and employee benefits expense and outsourced services expense, partially offset by a decrease in FDIC insurance costs. See additional discussion under the caption “Noninterest Expense” above.
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Management's Discussion and Analysis
Wealth Management Services
The following table presents a summarized statement of operations for the Wealth Management Services business segment:
(Dollars in thousands)
Change
Three months ended March 31, 2026 2025 $ %
Net interest income $— $— $— — %
Noninterest income 10,873 10,008 865 9
Noninterest expense 7,663 9,650 (1,987) (21)
Income before income taxes 3,210 358 2,852 797
Income tax expense 729 143 586 410
Net income $2,481 $215 $2,266 1,054 %
Noninterest income derived from the Wealth Management Services segment for the three months ended March 31, 2026 increased by $865 thousand from the same period in 2025, largely reflecting an increase in asset-based revenues. See further discussion under the caption “Noninterest Income” above.
Noninterest expenses for the Wealth Management Services segment for the three months ended March 31, 2026 totaled $7.7 million, compared to $9.7 million for the same period in 2025. Included in the three months ended March 31, 2025 was $1.5 million of the total pension plan settlement charge that was allocated to the Wealth Management Services segment. Excluding this item, noninterest expenses for the Wealth Management Services segment decreased by $451 thousand. This included a decrease in outsourced services expense, partially offset by higher salaries and benefits expense. See additional discussion under the caption “Noninterest Expense” above.
Financial Condition
Summary
The following table presents selected financial condition data:
(Dollars in thousands) Change
March 31,
2026 December 31,
2025 $ %
Available for sale debt securities $911,958 $940,342 ($28,384) (3 %)
Total loans 5,014,885 5,134,388 (119,503) (2)
Allowance for credit losses on loans 41,126 37,236 3,890 10
Total assets 6,459,196 6,621,694 (162,498) (2)
Total deposits 5,164,633 5,269,990 (105,357) (2)
FHLB advances
576,000 626,000 (50,000) (8)
Total shareholders’ equity 546,773 543,584 3,189 1
Securities
I nvestment security activity is monitored by the Investment Committee, the members of which also sit on the ALCO. Asset and liability management objectives are the primary influence on the Corporation’s investment activities. However, the Corporation also recognizes that there are certain specific risks inherent in investment activities. The securities portfolio is managed in accordance with regulatory guidelines and established internal corporate investment policies that provide limitations on specific risk factors such as market risk, credit risk and concentration, liquidity risk, and operational risk to help monitor risks associated with investing in securities. Reports on the activities conducted by the Investment Committee and the ALCO are presented to the Board of Directors on a regular basis.
The Corporation’s securities portfolio is managed to generate interest income, to implement interest rate risk management strategies, and to provide a readily available source of liquidity for balance sheet management. Securities are designated as either available for sale, held to maturity or trading at the time of purchase. The Corporation does not maintain a portfolio of trading securities and does not have securities designated as held to maturity. Securities available for sale may be sold in response to changes in market conditions, prepayment risk, rate fluctuations, liquidity, or capital requirements. Debt
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Management's Discussion and Analysis
securities available for sale are reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of tax, until realized.
Determination of Fair Value
The Corporation uses an independent pricing service to obtain quoted prices. The prices provided by the independent pricing service are generally based on observable market data in active markets. The determination of whether markets are active or inactive is based upon the level of trading activity for a particular security class. Management reviews the independent pricing service’s documentation to gain an understanding of the appropriateness of the pricing methodologies. Management also reviews the prices provided by the independent pricing service for reasonableness based upon current trading levels for similar securities. If the prices appear unusual, they are re-examined and the value is either confirmed or revised. In addition, management periodically performs independent price tests of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of March 31, 2026 and December 31, 2025, management did not make any adjustments to the prices provided by the pricing service.
Our fair value measurements generally utilize Level 2 inputs, representing quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model-derived valuations in which all significant input assumptions are observable in active markets.
See Notes 3 and 7 to the Unaudited Consolidated Financial Statements for additional information regarding the determination of fair value of investment securities.
Securities Portfolio
The carrying amounts of securities held are as follows:
(Dollars in thousands) March 31, 2026 December 31, 2025
Amount % of Total Amount % of Total
Available for Sale Debt Securities:
Obligations of U.S. government agencies and government-sponsored enterprises $39,865 4 % $39,958 4 %
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
854,722 94 880,894 94
Obligations of states and political subdivisions 653 — 663 —
Individual name issuer trust preferred debt securities 6,073 1 6,103 1
Corporate bonds 10,645 1 12,724 1
Total available for sale debt securities $911,958 100 % $940,342 100 %
The securities portfolio represented 14% of total assets at both March 31, 2026 and December 31, 2025. The largest component of the securities portfolio is mortgage-backed securities, all of which are issued by U.S. government agencies or U.S. government-sponsored enterprises.
The securities portfolio decreased by $28.4 million, or 3%, from the end of 2025. This largely reflected routine pay-downs on mortgage-backed securities.
The carrying amounts of available for sale debt securities as of March 31, 2026 and December 31, 2025 included net unrealized losses of $96.6 million and $94.9 million, respectively. The net unrealized losses were primarily concentrated in obligations of U.S. government agencies and U.S. government-sponsored enterprises, including mortgage-backed securities, and primarily attributable to relative changes in market interest rates since the time of purchase. See Note 3 to the Unaudited Consolidated Financial Statements for additional information.
Loans
We primarily serve individuals and businesses located in southern New England, and a substantial portion of our loans are secured by properties in southern New England. Total loans amounted to $5.0 billion at March 31, 2026, down by $119.5 million, or 2%, from the end of 2025.
