UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended
			June 30, 2023			or

☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______.

Commission file number:  001-32991

WASHINGTON TRUST BANCORP, INC.

(Exact name of registrant as specified in its charter)

Rhode Island						05-0404671
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

23 Broad Street
Westerly,			Rhode Island						02891
(Address of principal executive offices)									(Zip Code)

(401) 348-1200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class			Trading Symbol(s)			Name of each exchange on which registered
COMMON STOCK, $.0625 PAR VALUE PER SHARE			WASH			The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

The number of shares of common stock of the registrant outstanding as of July 31, 2023 was 17,019,239.

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FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
For the Quarter Ended June 30, 2023
TABLE OF CONTENTS
			Page Number
Glossary of Acronyms and Terms			3
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022			4
Consolidated Statements of Income for the three and six months ended June 30, 2023 and 2022			5
Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022			6
Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended June 30, 2023 and 2022			7
Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022			9
Condensed Notes to Unaudited Consolidated Financial Statements:			10
Note 1 - Basis of Presentation			10
Note 2 - Recently Issued Accounting Pronouncements			10
Note 3 - Securities			11
Note 4 - Loans			14
Note 5 - Allowance for Credit Losses on Loans			21
Note 6 - Derivative Financial Instruments			22
Note 7 - Fair Value Measurements			24
Note 8 - Deposits			28
Note 9 - Borrowings			29
Note 10 - Shareholders’ Equity			29
Note 11 - Revenue from Contracts with Customers			31
Note 12 - Defined Benefit Pension Plans			32
Note 13 - Business Segments			34
Note 14 - Other Comprehensive Income (Loss)			35
Note 15 - Earnings Per Common Share			37
Note 16 - Commitments and Contingencies			38
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			72
Item 4. Controls and Procedures			72
PART II. Other Information
Item 1. Legal Proceedings			72
Item 1A. Risk Factors			72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			72
Item 5. Other Information			72
Item 6. Exhibits			73
Signatures			74

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Glossary of Acronyms and Terms

The following is a list of acronyms and terms that are used throughout this Quarterly Report on Form 10-Q:

2021 Repurchase Program

Washington Trust Bancorp, Inc.'s Stock Repurchase Program adopted on November 10, 2021

2023 Repurchase Program

Washington Trust Bancorp, Inc.'s Stock Repurchase Program commencing January 1, 2023

ACL

Allowance for credit losses

ALCO

Asset/Liability Committee

AOCL

Accumulated other comprehensive loss

ASC

Accounting Standards Codification

ASU

Accounting Standards Update

ATM

Automated teller machine

AUA

Assets under administration

Bancorp

Washington Trust Bancorp, Inc.

Bank

The Washington Trust Company, of Westerly

BOLI

Bank-owned life insurance

C&I

Commercial and industrial

CDARS

Certificate of Deposit Account Registry Service

Corporation

The Bancorp and its subsidiaries

CRE

Commercial real estate

DCF

Discounted cash flow

DDM

Demand Deposit Marketplace

EPS

Earnings per common share

ERM

Enterprise risk management

Exchange Act

Securities Exchange Act of 1934, as amended

FDIC

Federal Deposit Insurance Corporation

Federal Reserve

Board of Governors of the Federal Reserve System

FHLB

Federal Home Loan Bank of Boston

FRBB

Federal Reserve Bank of Boston

FTE

Fully taxable equivalent

GAAP

Accounting principles generally accepted in the United States of America

ICS

Insured Cash Sweep

LTV

Loan to value

NIM

Net interest margin

OREO

Property acquired through foreclosure or repossession

PPP

Paycheck Protection Program

S&P

Standard and Poors, Inc.

SBA

Small Business Administration

SEC

U.S. Securities and Exchange Commission

TDR

Troubled debt restructuring

TLM

Troubled loan modification

Washington Trust

The Bancorp and its subsidiaries

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PART I.  Financial Information

Item 1.  Financial Statements

Washington Trust Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets (unaudited)
(Dollars in thousands, except par value)

			June 30, 2023			December 31, 2022
Assets:
Cash and due from banks			$124,877			$115,492
Short-term investments			3,439			2,930
Mortgage loans held for sale, at fair value			20,872			8,987
Available for sale debt securities, at fair value (amortized cost of $1,190,434, net of allowance for credit losses on securities of $0 at June 30, 2023; and amortized cost of $1,166,340; net of allowance for credit losses on securities of $0 at December 31, 2022)			1,022,458			993,928
Federal Home Loan Bank stock, at cost			45,868			43,463
Loans:
Total loans			5,381,113			5,110,139
Less: allowance for credit losses on loans			39,343			38,027
Net loans			5,341,770			5,072,112
Premises and equipment, net			32,591			31,550
Operating lease right-of-use assets			28,633			27,156
Investment in bank-owned life insurance			102,293			102,182
Goodwill			63,909			63,909
Identifiable intangible assets, net			4,130			4,554
Other assets			220,920			193,788
Total assets			$7,011,760			$6,660,051
Liabilities:
Deposits:
Noninterest-bearing deposits			$758,242			$858,953
Interest-bearing deposits			4,556,236			4,160,009
Total deposits			5,314,478			5,018,962
Federal Home Loan Bank advances			1,040,000			980,000
Junior subordinated debentures			22,681			22,681
Operating lease liabilities			31,302			29,558
Other liabilities			144,138			155,181
Total liabilities			6,552,599			6,206,382
Commitments and contingencies (Note 16)
Shareholders’ Equity:
Common stock of $.0625 par value; authorized 60,000,000 shares; 17,363,457 shares issued and 17,019,238 shares outstanding at June 30, 2023 and 17,363,457 shares issued and 17,182,753 shares outstanding at December 31, 2022			1,085			1,085
Paid-in capital			125,685			127,056
Retained earnings			496,996			492,043
Accumulated other comprehensive loss			(148,827)			(157,800)
Treasury stock, at cost; 344,219 shares at June 30, 2023 and 180,704 shares at December 31, 2022			(15,778)			(8,715)
Total shareholders’ equity			459,161			453,669
Total liabilities and shareholders’ equity			$7,011,760			$6,660,051

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

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Washington Trust Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income (unaudited)
(Dollars and shares in thousands, except per share amounts)