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Management's Discussion and Analysis
The following table sets forth the composition of the Corporation’s loan portfolio:
(Dollars in thousands) March 31, 2026 December 31, 2025
Amount % of Total Amount % of Total
Commercial:
Commercial real estate $2,084,804 42 % $2,183,985 43 %
Commercial & industrial 568,177 11 564,082 11
Total commercial 2,652,981 53 2,748,067 54
Residential Real Estate:
Residential real estate (1)
2,029,092 40 2,050,399 40
Consumer:
Home equity 316,353 6 318,862 6
Other 16,459 1 17,060 —
Total consumer 332,812 7 335,922 6
Total loans $5,014,885 100 % $5,134,388 100 %
(1) Includes negative basis adjustments associated with fair value hedges of $923 thousand and $335 thousand, respectively, at March 31, 2026 and December 31, 2025. See Note 6 to the Unaudited Consolidated Financial Statements for additional disclosure.
Commercial Loans
The commercial loan portfolio represented 53% of total loans at March 31, 2026, compared to 54% at December 31, 2025.
In making commercial loans, we may occasionally solicit the participation of other banks. The Bank also participates in commercial loans originated by other banks. In such cases, these loans are individually underwritten by us using standards similar to those employed for our self-originated loans. Our participation in commercial loans originated by other banks amounted to $543.6 million and $613.5 million, respectively, at March 31, 2026 and December 31, 2025. Our participation in commercial loans originated by other banks also includes shared national credits. Shared national credits are defined as participation in loans or loan commitments of at least $100.0 million that are shared by three or more banks.
Commercial loans fall into two main categories, CRE and C&I loans. CRE loans consist of commercial mortgages secured by non-owner occupied real property where the primary source of repayment is derived from rental income associated with the property or the proceeds of the sale, refinancing or permanent financing of the property. CRE loans also include construction loans made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings. C&I loans primarily provide working capital, equipment financing, and financing for other business-related purposes. C&I loans are frequently collateralized by equipment, inventory, accounts receivable, and/or general business assets. A portion of the Bank’s C&I loans is also collateralized by owner occupied real estate. C&I loans also include tax-exempt loans made to states and political subdivisions, as well as industrial development or revenue bonds issued through quasi-public corporations for the benefit of a private or non-profit entity where that entity rather than the governmental entity is obligated to pay the debt service.
From time to time, commercial loans may be reclassified between CRE and C&I categories, reflecting underlying changes in loans to/from owner occupied from/to non-owner occupied. Additionally, certain construction loans may be reclassified to C&I when the construction phase is complete and the loan transitions to permanent financing.
Commercial Real Estate Loans
CRE loans totaled $2.1 billion at March 31, 2026, down by $99.2 million, or 4.5%, from the balance at December 31, 2025. In the first three months of 2026, CRE advances and originations amounted to $39.3 million and were more than offset by payments.
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Management's Discussion and Analysis
The following table presents a geographic summary of CRE loans by property location:
(Dollars in thousands) March 31, 2026 December 31, 2025
Outstanding Balance % of Total Outstanding Balance % of Total
Connecticut $716,990 34 % $816,532 37 %
Massachusetts 707,312 34 713,856 33
Rhode Island 372,033 18 375,905 17
Subtotal 1,796,335 86 1,906,293 87
All other states 288,469 14 277,692 13
Total $2,084,804 100 % $2,183,985 100 %
Management considers the CRE portfolio to be well-diversified with loans across several property types. Other than the multi-family segment that is discussed further below, there were no other property types within the CRE portfolio that exceeded 10% of total loans. The following table presents a summary of CRE loans by property type segmentation:
(Dollars in thousands) March 31, 2026 December 31, 2025
Outstanding Balance (1)
% of CRE Total
Outstanding Balance (1)
% of CRE Total
CRE Portfolio Segmentation:
Multi-family $639,976 31 % $667,388 31 %
Retail 407,029 20 436,961 20
Industrial and warehouse 339,839 16 380,403 17
Hospitality 242,229 12 230,549 11
Office 231,007 11 237,706 11
Healthcare facility 156,138 7 156,871 7
Mixed-use 27,459 1 26,440 1
Other 41,127 2 47,667 2
Total CRE loans
$2,084,804 100 % $2,183,985 100 %
Construction & development loans outstanding, included above $100,619 $86,682
Participation in CRE loans originated by other banks, included above (2)
$440,747 $518,493
Average CRE loan size (3)
$5,066 $5,217
Largest individual CRE loan outstanding
$65,516 $65,509
(1) Does not include unfunded commitments of $144.3 million and $127.1 million, respectively, as of March 31, 2026 and December 31, 2025.
(2) Includes shared national credits balances of $27.5 million and $45.6 million, respectively, as of March 31, 2026 and December 31, 2025. There were no classified shared national credit balances as of March 31, 2026 or December 31, 2025.
(3) Total commitment (outstanding loan balance plus unfunded commitments) divided by number of loans.
Multi-family, our largest single CRE segment, totaled $640.0 million as of March 31, 2026, representing 13% of total loans and 31% of the total CRE portfolio. This segment includes non-owner occupied residential properties consisting of four or more units that are rented to tenants. At March 31, 2026, the credit quality of the multi-family segment was 100% pass-rated. Also, there were no nonaccrual loans and all loans were current with respect to payment terms at March 31, 2026 in this segment.
There continues to be heightened focus in the banking industry on the CRE office sector, given the continuation of remote work and elevated vacancies across the office market. As of March 31, 2026, Washington Trust’s CRE office loan segment totaled $231.0 million, or 5% of total loans and 11% of the total CRE loans. The loans are secured by non-owner occupied office properties, including medical office and lab space, located in our primary lending market area of southern New England - Massachusetts, Connecticut, and Rhode Island. Furthermore, approximately 65% of the CRE office segment balance is secured by properties located in suburban areas. As of March 31, 2026, 97% of the CRE office segment was current with respect to payment terms, and 87% of the CRE office segment was on accruing status. Additionally, the credit
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Management's Discussion and Analysis
quality of the CRE office loan segment was 71% pass-rated, 14% special mention-rated, and 15% classified as of March 31, 2026.