						Three Months												Six Months
Periods ended June 30,						2023						2022						2023						2022
Interest income:
Interest and fees on loans						$65,449						$36,602						$125,198						$70,532
Interest on mortgage loans held for sale						241						258						393						490
Taxable interest on debt securities						7,403						4,918						14,597						9,148
Dividends on Federal Home Loan Bank stock						858						63						1,455						130
Other interest income						1,279						188						2,349						266
Total interest and dividend income						75,230						42,029						143,992						80,566
Interest expense:
Deposits						29,704						3,963						49,293						7,066
Federal Home Loan Bank advances						11,652						413						23,278						657
Junior subordinated debentures						374						138						728						237
Total interest expense						41,730						4,514						73,299						7,960
Net interest income						33,500						37,515						70,693						72,606
Provision for credit losses						700						(3,000)						1,500						(2,900)
Net interest income after provision for credit losses						32,800						40,515						69,193						75,506
Noninterest income:
Wealth management revenues						9,048						10,066						17,711						20,597
Mortgage banking revenues						1,753						2,082						2,998						5,583
Card interchange fees						1,268						1,303						2,400						2,467
Service charges on deposit accounts						667						763						1,444						1,431
Loan related derivative income						247						669						196						970
Income from bank-owned life insurance						879						615						2,044						1,216
Other income						463						354						815						747
Total noninterest income						14,325						15,852						27,608						33,011
Noninterest expense:
Salaries and employee benefits						20,588						20,381						42,372						41,383
Outsourced services						3,621						3,375						7,117						6,617
Net occupancy						2,416						2,174						4,853						4,474
Equipment						1,050						938						2,078						1,856
Legal, audit and professional fees						978						677						1,874						1,447
FDIC deposit insurance costs						1,371						402						2,243						768
Advertising and promotion						427						724						835						1,075
Amortization of intangibles						212						216						424						433
Other expenses						2,353						2,190						4,784						4,243
Total noninterest expense						33,016						31,077						66,580						62,296
Income before income taxes						14,109						25,290						30,221						46,221
Income tax expense						2,853						5,333						6,153						9,781
Net income						$11,256						$19,957						$24,068						$36,440
Net income available to common shareholders						$11,237						$19,900						$24,020						$36,329
Weighted average common shares outstanding - basic						17,011						17,303						17,042						17,317
Weighted average common shares outstanding - diluted						17,030						17,414						17,085						17,451
Per share information:			Basic earnings per common share			$0.66						$1.15						$1.41						$2.10
			Diluted earnings per common share			$0.66						$1.14						$1.41						$2.08

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

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Washington Trust Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(Dollars in thousands)

			Three Months												Six Months
Periods ended June 30,			2023						2022						2023						2022
Net income			$11,256						$19,957						$24,068						$36,440
Other comprehensive income (loss), net of tax:
Net change in fair value of available for sale debt securities			(9,827)						(35,942)						3,371						(85,402)
Net change in fair value of cash flow hedges			2,715						(2,973)						5,512						(13,308)
Net change in defined benefit plan obligations			45						325						90						650
Total other comprehensive (loss) income, net of tax			(7,067)						(38,590)						8,973						(98,060)
Total comprehensive income (loss)			$4,189						($18,633)						$33,041						($61,620)

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

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Washington Trust Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (unaudited)
(Dollars and shares in thousands, except per share amounts)

For the three months ended June 30, 2023			Common Shares Outstanding			Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at March 31, 2023			16,986			$1,085			$127,734			$495,231			($141,760)			($17,307)			$464,983
Net income			—			—			—			11,256			—			—			11,256
Total other comprehensive loss, net of tax			—			—			—			—			(7,067)			—			(7,067)
Cash dividends declared ($0.56 per share)			—			—			—			(9,491)			—			—			(9,491)
Share-based compensation			—			—			87			—			—			—			87
Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered			33			—			(2,136)			—			—			1,529			(607)
Balance at June 30, 2023			17,019			$1,085			$125,685			$496,996			($148,827)			($15,778)			$459,161

For the six months ended June 30, 2023			Common Shares Outstanding			Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at December 31, 2022			17,183			$1,085			$127,056			$492,043			($157,800)			($8,715)			$453,669
Net income			—			—			—			24,068			—			—			24,068
Total other comprehensive income, net of tax			—			—			—			—			8,973			—			8,973
Cash dividends declared ($1.12 per share)			—			—			—			(19,115)			—			—			(19,115)
Share-based compensation			—			—			945			—			—			—			945
Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered			36			—			(2,316)			—			—			1,678			(638)
Treasury stock purchased under 2023 Repurchase Program			(200)			—			—			—			—			(8,741)			(8,741)
Balance at June 30, 2023			17,019			$1,085			$125,685			$496,996			($148,827)			($15,778)			$459,161

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

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Washington Trust Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (unaudited)
(Dollars and shares in thousands, except per share amounts)

For the three months ended June 30, 2022			Common Shares Outstanding			Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at March 31, 2022			17,332			$1,085			$127,355			$465,295			($79,451)			($1,092)			$513,192
Net income			—			—			—			19,957			—			—			19,957
Total other comprehensive loss, net of tax			—			—			—			—			(38,590)			—			(38,590)
Cash dividends declared ($0.54 per share)			—			—			—			(9,363)			—			—			(9,363)
Share-based compensation			—			—			725			—			—			—			725
Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered			33			—			(2,001)			—			—			1,297			(704)
Treasury stock purchased under 2021 Repurchase Program			(175)			—			—			—			—			(8,583)			(8,583)
Balance at June 30, 2022			17,190			$1,085			$126,079			$475,889			($118,041)			($8,378)			$476,634

For the six months ended June 30, 2022			Common Shares Outstanding			Common Stock			Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at December 31, 2021			17,331			$1,085			$126,511			$458,310			($19,981)			($1,117)			$564,808
Net income			—			—			—			36,440			—			—			36,440
Total other comprehensive loss, net of tax			—			—			—			—			(98,060)			—			(98,060)
Cash dividends declared ($1.08 per share)			—			—			—			(18,861)			—			—			(18,861)
Share-based compensation			—			—			1,613			—			—			—			1,613
Exercise of stock options, issuance of other compensation-related equity awards, net of awards surrendered			34			—			(2,045)			—			—			1,322			(723)
Treasury stock purchased under 2021 Repurchase Program			(175)			—			—			—			—			(8,583)			(8,583)
Balance at June 30, 2022			17,190			$1,085			$126,079			$475,889			($118,041)			($8,378)			$476,634

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

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Washington Trust Bancorp, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (unaudited)
(Dollars in thousands)

Six months ended June 30,						2023						2022
Cash flows from operating activities:
Net income						$24,068						$36,440
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses						1,500						(2,900)
Depreciation of premises and equipment						1,979						1,670
Net amortization of premiums and discounts on debt securities and loans						707						1,846
Amortization of intangibles						424						433
Share-based compensation						945						1,613
Tax (expense) benefit from stock option exercises and other equity awards						(5)						64
Income from bank-owned life insurance						(2,044)						(1,216)
Net gains on loan sales, including changes in fair value						(1,871)						(4,672)
Proceeds from sales of loans, net						86,762						195,358
Loans originated for sale						(97,701)						(173,983)
Increase in operating lease right-of-use assets						(1,477)						(1,406)
Increase in operating lease liabilities						1,744						1,481
Increase in other assets						(23,820)						(3,346)
(Increase) decrease in other liabilities						(1,113)						218
Net cash (used in) provided by operating activities						(9,902)						51,600
Cash flows from investing activities:
Purchases of:			Available for sale debt securities: Mortgage-backed			(39,967)						(156,859)
			Available for sale debt securities: Other			(20,221)						(10,250)
Maturities, calls and principal payments of:			Available for sale debt securities: Mortgage-backed			35,133						74,666
			Available for sale debt securities: Other			250						—
Net purchases of Federal Home Loan Bank stock						(2,405)						(3,269)
Purchases of other equity investments, net						(188)						(375)
Net increase in loans						(267,157)						(203,926)
Purchases of loans						(3,653)						(1,362)
Purchases of premises and equipment						(3,020)						(2,481)
Purchases of bank-owned life insurance						—						(7,000)
Proceeds from bank-owned life insurance						1,566						—
Equity investments in real estate limited partnerships						(7,167)						(1,861)
Net cash used in investing activities						(306,829)						(312,717)
Cash flows from financing activities:
Net increase in deposits						295,516						26,578
Proceeds from Federal Home Loan Bank advances						1,985,000						780,000
Repayments of Federal Home Loan Bank advances						(1,925,000)						(597,000)
Purchases of treasury stock						(8,741)						(8,583)
Net proceeds from stock option exercises and issuance of other equity awards, net of awards surrendered						(638)						(723)
Cash dividends paid						(19,512)						(19,025)
Net cash provided by financing activities						326,625						181,247
Net increase (decrease) in cash and cash equivalents						9,894						(79,870)
Cash and cash equivalents at beginning of period						118,422						178,493
Cash and cash equivalents at end of period						$128,316						$98,623
Noncash Activities:
Loans charged-off						$113						$59
Loans transferred to property acquired through foreclosure or repossession						683						—
Commitment for equity investments in real estate limited partnerships						3,967						8,360
Supplemental Disclosures:
Interest payments						$64,691						$7,637
Income tax payments						4,446						7,611

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

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Condensed Notes to Unaudited Consolidated Financial Statements

Note 1 - Basis of Presentation

Nature of Operations

The Bancorp is a publicly-owned registered bank holding company that has elected to be a financial holding company.  The Bancorp’s principal subsidiary is the Bank, a Rhode Island chartered financial institution founded in 1800. The Bank is the oldest community bank in the nation and the largest state-chartered bank headquartered in Rhode Island.

Washington Trust offers a full range of financial services, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management and trust services through its offices in Rhode Island, Massachusetts and Connecticut.

Basis of Presentation

The accounting and reporting policies of the Washington Trust conform to GAAP and to general practices of the banking industry. The Unaudited Consolidated Financial Statements of the Corporation presented herein have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying Unaudited Consolidated Financial Statements have been included. Interim results are not necessarily indicative of the results of the entire year. The accompanying Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

The Unaudited Consolidated Financial Statements include the accounts of the Bancorp and its wholly-owned subsidiaries, except subsidiaries that are not deemed necessary to be consolidated.  Through consolidation, intercompany balances and transactions have been eliminated.

The Bancorp owns the common stock of two capital trusts, which have issued trust preferred securities. These capital trusts are variable interest entities in which the Bancorp is not the primary beneficiary and, therefore, are not consolidated. The capital trusts’ only assets are junior subordinated debentures issued by the Bancorp, which were acquired by the capital trusts using the proceeds from the issuance of the trust preferred securities and common stock. The Bancorp’s equity interest in the capital trusts, which is classified in other assets, and the junior subordinated debentures are included in the Unaudited Consolidated Balance Sheets. Interest expense on the junior subordinated debentures is included in the Unaudited Consolidated Statements of Income.

Use of Estimates

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period.  Actual results could differ from those estimates. Management considers the ACL on loans to be a material estimate that is particularly susceptible to change.

Note 2 - Recently Issued Accounting Pronouncements

Accounting Standards Adopted in 2023

Financial Instruments - Credit Losses - ASC 326

ASU No. 2022-02, “Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), was issued in March 2022 to provide updates on the accounting treatment for TDRs and related disclosures requirements, as well as modifying the disclosure requirement associated with the existing credit quality indicators “vintage” disclosure. With respect to TDRs, ASU 2022-02 eliminates the recognition and measurement guidance for TDRs under current GAAP and instead requires that the Corporation evaluate whether the modification represents a new loan or a continuation of an existing loan, consistent with the current GAAP treatment for other loan modifications. In addition, ASU 2022-02 eliminates existing disclosure requirements on TDRs and replaces with enhanced disclosure requirements related to certain loan modifications made to borrowers experiencing financial difficulty. ASU 2022-02 also provides an update to the existing credit quality indicators “vintage” tabular disclosure requiring current period gross write-offs to be disclosed by year of origination for each loan segment. The Corporation adopted the provisions of ASU 2022-02 on January 1, 2023 on a prospective basis. Historical disclosures on TDRs were removed from this report in accordance with the provisions of this ASU. The adoption of this ASU did not have a material impact on the consolidated financial statements.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Business Combinations - ASC 805

ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), was issued in October 2021 to clarify the accounting for contract cost assets and contract liabilities acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination at fair value on the acquisition date. The provisions of ASU 2021-08 clarify that contract cost assets and contract liabilities acquired in a business combination should be accounted for in accordance with ASC 606, as if the acquirer had originated the contracts. The Corporation adopted the provisions of ASU 2021-08 on January 1, 2023 on a prospective basis. The adoption of ASU 2021-08 did not have a material impact on the Corporation’s consolidated financial statements.

Accounting Standards Pending Adoption

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

Note 3 - Securities

Available for Sale Debt Securities

The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses, ACL on securities and fair value of securities by major security type and class of security:

(Dollars in thousands)
June 30, 2023			Amortized Cost						Unrealized Gains						Unrealized Losses						ACL						Fair Value
Available for Sale Debt Securities:
Obligations of U.S. government-sponsored enterprises			$250,952						$—						($29,926)						$—						$221,026
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			916,912						129						(135,857)						—						781,184
Individual name issuer trust preferred debt securities			9,394						—						(897)						—						8,497
Corporate bonds			13,176						—						(1,425)						—						11,751
Total available for sale debt securities			$1,190,434						$129						($168,105)						$—						$1,022,458

(Dollars in thousands)
December 31, 2022			Amortized Cost						Unrealized Gains						Unrealized Losses						ACL						Fair Value
Available for Sale Debt Securities:
Obligations of U.S. government-sponsored enterprises			$231,203						$1						($31,622)						$—						$199,582
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			912,581						269						(138,748)						—						774,102
Individual name issuer trust preferred debt securities			9,387						—						(627)						—						8,760
Corporate bonds			13,169						—						(1,685)						—						11,484
Total available for sale debt securities			$1,166,340						$270						($172,682)						$—						$993,928

Accrued interest receivable on available for sale debt securities totaled $3.6 million and $3.1 million, respectively, as of June 30, 2023 and December 31, 2022.