Commercial and Industrial Loans
C&I loans amounted to $568.2 million at March 31, 2026, up by $4.1 million, or 1%, from the balance at December 31, 2025. In the first three months of 2026, C&I originations and advances amounted to $19.6 million and were partially offset by payments.
Management considers the C&I portfolio to be well-diversified with loans across several industries. The following table presents a summary of C&I loan by industry segmentation:
(Dollars in thousands) March 31, 2026 December 31, 2025
Outstanding Balance (1)
% of C&I Total
Outstanding Balance (1)
% of C&I Total
C&I Portfolio Segmentation:
Healthcare and social assistance $149,292 26 % $150,061 27 %
Retail trade 62,866 11 48,289 9
Transportation and warehousing
55,864 10 55,315 10
Educational services 53,831 9 54,245 10
Accommodation and food services 32,982 6 26,431 5
Finance and insurance
26,834 5 22,727 4
Manufacturing 25,540 4 23,714 4
Arts, entertainment, and recreation
24,947 4 22,043 4
Information
21,681 4 21,843 4
Real estate rental and leasing 20,009 4 57,113 10
Professional, scientific, and technical services
19,625 3 12,490 2
Public administration
6,163 1 1,448 —
Other
68,543 13 68,363 11
Total C&I loans
$568,177 100 % $564,082 100 %
Participation in C&I loans originated by other banks, included above (2)
$102,856 $95,047
Average C&I loan size (3)
$868 $839
Largest individual C&I loan outstanding
$32,590 $33,001
(1) Does not include unfunded commitments of $320.2 million and $306.9 million, respectively, as of March 31, 2026 and December 31, 2025.
(2) Includes shared national credits balances of $79.3 million and $72.0 million, respectively, as of March 31, 2026 and December 31, 2025, all of which were pass-rated.
(3) Total commitment (outstanding loan balance plus unfunded commitments) divided by number of loans.
Healthcare and social assistance, our largest single C&I segment, totaled $149.3 million as of March 31, 2026, representing 3% of total loans and 26% of the total C&I portfolio. This segment includes specialty medical practices, elder services, and community and mental health centers. At March 31, 2026, the credit quality of the healthcare and social assistance segment was 100% pass-rated. Also, there were no nonaccrual loans and all loans were current with respect to payment terms at March 31, 2026 in this segment.
Residential Real Estate Loans
The residential real estate loan portfolio represented 40% of total loans at both March 31, 2026 and December 31, 2025.
Residential real estate loans amounted to $2.0 billion at March 31, 2026, down by $21.3 million, or 1%, from the balance at December 31, 2025, as loan originations were more than offset by payments.
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Management's Discussion and Analysis
The following is a geographic summary of residential real estate loans by property location:
(Dollars in thousands) March 31, 2026 December 31, 2025
Amount % of Total Amount % of Total
Massachusetts
$1,409,282 70 % $1,433,920 70 %
Rhode Island 471,870 23 469,008 23
Connecticut
127,211 6 125,866 6
Subtotal 2,008,363 99 2,028,794 99
All other states 20,729 1 21,605 1
Total (1)
$2,029,092 100 % $2,050,399 100 %
(1) Includes residential mortgage loans purchased from and serviced by other financial institutions totaling $37.6 million and $38.5 million, respectively, as of March 31, 2026 and December 31, 2025.
Residential real estate loans are originated both for sale to the secondary market as well as for retention in the Bank’s loan portfolio. We also originate residential real estate loans for various investors in a broker capacity, including conventional mortgages and reverse mortgages. Residential real estate loan origination and refinancing activities are sensitive to interest rates and the condition of housing markets.
The table below presents residential real estate loan origination activity:
(Dollars in thousands)
Three months ended March 31, 2026 2025
Amount % of Total Amount % of Total
Originations for retention in portfolio (1)
$36,813 24 % $27,662 27 %
Originations for sale to the secondary market (2)
118,351 76 75,519 73
Total $155,164 100 % $103,181 100 %
(1) Includes the full commitment amount of homeowner construction loans.
(2) Includes brokered loans (loans originated for others).
The table below presents residential real estate loan sales activity:
(Dollars in thousands)
Three months ended March 31, 2026 2025
Amount % of Total Amount % of Total
Loans sold with servicing rights retained $4,670 4 % $16,819 22 %
Loans sold with servicing rights released (1)
116,853 96 58,680 78
Total $121,523 100 % $75,499 100 %
(1) Includes brokered loans (loans originated for others).
We have active relationships with various secondary market investors that purchase residential real estate loans we originate. In addition to managing our interest rate risk position and earnings through the sale of these loans, we are also able to manage our liquidity position through timely sales of residential real estate loans to the secondary market.
Loans are sold with servicing retained or released. Loans sold with servicing rights retained result in the capitalization of servicing rights. Loan servicing rights are included in other assets and are subsequently amortized as an offset to mortgage banking revenues over the estimated period of servicing. The net balance of capitalized servicing rights amounted to $6.3 million and $6.6 million, respectively, as of March 31, 2026 and December 31, 2025. The balance of residential mortgage loans serviced for others, which are not included in the Unaudited Consolidated Balance Sheets, amounted to $1.3 billion at both March 31, 2026 and December 31, 2025.
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Management's Discussion and Analysis
Consumer Loans
The consumer loan portfolio represented 7% of total loans at March 31, 2026, compared to 6% at December 31, 2025.