As of June 30, 2023 and December 31, 2022, securities with a fair value of $285.2 million and $294.8 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRBB, certain public deposits and for other purposes. See Note 9 for additional disclosure on FHLB borrowings.

The schedule of maturities of available for sale debt securities is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments.  All other debt securities are included based on contractual maturities.  Actual maturities may differ from amounts presented because certain issuers have the right to call or

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)
June 30, 2023			Amortized Cost			Fair Value
Due in one year or less			$105,625			$90,019
Due after one year to five years			499,632			431,034
Due after five years to ten years			335,086			288,019
Due after ten years			250,091			213,386
Total debt securities			$1,190,434			$1,022,458

Included in the above table are debt securities with an amortized cost balance of $273.0 million and a fair value of $240.8 million at June 30, 2023 that are callable at the discretion of the issuers.  Final maturities of the callable securities range from 1 year to 14 years, with call features ranging from 1 month to 13 months.

Assessment of Available for Sale Debt Securities for Impairment

Management assesses the decline in fair value of investment securities on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer.  Management evaluates both qualitative and quantitative factors to assess whether an impairment exists.

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

(Dollars in thousands)			Less than 12 Months															12 Months or Longer															Total
June 30, 2023			#						Fair Value			Unrealized Losses						#						Fair Value			Unrealized Losses						#						Fair Value			Unrealized Losses
Obligations of U.S. government-sponsored enterprises			4						$48,871			($1,129)						19						$172,155			($28,797)						23						$221,026			($29,926)
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			53						172,349			(7,955)						123						596,901			(127,902)						176						769,250			(135,857)
Individual name issuer trust preferred debt securities			—						—			—						3						8,497			(897)						3						8,497			(897)
Corporate bonds			—						—			—						4						11,751			(1,425)						4						11,751			(1,425)
Total			57						$221,220			($9,084)						149						$789,304			($159,021)						206						$1,010,524			($168,105)

(Dollars in thousands)			Less than 12 Months															12 Months or Longer															Total
December 31, 2022			#						Fair Value			Unrealized Losses						#						Fair Value			Unrealized Losses						#						Fair Value			Unrealized Losses
Obligations of U.S. government-sponsored enterprises			4						$20,115			($638)						18						$169,466			($30,984)						22						$189,581			($31,622)
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			95						288,777			(24,960)						66						471,355			(113,788)						161						760,132			(138,748)
Individual name issuer trust preferred debt securities			—						—			—						3						8,760			(627)						3						8,760			(627)
Corporate bonds			—						—			—						4						11,484			(1,685)						4						11,484			(1,685)
Total			99						$308,892			($25,598)						91						$661,065			($147,084)						190						$969,957			($172,682)

There were no debt securities on nonaccrual status at June 30, 2023 and 2022 and, therefore there was no accrued interest related to debt securities reversed against interest income for the three and six months ended June 30, 2023 and 2022.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

As of June 30, 2023, the Corporation does not intend to sell these debt securities and has determined that it is more-likely-than-not that the Corporation would not be required to sell each security before the recovery of its amortized cost basis. In addition, management does not believe that any of these debt securities are impaired due to reasons of credit quality. As further described below, management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates. As a result, there was no ACL recorded at both June 30, 2023 and December 31, 2022.

Obligations of U.S. Government Agency and U.S. Government-Sponsored Enterprise Securities, including Mortgage-Backed Securities

The contractual cash flows for these securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major credit rating agencies and have a long history of no credit losses. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at June 30, 2023. Additionally, the Corporation utilizes a zero credit loss estimate for these securities.

Individual Name Issuer Trust Preferred Debt Securities

These securities in an unrealized loss position at June 30, 2023 included three trust preferred securities issued by three individual companies in the banking sector. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date, as well as credit rating changes between the reporting period date and the filing date of this report, and other information.  As of June 30, 2023, there was one individual name issuer trust preferred debt security with an amortized cost of $2.0 million and unrealized losses of $278 thousand that was rated below investment grade by S&P. We noted no downgrades to below investment grade between June 30, 2023 and the filing date of this report.  Based on the information available through the filing date of this report, all individual name issuer trust preferred debt securities continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers.

Corporate Bonds

These securities in an unrealized loss position at June 30, 2023 included four corporate bond holdings issued by three individual companies in the financial services industry. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date, as well as credit rating changes between the reporting period date and the filing date of this report, and other information. As of June 30, 2023, there was one corporate bond debt security with an amortized cost of $2.0 million and unrealized losses of $122 thousand that was rated below investment grade by S&P. We noted no downgrades to below investment grade between June 30, 2023 and the filing date of this report. Based on the information available through the filing date of this report, all corporate bond debt securities continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 4 - Loans

The following table presents a summary of loans:

(Dollars in thousands)			June 30, 2023			December 31, 2022
Commercial:
Commercial real estate (1)			$1,940,030			$1,829,304
Commercial & industrial (2)			611,472			656,397
Total commercial			2,551,502			2,485,701
Residential Real Estate:
Residential real estate (3)			2,510,125			2,323,002
Consumer:
Home equity			301,116			285,715
Other (4)			18,370			15,721
Total consumer			319,486			301,436
Total loans (5)			$5,381,113			$5,110,139

(1)CRE consists of commercial mortgages primarily secured by income-producing property, as well as construction and development loans. Construction and development loans are made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings.

(2)C&I consists of loans to businesses and individuals, a portion of which are fully or partially collateralized by real estate.

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

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

(5)Includes net unamortized loan origination costs of $12.5 million and $11.6 million, respectively, at June 30, 2023 and December 31, 2022 and net unamortized premiums on loans purchased from and serviced by other financial institutions of $302 thousand and $318 thousand, respectively, at June 30, 2023 and December 31, 2022.

Loan balances exclude accrued interest receivable of $20.2 million and $17.6 million, respectively, as of June 30, 2023 and December 31, 2022.

As of June 30, 2023 and December 31, 2022, loans amounting to $2.9 billion and $2.4 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window. See Note 9 for additional disclosure regarding borrowings.

Concentrations of Credit Risk

A significant portion of our loan portfolio is concentrated among borrowers in southern New England and a substantial portion of the portfolio is collateralized by real estate in this area. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy, as well as the health of the real estate economic sector in the Corporation’s market area.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Past Due Loans

Past due status is based on the contractual payment terms of the loan. The following tables present an aging analysis of past due loans, segregated by class of loans:

(Dollars in thousands)			Days Past Due
June 30, 2023			30-59						60-89						Over 90						Total Past Due						Current						Total Loans
Commercial:
Commercial real estate			$—						$—						$—						$—						$1,940,030						$1,940,030
Commercial & industrial			3						220						—						223						611,249						611,472
Total commercial			3						220						—						223						2,551,279						2,551,502
Residential Real Estate:
Residential real estate			1,943						973						1,468						4,384						2,505,741						2,510,125
Consumer:
Home equity			1,136						333						40						1,509						299,607						301,116
Other			214						—						—						214						18,156						18,370
Total consumer			1,350						333						40						1,723						317,763						319,486
Total loans			$3,296						$1,526						$1,508						$6,330						$5,374,783						$5,381,113

(Dollars in thousands)			Days Past Due
December 31, 2022			30-59						60-89						Over 90						Total Past Due						Current						Total Loans
Commercial:
Commercial real estate			$1,187						$—						$—						$1,187						$1,828,117						$1,829,304
Commercial & industrial			265						—						—						265						656,132						656,397
Total commercial			1,452						—						—						1,452						2,484,249						2,485,701
Residential Real Estate:
Residential real estate			4,793						303						3,779						8,875						2,314,127						2,323,002
Consumer:
Home equity			1,103						132						—						1,235						284,480						285,715
Other			16						—						—						16						15,705						15,721
Total consumer			1,119						132						—						1,251						300,185						301,436
Total loans			$7,364						$435						$3,779						$11,578						$5,098,561						$5,110,139

Included in past due loans as of June 30, 2023 and December 31, 2022, were nonaccrual loans of $3.7 million and $7.2 million, respectively. In addition, all loans 90 days or more past due at June 30, 2023 and December 31, 2022 were classified as nonaccrual.

Nonaccrual Loans

Loans, with the exception of certain well-secured loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest, or sooner if considered appropriate by management. Well-secured loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. When loans are placed on nonaccrual status, interest previously accrued but not collected is reversed against current period income.  Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands)			June 30, 2023			December 31, 2022
Commercial:
Commercial real estate			$—			$—
Commercial & industrial			899			—
Total commercial			899			—
Residential Real Estate:
Residential real estate			8,542			11,894
Consumer:
Home equity			966			952
Other			—			—
Total consumer			966			952
Total nonaccrual loans			$10,407			$12,846
Accruing loans 90 days or more past due			$—			$—

No ACL was deemed necessary on nonaccrual loans with carrying values of $2.0 million and $6.5 million, respectively, as of June 30, 2023 and December 31, 2022.

Nonaccrual loans of $6.7 million and $5.7 million, respectively, at June 30, 2023 and December 31, 2022 were current as to the payment of principal and interest.

As of June 30, 2023 and December 31, 2022, nonaccrual loans secured by one- to four-family residential property amounting to $763 thousand and $2.9 million, respectively, were in process of foreclosure.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2023.

The following table presents interest income recognized on nonaccrual loans:

(Dollars in thousands)			Three Months									Six Months
Periods ended June 30,			2023			2022						2023			2022
Commercial:
Commercial real estate			$—			$—						$—			$—
Commercial & industrial			21			—						33			—
Total commercial			21			—						33			—
Residential Real Estate:
Residential real estate			89			69						182			167
Consumer:
Home equity			20			8						42			15
Other			1			2						2			2
Total consumer			21			10						44			17
Total			$131			$79						$259			$184

Troubled Loan Modifications

As disclosed in Note 2, the Corporation adopted ASU 2022-02, which eliminated the accounting guidance for TDRs and added enhanced disclosures with respect to certain modifications for borrowers experiencing financial difficulty. Effective January 1, 2023, a loan that has been modified is considered a troubled loan modification, or TLM, when the following conditions are met: (1) the modification is considered a continuation of an existing loan and not a new loan in accordance

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

with GAAP, (2) the modification is made to a borrower experiencing financial difficulty and (3) the modification has a direct impact to the contractual cash flows. Modifications with direct impact to contractual cash flows are defined as: principal forgiveness, interest rate reductions, maturity extensions, other-than-insignificant payment delays, or any combination thereof. If each of the aforementioned criteria are met, then the modification is considered a TLM and subject to the enhanced disclosure requirements. During the three and six months ended June 30, 2023, there were no TLMs.

Individually Analyzed Loans

Individually analyzed loans include nonaccrual commercial loans, as well as certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans. Prior to January 1, 2023, individually analyzed loans also included TDRs.

As of June 30, 2023, individually analyzed loans amounted to $2.0 million, all of which were considered collateral dependent. As of December 31, 2022, individually analyzed loans amounted to $10.0 million, of which $8.5 million were considered collateral dependent.

For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. See Note 7 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

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

(Dollars in thousands)			June 30, 2023									December 31, 2022
			Carrying Value			Related Allowance						Carrying Value			Related Allowance
Commercial:
Commercial real estate (1)			$—			$—						$2,103			$—
Commercial & industrial (2)			899			—						—			—
Total commercial			899			—						2,103			—
Residential Real Estate:
Residential real estate (3)			1,131			—						5,760			—
Consumer:
Home equity (3)			—			—						592			—
Other			—			—						—			—
Total consumer			—			—						592			—
Total			$2,030			$—						$8,455			$—

(1)    Secured by income-producing property.

(2)    Secured by business assets.

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

Credit Quality Indicators

Commercial

The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan risk rating system takes into consideration parameters including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics. The Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate ACL on loans. See Note 5 for additional information.

A description of the commercial loan categories is as follows:

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

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Superior or very strong credit quality is characterized by a high degree of cash collateralization or strong balance sheet liquidity. Lesser stature loans have an acceptable level of credit quality, but may exhibit some weakness in various credit metrics such as collateral adequacy, cash flow, performance or may be in an industry or of a loan type known to have a higher degree of risk. These weaknesses may be mitigated by secondary sources of repayment, including SBA guarantees.

Special Mention - Loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s position as creditor at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Examples of these conditions include but are not limited to outdated or poor quality financial data, strains on liquidity and leverage, losses or negative trends in operating results, marginal cash flow, weaknesses in occupancy rates or trends in the case of commercial real estate and frequent delinquencies.

Classified - Loans identified as “substandard,” “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectability. A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined. “Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset.

The Corporation’s procedures call for loan risk ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, management reviews a watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate and other selected loans. Management’s review focuses on the current status of the loans, the appropriateness of risk ratings and strategies to improve the credit.

An annual credit review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio.

Residential and Consumer

Management monitors the relatively homogeneous residential real estate and consumer loan portfolios on an ongoing basis using delinquency information by loan type.