Consumer loans include home equity loans and lines of credit and personal installment loans. Home equity lines of credit and home equity loans represented 95% of the total consumer portfolio at March 31, 2026. Our home equity line and home equity loan origination activities are conducted primarily in southern New England. The Bank estimates that approximately 45% of the combined home equity lines of credit and home equity loan balances are first lien positions or subordinate to other Washington Trust mortgages.
The consumer loan portfolio totaled $332.8 million at March 31, 2026, down by $3.1 million, or 1%, from December 31, 2025, largely reflecting a decrease in home equity lines.
Asset Quality
The Corporation continually monitors the asset quality of the loan portfolio using all available information.
In the course of resolving problem loans, the Corporation may choose to modify the contractual terms of certain loans. A loan that has been modified is considered a TLM when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows. The decision to modify a loan, versus aggressively enforcing the collection of the loan, may benefit the Corporation by increasing the ultimate probability of collection. See Note 4 to the Unaudited Consolidated Financial Statements for additional information regarding TLMs.
Nonperforming Assets
Nonperforming assets include nonaccrual loans and OREO.
The following table presents nonperforming assets and additional asset quality data:
(Dollars in thousands) March 31,
2026 December 31,
2025
Commercial:
Commercial real estate $28,923 $—
Commercial & industrial 126 —
Total commercial
29,049 —
Residential Real Estate:
Residential real estate 9,631 11,099
Consumer:
Home equity 1,757 1,824
Other 3 —
Total consumer
1,760 1,824
Total nonaccrual loans 40,440 12,923
OREO, net
— —
Total nonperforming assets $40,440 $12,923
Nonperforming assets to total assets 0.63 % 0.20 %
Nonperforming loans to total loans 0.81 % 0.25 %
Total past due loans to total loans 0.33 % 0.22 %
Allowance for credit losses on loans to total loans 0.82 % 0.73 %
Allowance for credit losses on loans to nonaccrual loans 101.70 % 288.14 %
Accruing loans 90 days or more past due $— $—
Nonaccrual Loans
During the three months ended March 31, 2026, the Corporation made no changes in its practices or policies concerning the placement of loans into nonaccrual status.
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Management's Discussion and Analysis
The following table presents the activity in nonaccrual loans:
(Dollars in thousands)
For the three months ended March 31, 2026 2025
Balance at beginning of period $12,923 $23,307
Additions to nonaccrual status 29,064 2,142
Loans returned to accruing status (69) (4)
Loans charged-off (84) (2,522)
Loans transferred to other real estate owned — —
Payments, payoffs, and other changes (1,394) (1,297)
Balance at end of period $40,440 $21,626
The following table presents additional detail on nonaccrual loans:
(Dollars in thousands) March 31, 2026 December 31, 2025
Days Past Due Days Past Due
Current 30-89 90 or More Total Nonaccrual % (1)
Current 30-89 90 or More Total Nonaccrual % (1)
Commercial:
Commercial real estate $22,349 $6,574 $— $28,923 1.39 % $— $— $— $— — %
Commercial & industrial — — 126 126 0.02 — — — — —
Total commercial
22,349 6,574 126 29,049 1.09 — — — — —
Residential Real Estate:
Residential real estate
5,170 2,037 2,424 9,631 0.47 3,228 4,869 3,002 11,099 0.54
Consumer:
Home equity 623 787 347 1,757 0.56 1,347 131 346 1,824 0.57
Other — — 3 3 0.02 — — — — —
Total consumer 623 787 350 1,760 0.53 1,347 131 346 1,824 0.54
Total nonaccrual loans $28,142 $9,398 $2,900 $40,440 0.81 % $4,575 $5,000 $3,348 $12,923 0.25 %
(1) Percentage of nonaccrual loans to the total loans outstanding within the respective loan class.
As of March 31, 2026, the composition of nonaccrual loans was 72% commercial and 28% residential and consumer. As of December 31, 2025, nonaccrual loans were 100% residential and consumer.
Nonaccrual loans at March 31, 2026 totaled $40.4 million, up by $27.5 million from the end of 2025. Two CRE office segment loans with underlying properties located in our primary lending area of Southern New England were placed on nonaccrual status. The first loan had a carrying value of $22.3 million at March 31, 2026 and was placed on nonaccrual status when notification of a tenant’s intent to vacate was received in March and workout discussions continued. The underlying office property is approximately 60% occupied. As management works to resolve this problem loan, a specific reserve was added in first quarter reflecting the estimated loss resulting from a proposed modification structure. The second loan had a carrying value of $6.6 million at March 31, 2026 and was placed on nonaccrual status as the loan matured and renewal terms were being negotiated in March. The loan is collateral dependent and a specific reserve was added in the first quarter reflecting the estimated decrease in the fair value of the collateral based on a new appraisal that was received in early April .
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Management's Discussion and Analysis
Past Due Loans
The following table presents past due loans by class:
(Dollars in thousands) March 31, 2026 December 31, 2025
Amount % (1)
Amount % (1)
Commercial:
Commercial real estate $6,574 0.32 % $648 0.03 %
Commercial & industrial 470 0.08 7 —
Total commercial 7,044 0.27 655 0.02
Residential Real Estate:
Residential real estate 6,627 0.33 9,095 0.44
Consumer:
Home equity 2,746 0.87 1,607 0.50
Other 31 0.19 26 0.15
Total consumer 2,777 0.83 1,633 0.49
Total past due loans $16,448 0.33 % $11,383 0.22 %
(1) Percentage of past due loans to the total loans outstanding within the respective loan class.
The composition of past due loans (loans past due 30 days or more) was 57% residential and consumer and 43% commercial as of March 31, 2026, compared to 94% residential and consumer and 6% commercial as of December 31, 2025.
Total past due loans increased by $5.1 million from the end of 2025, due to the nonaccrual CRE loan with a carrying value of $6.6 million at March 31, 2026 that matured in first quarter and is further discussed above.