In addition, other techniques are utilized to monitor indicators of credit deterioration in the residential real estate loans and home equity consumer loans. Among these techniques is the periodic tracking of loans with an updated Fair Isaac Corporation (commonly known as “FICO”) score and an updated estimated LTV ratio. LTV is estimated based on such factors as geographic location, the original appraised value and changes in median home prices, and takes into consideration the age of the loan. The results of these analyses and other credit review procedures, including selected targeted internal reviews, are taken into account in the determination of qualitative loss factors for residential real estate and home equity consumer credits.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table includes information on credit quality indicators and gross charge-offs for the Corporation’s loan portfolio, segregated by class of loans as of June 30, 2023:

(Dollars in thousands)			Term Loans Amortized Cost by Origination Year
			2023			2022			2021			2020			2019			Prior			Revolving Loans Amortized Cost			Revolving Loans Converted to Term Loans			Total
Commercial:
CRE:
Pass			$154,806			$566,582			$396,671			$179,064			$157,234			$379,606			$10,977			$1,139			$1,846,079
Special Mention			22,747			—			17,863			52			27,636			25,594			59			—			93,951
Classified			—			—			—			—			—			—			—			—			—
Total CRE			177,553			566,582			414,534			179,116			184,870			405,200			11,036			1,139			1,940,030
CRE gross charge-offs			—			—			—			—			—			—			—			—			—
C&I:
Pass			14,828			125,865			68,250			51,898			86,043			157,798			90,177			938			595,797
Special Mention			12,841			831			—			—			184			—			920			—			14,776
Classified			—			—			203			—			696			—			—			—			899
Total C&I			27,669			126,696			68,453			51,898			86,923			157,798			91,097			938			611,472
C&I gross charge-offs (1)			20			—			—			—			—			—			—			—			20
Residential Real Estate:
Residential real estate:
Current			251,971			831,528			689,071			265,134			118,687			349,350			—			—			2,505,741
Past Due			—			—			392			368			263			3,361			—			—			4,384
Total residential real estate			251,971			831,528			689,463			265,502			118,950			352,711			—			—			2,510,125
Residential real estate gross charge-offs			—			—			—			—			—			—			—			—			—
Consumer:
Home equity:
Current			17,474			16,317			7,574			3,233			2,229			4,959			237,908			9,913			299,607
Past Due			—			—			—			—			—			194			311			1,004			1,509
Total home equity			17,474			16,317			7,574			3,233			2,229			5,153			238,219			10,917			301,116
Home equity gross charge-offs			—			—			—			—			—			—			—			—			—
Other:
Current			4,373			3,830			3,846			1,129			177			4,550			251			—			18,156
Past Due			14			—			—			199			—			1			—			—			214
Total other			4,387			3,830			3,846			1,328			177			4,551			251			—			18,370
Other gross charge-offs (1)			85			—			8			—			—			—			—			—			93
Total loans			$479,054			$1,544,953			$1,183,870			$501,077			$393,149			$925,413			$340,603			$12,994			$5,381,113
Total gross charge-offs			$105			$—			$8			$—			$—			$—			$—			$—			$113

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

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands)			Term Loans Amortized Cost by Origination Year
			2022			2021			2020			2019			2018			Prior			Revolving Loans Amortized Cost			Revolving Loans Converted to Term Loans			Total
Commercial:
CRE:
Pass			$591,596			$383,062			$177,286			$170,259			$148,371			$242,061			$6,243			$1,437			$1,720,315
Special Mention			20,579			22,324			328			24,270			28,676			10,564			146			—			106,887
Classified			—			—			503			—			1,187			412			—			—			2,102
Total CRE			612,175			405,386			178,117			194,529			178,234			253,037			6,389			1,437			1,829,304
C&I:
Pass			127,152			63,180			71,265			86,470			85,011			114,241			90,987			745			639,051
Special Mention			13,566			—			—			—			1,427			—			1,426			—			16,419
Classified			—			225			—			7			—			—			695			—			927
Total C&I			140,718			63,405			71,265			86,477			86,438			114,241			93,108			745			656,397
Residential Real Estate:
Residential real estate:
Current			838,566			707,760			277,613			123,098			72,541			294,549			—			—			2,314,127
Past Due			—			600			—			266			2,315			5,694			—			—			8,875
Total residential real estate			838,566			708,360			277,613			123,364			74,856			300,243			—			—			2,323,002
Consumer:
Home equity:
Current			20,665			8,308			3,742			2,406			1,947			3,139			235,004			9,268			284,479
Past Due			—			—			—			—			68			98			548			522			1,236
Total home equity			20,665			8,308			3,742			2,406			2,015			3,237			235,552			9,790			285,715
Other:
Current			4,231			4,287			1,676			299			235			4,726			251			—			15,705
Past Due			16			—			—			—			—			—			—			—			16
Total other			4,247			4,287			1,676			299			235			4,726			251			—			15,721
Total Loans			$1,616,371			$1,189,746			$532,413			$407,075			$341,778			$675,484			$335,300			$11,972			$5,110,139

Consistent with industry practice, Washington Trust may renew commercial loans at or immediately prior to their maturity. In the tables above, renewals subject to full credit evaluation before being granted are reported as originations in the period renewed.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 5 - Allowance for Credit Losses on Loans

The ACL on loans is management’s estimate of expected lifetime credit losses on loans carried at amortized cost. The level of the ACL on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

The following table presents the activity in the ACL on loans for the three months ended June 30, 2023:

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$21,374			$9,833			$31,207			$6,239			$978			$356			$1,334			$38,780
Charge-offs			—			(9)			(9)			—			—			(43)			(43)			(52)
Recoveries			—			4			4			—			2			9			11			15
Provision			652			(400)			252			203			59			86			145			600
Ending Balance			$22,026			$9,428			$31,454			$6,442			$1,039			$408			$1,447			$39,343

The following table presents the activity in the ACL on loans for the six months ended June 30, 2023:

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$18,435			$10,356			$28,791			$7,740			$1,115			$381			$1,496			$38,027
Charge-offs			—			(20)			(20)			—			—			(93)			(93)			(113)
Recoveries			—			9			9			—			3			17			20			29
Provision			3,591			(917)			2,674			(1,298)			(79)			103			24			1,400
Ending Balance			$22,026			$9,428			$31,454			$6,442			$1,039			$408			$1,447			$39,343

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

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$18,460			$11,222			$29,682			$8,066			$1,098			$390			$1,488			$39,236
Charge-offs			—			(4)			(4)			—			—			(19)			(19)			(23)
Recoveries			—			15			15			—			2			16			18			33
Provision			(1,263)			(901)			(2,164)			(758)			(60)			53			(7)			(2,929)
Ending Balance			$17,197			$10,332			$27,529			$7,308			$1,040			$440			$1,480			$36,317

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

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$18,933			$10,832			$29,765			$7,860			$1,069			$394			$1,463			$39,088
Charge-offs			—			(9)			(9)			—			—			(50)			(50)			(59)
Recoveries			145			21			166			21			4			26			30			217
Provision			(1,881)			(512)			(2,393)			(573)			(33)			70			37			(2,929)
Ending Balance			$17,197			$10,332			$27,529			$7,308			$1,040			$440			$1,480			$36,317

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 6 - Derivative Financial Instruments

The Corporation’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments, principally to manage the Corporation’s interest rate risk. Additionally, the Corporation enters into interest rate derivatives to accommodate the business requirements of its customers. All derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value.  Derivative assets are included in other assets and derivative liabilities are included in other liabilities in the Unaudited Consolidated Balance Sheets. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation.

Interest Rate Risk Management Agreements

Interest rate risk management agreements, such as caps, swaps and floors, are used from time to time as part of the Corporation’s interest rate risk management strategy. Interest rate swaps are agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments) computed on a notional principal amount. Interest rate caps and floors represent options purchased by the Corporation to manage the interest rate paid throughout the term of the option contract. The credit risk associated with these transactions is the risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the potential loss exposure.

Cash Flow Hedging Instruments

As of June 30, 2023 and December 31, 2022, the Corporation had interest rate swap contracts that were designated as cash flow hedges to hedge the interest rate risk associated with short-term borrowings.

Additionally, the Corporation had an interest rate swap contract that was designated as a cash flow hedge to hedge the interest rate risk associated with a pool of variable rate commercial loans. On March 31, 2023, the Corporation terminated this interest rate swap contract and the derivative liability was derecognized. The loss on this interest rate swap included in the AOCL component of shareholders’ equity was updated to its termination date fair value of $26.5 million, or $20.1 million after tax. This loss is being amortized into earnings as a reduction of interest income on a straight-line basis over the remaining life of the original interest rate swap term, or through May 1, 2026. At June 30, 2023, the remaining unamortized balance of the loss included in the AOCL component of shareholders’ equity was $24.4 million, or $18.5 million after tax.

The changes in fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) and subsequently reclassified to earnings when gains or losses are realized.

Loan Related Derivative Contracts

Interest Rate Derivative Contracts with Customers

The Corporation enters into interest rate swap and interest rate cap contracts to help commercial loan borrowers manage their interest rate risk.  These interest rate swap contracts allow borrowers to convert variable-rate loan payments to fixed-rate loan payments, while interest rate cap contracts allow borrowers to limit their interest rate exposure in a rising rate environment.  When the Corporation enters into an interest rate derivative contract with a commercial loan borrower, it simultaneously enters into a “mirror” interest rate contract with a third party.  For interest rate swaps, the third party exchanges the client’s fixed-rate loan payments for variable-rate loan payments. The Corporation retains the risk that is associated with the potential failure of counterparties and the risk inherent in originating loans.  These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.

Risk Participation Agreements

The Corporation has entered into risk participation agreements with other banks in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.

Under a risk participation-out agreement, a derivative asset, the Corporation participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Corporation assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Mortgage Loan Commitments

Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale.  To mitigate the interest rate risk and pricing risk associated with rate locks and mortgage loans held for sale, the Corporation enters into forward sale commitments. Forward sale commitments are contracts for delayed delivery or net settlement of the underlying instrument, such as a residential real estate mortgage loan, where the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument. Both interest rate lock commitments and forward sale commitments are derivative financial instruments, but do not meet criteria for hedge accounting and therefore, the changes in fair value of these commitments are recognized in earnings.

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

(Dollars in thousands)			June 30, 2023												December 31, 2022
						Fair Value												Fair Value
			Notional Amounts			Derivative Assets			Derivative Liabilities						Notional Amounts			Derivative Assets			Derivative Liabilities
Derivatives Designated as Cash Flow Hedging Instruments:
Interest rate risk management contracts:
Interest rate swaps (1)			$100,000			$1,964			$—						$320,000			$548			$31,178
Derivatives not Designated as Hedging Instruments:
Loan related derivative contracts:
Interest rate contracts with customers			875,201			91			66,670						935,099			32			68,137
Mirror contracts with counterparties			875,201			66,295			91						935,099			67,797			61
Risk participation agreements			289,237			—			1						282,191			—			2
Mortgage loan commitments:
Interest rate lock commitments			30,136			347			16						12,201			144			4
Forward sale commitments			66,285			284			115						23,150			58			150
Gross amounts						68,981			66,893									68,579			99,532
Less: amounts offset (2)						91			91									23,524			23,524
Derivative balances, net of offset						68,890			66,802									45,055			76,008
Less: collateral pledged (3)						—			—									—			7,716
Net amounts						$68,890			$66,802									$45,055			$68,292

(1)The fair value of derivative assets includes accrued interest receivable of $153 thousand and $24 thousand, respectively, at June 30, 2023 and December 31, 2022. The fair value of derivative liabilities includes accrued interest payable $856 thousand at December 31, 2022.

(2)Interest rate risk management contracts and loan related derivative contracts with counterparties are subject to master netting arrangements.

(3)Collateral pledged to derivative counterparties is in the form of cash. Washington Trust may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.

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

(Dollars in thousands)			Gain (Loss) Recognized in Other Comprehensive Income (Loss), Net of Tax
			Three Months												Six Months
Periods ended June 30,			2023						2022						2023						2022
Derivatives Designated as Cash Flow Hedging Instruments:
Interest rate risk management contracts:
Interest rate swaps			$2,715						($2,973)						$5,512						($13,308)
Total			$2,715						($2,973)						$5,512						($13,308)

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

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands)						Amount of Gain (Loss) Recognized in Noninterest Income
						Three Months												Six Months
Periods ended June 30,			Statement of Income Location			2023						2022						2023						2022
Derivatives not Designated as Hedging Instruments:
Loan related derivative contracts:
Interest rate contracts with customers			Loan related derivative income			($20,492)						($18,800)						($9,360)						($59,622)
Mirror interest rate contracts with counterparties			Loan related derivative income			20,696						19,421						9,524						60,543
Risk participation agreements			Loan related derivative income			43						48						32						49
Mortgage loan commitments:
Interest rate lock commitments			Mortgage banking revenues			(72)						212						191						(722)
Forward sale commitments			Mortgage banking revenues			482						740						358						3,731
Total						$657						$1,621						$745						$3,979

Note 7 - Fair Value Measurements

The Corporation uses fair value measurements to record fair value adjustments on certain assets and liabilities and to determine fair value disclosures.  Items recorded at fair value on a recurring basis include securities available for sale, mortgage loans held for sale and derivatives.  Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent individually analyzed loans, OREO and mortgage servicing rights.  These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets.

Fair value is a market-based measurement, not an entity-specific measurement.  Fair value measurements are determined based on the assumptions the market participants would use in pricing the asset or liability.  In addition, GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information, or “inputs”, are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Corporation’s market assumptions. These two types of inputs have created the following fair value hierarchy:

•Level 1 – Quoted prices for identical assets or liabilities in active markets.

•Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in the markets and which reflect the Corporation’s market assumptions.

Fair Value Option Election

GAAP allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Corporation has elected the fair value option for mortgage loans held for sale to better match changes in fair value of the loans with changes in the fair value of the forward sale commitment contracts used to economically hedge them.