Total past due loans included $12.3 million of nonaccrual loans as of March 31, 2026, compared to $8.3 million as of December 31, 2025.
All loans 90 days or more past due at March 31, 2026 and December 31, 2025 were classified as nonaccrual.
Potential Problem Loans
Potential problem loans are loans that are currently performing in accordance with contractual terms, but where possible credit problems of the related borrowers causes management to have doubts about the ability of such borrowers to comply with the present loan repayment terms and which may result in such loans becoming nonperforming at some time in the future. The Corporation classifies certain loans as “substandard,” “doubtful,” or “loss” based on criteria consistent with guidelines provided by banking regulators. Management considers potential problem loans to be classified accruing commercial loans that were less than 90 days past due at March 31, 2026. Potential problem loans are not included in the amounts of nonaccrual loans presented above.
Potential problem loans are assessed for loss exposure using the methods described in Note 4 to the Unaudited Consolidated Financial Statements under the caption “Credit Quality Indicators.” Management cannot predict the extent to which economic conditions or other factors may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become modified, or require an increased allowance coverage and provision for credit losses on loans.
Management has identified $6.1 million in potential problem loans at March 31, 2026, compared to $28.4 million at December 31, 2025. As of March 31, 2026, the balance of potential problem loans consisted of one CRE loan secured by an office property in our primary lending market area. At March 31, 2026, this loan was current with respect to payment terms.
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 ACL on loans is established through a provision for credit losses recognized in earnings. The ACL on loans is reduced by charge-offs on loans and is increased by recoveries of amounts previously charged off. There were no significant changes in our modeling methodology to determine the ACL on loans during the three months ended March 31, 2026.
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Management's Discussion and Analysis
The Corporation’s general practice is to identify problem credits early. To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of underlying collateral, and the strength of guarantors. Full or partial charge-offs are recognized as promptly as practicable when available information confirms that the collection of loan principal is unlikely. For collateral dependent loans, this confirming information may include an appraisal that reflects a shortfall between the value of the collateral and the carrying value of the loan or a deficiency balance following the sale of the collateral.
Appraisals are generally obtained with values determined on an “as is” basis from independent appraisal firms for real estate collateral dependent loans in the process of collection or when warranted by other deterioration in the borrower’s credit status. New appraisals are generally obtained for nonaccrual loans or when management believes it is warranted. The Corporation has continued to maintain appropriate professional standards regarding the professional qualifications of appraisers and has an internal review process to monitor the quality of appraisals.
The Corporation does not recognize a recovery when new appraisals indicate a subsequent increase in value.
The following table presents additional detail on the Corporation’s loan portfolio and associated allowance:
(Dollars in thousands) March 31, 2026 December 31, 2025
Loans Related Allowance Allowance / Loans Loans Related Allowance Allowance / Loans
Individually analyzed loans $37,569 $5,359 14.26 % $8,922 $43 0.48 %
Pooled (collectively evaluated) loans (1)
4,978,239 35,767 0.72 5,125,801 37,193 0.73
Total $5,015,808 $41,126 0.82 % $5,134,723 $37,236 0.73 %
(1) The amount reported for pooled loans excludes negative basis adjustments associated with fair value hedges of $923 thousand and $335 thousand, respectively, at March 31, 2026 and December 31, 2025. See Note 6 to the Unaudited Consolidated Financial Statements for additional disclosure.
The ACL on loans amounted to $41.1 million at March 31, 2026, up by $3.9 million, or 10%, from the balance at December 31, 2025. The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.82% at March 31, 2026, compared to 0.73% at December 31, 2025. ACL on loans as percentage of nonaccrual loans was 101.70% at March 31, 2026, compared to 288.14% at December 31, 2025.
Net charge-offs totaled $10 thousand for the three months ended March 31, 2026, compared to $2.3 million for the three months ended March 31, 2025.
The increase in the ACL on loans from December 31, 2025 largely reflected specific reserve allocations on the two individually analyzed nonaccrual CRE office segment loans noted above. See additional disclosure regarding our ACL methodology in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
The ACL on loans is an estimate and ultimate losses may vary from management’s estimate. 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.
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Management's Discussion and Analysis
The following table presents the allocation of the ACL on loans by portfolio segment. The total ACL on loans is available to absorb losses from any segment of the loan portfolio.
(Dollars in thousands) March 31, 2026 December 31, 2025
Allocated ACL
ACL to Loans
Loans to Total Portfolio (1) Allocated ACL
ACL to Loans
Loans to Total Portfolio (1)
Commercial:
Commercial real estate $24,031 1.15 % 42 % $19,766 0.91 % 43 %
Commercial & industrial 9,647 1.70 11 9,750 1.73 11
Total commercial
33,678 1.27 53 29,516 1.07 54
Residential Real Estate:
Residential real estate 6,003 0.30 40 6,270 0.31 40
Consumer:
Home equity 1,194 0.38 6 1,186 0.37 6
Other 251 1.53 1 264 1.55 —
Total consumer 1,445 0.43 7 1,450 0.43 6
Total ACL on loans at end of period
$41,126 0.82 % 100 % $37,236 0.73 % 100 %
(1) Percentage of loans outstanding in respective class to total loans outstanding.
Sources of Funds
Our sources of funds include in-market deposits, wholesale brokered deposits, FHLB advances, other borrowings, and proceeds from the sales, maturities, and payments of loans and investment securities. The Corporation uses funds to originate and purchase loans, purchase investment securities, conduct operations, expand the branch network, and pay dividends to shareholders.
Deposits
The Corporation offers a wide variety of deposit products to consumer and business customers. Deposits provide an important source of funding for the Bank, as well as an ongoing stream of fee revenue.
The Bank is a participant in the DDM, ICS and CDARS programs. The Bank uses these deposit sweep services to place customer and client funds into interest-bearing demand accounts, money market accounts, and/or time deposits issued by other participating banks. Customer and client funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance. As a program participant, we receive reciprocal amounts of deposits from other participating banks. We consider these reciprocal deposit balances to be in-market deposits as distinguished from traditional wholesale brokered deposits.
The following table presents a summary of deposits:
(Dollars in thousands) March 31, 2026 December 31, 2025 Balance Change
Amount % of Total Amount % of Total $ %
Noninterest-bearing demand deposits $585,415 11 % $595,092 11 % ($9,677) (2 %)
Interest-bearing demand deposits 758,524 15 756,794 14 1,730 —
NOW accounts 690,987 13 715,114 14 (24,127) (3)
Money market accounts 1,132,421 22 1,185,420 22 (52,999) (4)
Savings accounts 830,855 16 796,887 15 33,968 4
Time deposits (in-market) 1,166,431 23 1,220,683 24 (54,252) (4)
Total in-market deposits 5,164,633 100 5,269,990 100 (105,357) (2)
Wholesale brokered time deposits — — — — — —
Total deposits $5,164,633 100 % $5,269,990 100 % ($105,357) (2 %)
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Management's Discussion and Analysis
In-market deposits, which exclude wholesale brokered time deposits, were down by $105.4 million, or 2%, from the balance at December 31, 2025. There were no wholesale brokered time deposits at March 31, 2026 or December 31, 2025. Competition for deposits in our market area is strong, and continued demand for higher‑cost deposit products remains. Washington Trust remains focused on maintaining existing depositor relationships and supporting organic deposit growth.
The following table presents a summary of the Bank’s uninsured deposits:
(Dollars in thousands) March 31, 2026 December 31, 2025
Balance % of Total Deposits Balance % of Total Deposits
Uninsured Deposits:
Uninsured deposits (1)
$1,346,604 26 % $1,417,127 27 %
Less: affiliate deposits (2)
89,595 2 85,651 2
Uninsured deposits, excluding affiliate deposits 1,257,009 24 1,331,476 25
Less: fully-collateralized preferred deposits (3)
142,146 2 220,937 4
Uninsured deposits, after exclusions $1,114,863 22 % $1,110,539 21 %
(1) Determined in accordance with regulatory reporting requirements, which includes affiliate deposits and fully-collateralized preferred deposits.
(2) Uninsured deposit balances of Washington Trust Bancorp, Inc. and its subsidiaries that are eliminated in consolidation.
(3) Uninsured deposits of states and political subdivisions, which are secured or collateralized as required by state law.
Borrowings
Borrowings primarily consist of FHLB advances, which are used as a source of funding for liquidity and interest rate risk management purposes. FHLB advances totaled $576.0 million at March 31, 2026, down by $50.0 million, or 8%, from the balance at the end of 2025. For additional information regarding FHLB advances see Note 9 to the Unaudited Consolidated Financial Statements.
Liquidity and Capital Resources
Liquidity Management
The Corporation proactively manages its liquidity and cash flow requirements with the intent to maintain stable, cost-effective funding and to promote the strength of its overall balance sheet. The liquidity position of the Corporation is continuously monitored by management and adjustments are made to appropriately balance sources and uses of funds, as needed. For further details surrounding the Corporation’s liquidity risks and related strategy, see the “Risk Management – Liquidity Risk Management” section below.
Capital Resources
Total shareholders’ equity amounted to $546.8 million at March 31, 2026, up by $3.2 million from December 31, 2025. This net increase primarily reflected net income of $12.6 million, partially offset by dividend declarations of $10.8 million.
Washington Trust declared a quarterly dividend of 56 cents per share for the three months ended March 31, 2026, unchanged from the 56 cents per share declared for the same period in 2025.
The ratio of total equity to total assets amounted to 8.47% at March 31, 2026, compared to a ratio of 8.21% at December 31, 2025. Book value per share was $28.72 at March 31, 2026, compared to $28.56 at December 31, 2025.
The Bancorp and the Bank are subject to various regulatory capital requirements and are considered “well capitalized,” with a total risk-based capital ratio of 13.38% at March 31, 2026, compared to 12.95% at December 31, 2025.
See Note 10 to the Unaudited Consolidated Financial Statements for additional discussion regarding shareholders’ equity.
Risk Management
The Corporation has a comprehensive ERM program through which the Corporation identifies, measures, monitors, and controls current and emerging material risks.
The Board of Directors is responsible for oversight of the ERM program. The ERM program enables the aggregation of risk across the Corporation and ensures the Corporation has the tools, programs, and processes in place to support informed
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Management's Discussion and Analysis
decision making, to anticipate risks before they materialize and to maintain the Corporation’s risk profile consistent with its risk strategy. The Board of Directors has approved an ERM Policy and risk appetite statement that addresses each category of risk and outlines the types and levels of risk the Corporation is willing to accept to achieve its strategic objectives. The risk categories include: credit risk, interest rate risk, liquidity risk, price and market risk, compliance risk, strategic and reputation risk, and operational risk. A description of each risk category is provided below.
Credit risk represents the possibility that borrowers or other counterparties may not repay loans or other contractual obligations according to their terms due to changes in the financial capacity, ability, and willingness of such borrowers or counterparties to meet their obligations. In some cases, the collateral securing payment of the loans may be sufficient to assure repayment, but in other cases the Corporation may experience significant credit losses, which could have an adverse effect on its operating results. The Corporation makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of the real estate and other assets serving as collateral for the repayment of loans. Credit risk also exists with respect to investment securities. For further discussion regarding the credit risk and the credit quality of the Corporation’s loan portfolio, see Notes 4 and 5 to the Unaudited Consolidated Financial Statements. For further discussion regarding credit risk associated with unfunded commitments, see Note 15 to the Unaudited Consolidated Financial Statements. For further discussion regarding the Corporation’s securities portfolio, see Note 3 to the Unaudited Consolidated Financial Statements.
Interest rate risk is the risk of loss to earnings due to movements in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows. It exists because the repricing frequency and magnitude of interest-earning assets and interest-bearing liabilities are not identical. See the “Asset/Liability Management and Interest Rate Risk” section below for additional disclosure.
Liquidity risk is the risk that the Corporation will not have the ability to generate adequate amounts of cash in the most economical way for it to meet its maturing liability obligations and customer loan demand. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. For detailed disclosure regarding liquidity management, see the “Liquidity Risk Management” section below.
Price and market risk refers to the risk of loss arising from adverse changes in interest rates and other relevant market rates and prices, such as equity prices. Interest rate risk, discussed above, is the most significant market risk to which the Corporation is exposed. The Corporation is also exposed to financial market risk and housing market risk.
Compliance risk represents the risk of regulatory sanctions or financial loss resulting from the failure to comply with laws, rules, and regulations and standards of good banking practice. Activities that may expose the Corporation to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, adherence to all applicable laws and regulations, and employment and tax matters.
Strategic and reputation risk represent the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess existing and new opportunities and threats in business, markets, and products.
Operational risk is the risk of loss due to human behavior, inadequate or failed internal processes, systems and controls, information technology changes or failures, and external influences such as market conditions, fraudulent activities, cybersecurity incidents, natural disasters, and security risks.
ERM is an overarching program that includes all areas of the Corporation. A framework approach is utilized to assign responsibility and to ensure that the various business units and activities involved in the risk management life-cycle are effectively integrated. The Corporation has adopted the “three lines of defense” strategy that is an industry best practice for ERM. Business units are the first line of defense in managing risk. They are responsible for identifying, measuring, monitoring, and controlling current and emerging risks. They must report on and escalate their concerns. Corporate functions such as Credit Risk Management, Financial Administration, Information Assurance, and Compliance represent the second line of defense. They are responsible for policy setting and for reviewing and challenging the risk management activities of the business units. They collaborate closely with business units on planning and resource allocation with respect to risk management. Internal Audit is a third line of defense. They provide independent assurance to the Board of Directors of the effectiveness of the first and second lines in fulfilling their risk management responsibilities.
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Management's Discussion and Analysis
For additional factors that could adversely impact Washington Trust’s future results of operations and financial condition, see Part II, Item 1A below and the section labeled “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC.
Asset/Liability Management and Interest Rate Risk
The ALCO establishes policies governing liquidity and interest rate risk and reports quarterly to the Corporation’s Audit Committee. The objective of the ALCO is to manage assets and funding sources in alignment with the Corporation’s liquidity, capital adequacy, growth, risk, and profitability goals.
The Corporation utilizes the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, interest rate contracts, and the pricing and structure of loans and deposits, to manage interest rate risk. The interest rate contracts may include interest rate swaps, caps, floors, and collars. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to terms of the contract. The notional amount of the interest rate contracts is the amount upon which interest and other payments are based. The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk. See Note 6 to the Unaudited Consolidated Financial Statements for additional information.
The ALCO uses income simulation to measure interest rate risk inherent in the Corporation’s financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 12-month horizon and a 13- to 24-month horizon. The simulations assume that the size and general composition of the Corporation’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from lower-cost to higher-cost deposits in selected interest rate scenarios. Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios. Mortgage-backed securities and residential real estate loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income. The characteristics of financial instrument classes are reviewed periodically by the ALCO to ensure their accuracy and consistency.
Deposit balances may also be subject to possible outflow to non-bank alternatives in a rising rate environment. This may cause interest rate sensitivity to differ from the results as presented. Another significant simulation assumption is the sensitivity of savings deposits to fluctuations in interest rates. Income simulation results assume that changes in both savings deposit rates and balances are related to changes in short-term interest rates. The relationship between short-term interest rate changes and deposit rate and balance changes may differ from the ALCO’s estimates used in income simulation.
The ALCO reviews simulation results to determine whether the Corporation’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. As of March 31, 2026 and December 31, 2025, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Corporation’s balance sheet remain stable. The unchanged rate scenario as of March 31, 2026 shows net interest income trending higher over the next 12- and 24-month periods.
The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including parallel changes in interest rates and scenarios showing the effect of steepening or flattening changes in the yield curve. Because income simulations assume that the Corporation’s balance sheet will generally remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts. It should also be noted that the static balance sheet assumption does not necessarily reflect the Corporation’s expectation for future balance sheet growth, which is a function of the business environment and customer behavior.
While the ALCO reviews and updates simulation assumptions and also periodically back-tests the simulation results to ensure that the assumptions are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future NIM. Over time, the repricing, maturity, and prepayment characteristics of financial instruments and the composition of the Corporation’s balance sheet may change to a different degree than estimated.
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Management's Discussion and Analysis
The following table sets forth the estimated change in net interest income compared to an unchanged rate scenario over the periods indicated for parallel changes in market interest rates using the Corporation’s on- and off-balance sheet financial instruments as of March 31, 2026 and December 31, 2025. Interest rates are assumed to shift by parallel rate changes as shown in the table below. Further, deposits are assumed to have certain minimum rate levels below which they will not fall. It should be noted that the rate scenarios shown do not necessarily reflect the ALCO’s view of the “most likely” change in interest rates over the periods indicated.
March 31, 2026 December 31, 2025
Months 1 - 12 Months 13 - 24 Months 1 - 12 Months 13 - 24
100 basis point rate decrease (2.08 %) (3.09 %) (1.72 %) (2.33 %)
200 basis point rate decrease (4.05) (6.69) (3.30) (5.07)
300 basis point rate decrease (5.90) (10.83) (4.77) (8.28)
100 basis point rate increase 0.31 (1.13) 0.52 (0.54)
200 basis point rate increase 2.04 1.49 2.07 2.36
300 basis point rate increase 3.54 2.99 3.72 4.54
The relative change in interest rate sensitivity from December 31, 2025, as shown in the above table, was attributable to changes in balance sheet composition and market interest rates. The changes reflected lower balances in loans, in-market deposits, and wholesale funding.
The ALCO estimates that as interest rates change, interest-earning assets would reprice more quickly than interest-bearing liabilities. In-market deposit rate changes are modeled to lag behind other market interest rates in both pace and magnitude. In addition, prepayments of loans and securities generally increase as market interest rates decline and decrease as market interest rates rise.
Additionally, the Corporation monitors the potential change in market value of its available for sale debt securities in changing interest rate environments. The purpose is to determine market value exposure that may not be captured by income simulation, but which might result in changes to the Corporation’s capital position. Results are calculated using industry-standard analytical techniques and securities data.
The following table summarizes the potential change in market value of the Corporation’s available for sale debt securities as of March 31, 2026 and December 31, 2025 resulting from immediate parallel rate shifts:
(Dollars in thousands)
Security Type Down 100 Basis Points Up 200 Basis Points
Obligations of U.S. government-sponsored enterprise securities (callable) $832 ($1,609)
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
39,885 (101,635)
Obligations of states and political subdivisions 26 (95)
Trust preferred debt and other corporate debt securities 47 (99)
Total change in market value as of March 31, 2026 $40,790 ($103,438)
Total change in market value as of December 31, 2025 $43,783 ($110,315)
Liquidity Risk Management
Liquidity is the ability of a financial institution to meet maturing liability obligations and customer loan demand. The Corporation’s primary source of liquidity is in-market deposits, which funded approximately 79% of total average assets in the three months ended March 31, 2026. While the generally preferred funding strategy is to attract and retain low-cost deposits, the ability to do so is affected by competitive interest rates and terms in the marketplace. Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and brokered deposits), cash flows from the investment securities portfolio, and loan repayments. Securities designated as available for sale may also be sold in response to short-term or long-term liquidity needs, although management has no intention to do so at this time.
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Management's Discussion and Analysis
The Corporation has a detailed liquidity funding policy and a contingency funding plan that provide for the prompt and comprehensive response to unexpected demands for liquidity. Management employs stress testing methodology to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of “business as usual” cash flows. In management’s estimation, risks are concentrated in two major categories: (1) runoff of in-market deposit balances; and (2) unexpected drawdown of loan commitments. Of the two categories, potential runoff of deposit balances would have the most significant impact on contingent liquidity. Our stress test scenarios, therefore, emphasize attempts to quantify deposits at risk over selected time horizons. In addition to these unexpected outflow risks, several other “business as usual” factors enter into the calculation of the adequacy of contingent liquidity including: (1) payment proceeds from loans and investment securities; (2) maturing debt obligations; and (3) maturing time deposits. The Corporation has established collateralized borrowing capacity with the FRBB and also maintains additional collateralized borrowing capacity with the FHLB in excess of levels used in the ordinary course of business. Borrowing capacity is impacted by the amount and type of assets available to be pledged.
The table below presents a summary of contingent liquidity balances by source:
(Dollars in thousands)
March 31,
2026 December 31,
2025
Contingent Liquidity:
Federal Home Loan Bank of Boston (1)
$1,392,049 $1,356,005
Federal Reserve Bank of Boston (2)
99,775 104,379
Available cash liquidity (3)
16,088 17,460
Unencumbered securities 528,317 539,830
Total contingent liquidity $2,036,229 $2,017,674
Percentage of total contingent liquidity to uninsured deposits 151.2 % 142.4 %
Percentage of total contingent liquidity to uninsured deposits, after exclusions 182.6 % 181.7 %
(1) As of March 31, 2026 and December 31, 2025, loans with a carrying value of $2.8 billion and $2.9 billion, respectively, and securities available for sale with carrying values of $70.3 million and $71.8 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.
(2) As of March 31, 2026 and December 31, 2025, loans with a carrying value of $55.0 million and $58.3 million, respectively, and securities available for sale with a carrying value of $55.9 million and $57.6 million, respectively, were pledged to the FRBB for the discount window resulting in this additional unused borrowing capacity.
(3) Available cash liquidity excludes amounts restricted for collateral purposes and designated for operating needs.
In addition to the amounts presented above, the Bank also had access to a $40.0 million unused line of credit with the FHLB at March 31, 2026 and December 31, 2025.
The ALCO establishes and monitors internal liquidity measures to manage liquidity exposure. Liquidity remained within target ranges established by the ALCO during the three months ended March 31, 2026. Based on its assessment of the liquidity considerations described above, management believes the Corporation’s sources of funding meet anticipated funding needs.
Contractual Obligations, Commitments, and Off-Balance Sheet Arrangements
In the ordinary course of business, the Corporation enters into contractual obligations that require future cash payments. These include payments related to lease obligations, time deposits with stated maturity dates, and borrowings. Also, in the ordinary course of business, the Corporation engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These financial transactions include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts. For additional information on derivative financial instruments and financial instruments with off-balance sheet risk see Notes 6 and 15 to the Unaudited Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Estimates and assumptions are necessary in the application of certain accounting policies and procedures and can be susceptible to significant change. Critical accounting policies are defined as those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Corporation’s financial condition or results of operations.
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Management's Discussion and Analysis
Management considers its accounting policy relating to the ACL on loans to be a critical accounting policy. There have been no material changes in the Corporation’s critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Recently Issued Accounting Pronouncements
See Note 2 to the Unaudited Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on the Corporation’s financial statements.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.