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

(Dollars in thousands)			June 30, 2023			December 31, 2022
Aggregate fair value			$20,872			$8,987
Aggregate principal balance			20,727			8,860
Difference between fair value and principal balance			$145			$127

Changes in fair value of mortgage loans held for sale accounted for under the fair value option election are included in mortgage banking revenues in the Unaudited Consolidated Statements of Income. Changes in fair value amounted to a decrease of $6 thousand to mortgage banking revenues for the three months ended June 30, 2023 and an increase of

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

$18 thousand for the six months ended June 30, 2023. This compared to an increase of $327 thousand to mortgage banking revenues for the three months ended June 30, 2022 and a decrease of $748 thousand for the six months ended June 30, 2022.

There were no mortgage loans held for sale 90 days or more past due as of June 30, 2023 and December 31, 2022.

Valuation Techniques

Debt Securities

Available for sale debt securities are recorded at fair value on a recurring basis. When available, the Corporation uses quoted market prices to determine the fair value of debt securities; such items are classified as Level 1. There were no Level 1 debt securities held at June 30, 2023 and December 31, 2022.

Level 2 debt securities are traded less frequently than exchange-traded instruments. The fair value of these securities is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category includes obligations of U.S. government-sponsored enterprises, including mortgage-backed securities, individual name issuer trust preferred debt securities and corporate bonds.

Debt securities not actively traded whose fair value is determined through the use of cash flows utilizing inputs that are unobservable are classified as Level 3. There were no Level 3 debt securities held at June 30, 2023 and December 31, 2022.

Mortgage Loans Held for Sale

The Corporation has elected the fair value option for mortgage loans held for sale. The fair value is estimated based on current market prices for similar loans in the secondary market and therefore are classified as Level 2 assets.

Collateral Dependent Individually Analyzed Loans

Collateral dependent individually analyzed loans are valued based upon the lower of amortized cost or fair value. Fair value is determined based on the appraised value of the underlying collateral. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. For collateral dependent loans that are expected to be repaid substantially through the sale of the collateral, management adjusts the fair value for estimated costs to sell. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the collateral. Internal valuations may be utilized to determine the fair value of other business assets. Collateral dependent individually analyzed loans are categorized as Level 3.

Derivatives

Interest rate derivative contracts are traded in over-the-counter markets where quoted market prices are not readily available.  Fair value measurements are determined using independent valuation software, which utilizes the present value of future cash flows discounted using market observable inputs such as forward rate assumptions. The Corporation evaluates the credit risk of its counterparties, as well as that of the Corporation.  Accordingly, factors such as the likelihood of default by the Corporation and its counterparties, its net exposures and remaining contractual life are considered in determining if any fair value adjustments related to credit risk are required.  Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position, if any. The Corporation has determined that the majority of the inputs used to value its derivative positions fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments utilize Level 3 inputs. As of June 30, 2023 and December 31, 2022, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation. As a result, the Corporation has classified its derivative valuations in their entirety as Level 2.

Fair value measurements of forward loan commitments (interest rate lock commitments and forward sale commitments) are primarily based on current market prices for similar assets in the secondary market for mortgage loans and therefore are classified as Level 2 assets. The fair value of interest rate lock commitments is also dependent on the ultimate closing of the loans. Pull-through rates are based on the Corporation’s historical data and reflect the Corporation’s best estimate of the likelihood that a commitment will result in a closed loan. Although the pull-through rates are Level 3 inputs, the Corporation has assessed the significance of the impact of pull-through rates on the overall valuation of its interest rate lock commitments and has determined that they are not significant to the overall valuation. As a result, the Corporation has classified its interest rate lock commitments as Level 2.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Items Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets and liabilities reported at fair value on a recurring basis:

(Dollars in thousands)			Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
June 30, 2023
Assets:
Available for sale debt securities:
Obligations of U.S. government-sponsored enterprises			$221,026			$—			$221,026			$—
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			781,184			—			781,184			—
Individual name issuer trust preferred debt securities			8,497			—			8,497			—
Corporate bonds			11,751			—			11,751			—
Mortgage loans held for sale			20,872			—			20,872			—
Derivative assets			68,890			—			68,890			—
Total assets at fair value on a recurring basis			$1,112,220			$—			$1,112,220			$—
Liabilities:
Derivative liabilities			$66,802			$—			$66,802			$—
Total liabilities at fair value on a recurring basis			$66,802			$—			$66,802			$—

(Dollars in thousands)			Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
December 31, 2022
Assets:
Available for sale debt securities:
Obligations of U.S. government-sponsored enterprises			$199,582			$—			$199,582			$—
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			774,102			—			774,102			—
Individual name issuer trust preferred debt securities			8,760			—			8,760			—
Corporate bonds			11,484			—			11,484			—
Mortgage loans held for sale			8,987			—			8,987			—
Derivative assets			45,055			—			45,055			—
Total assets at fair value on a recurring basis			$1,047,970			$—			$1,047,970			$—
Liabilities:
Derivative liabilities			$76,008			$—			$76,008			$—
Total liabilities at fair value on a recurring basis			$76,008			$—			$76,008			$—

Items Recorded at Fair Value on a Nonrecurring Basis

There were no assets written down to fair value during the six months ended June 30, 2023 or during the twelve months ended December 31, 2022.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Items for which Fair Value is Only Disclosed

The estimated fair values and related carrying amounts for financial instruments for which fair value is only disclosed are presented below as of the periods indicated. The tables exclude financial instruments for which the carrying value approximates fair value such as cash and cash equivalents, FHLB stock, accrued interest receivable, BOLI, non-maturity deposits and accrued interest payable. The Corporation considers cash and cash equivalents, accrued interest receivable and accrued interest payable as Level 1 measurements within the fair value hierarchy. The Corporation considers FHLB stock, BOLI and non-maturity deposits as Level 2 measurements.

(Dollars in thousands)
June 30, 2023			Carrying Amount			Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Loans, net of allowance for credit losses on loans			$5,341,770			$5,186,648			$—			$—			$5,186,648
Financial Liabilities:
Time deposits			$1,650,301			$1,680,845			$—			$1,680,845			$—
FHLB advances			1,040,000			1,036,181			—			1,036,181			—
Junior subordinated debentures			22,681			18,523			—			18,523			—

(Dollars in thousands)
December 31, 2022			Carrying Amount			Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Loans, net of allowance for credit losses on loans			$5,072,112			$4,929,449			$—			$—			$4,929,449
Financial Liabilities:
Time deposits			$1,122,882			$1,137,219			$—			$1,137,219			$—
FHLB advances			980,000			978,590			—			978,590			—
Junior subordinated debentures			22,681			18,963			—			18,963			—

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 8 - Deposits

The following table presents a summary of deposits:

(Dollars in thousands)			June 30, 2023						December 31, 2022
Noninterest-bearing:
Demand deposits			$758,242						$858,953
Interest-bearing:
Interest-bearing demand deposits (1)			428,306						333,197
NOW accounts			791,887						871,875
Money market accounts			1,164,557						1,255,805
Savings accounts			521,185						576,250
Time deposits (2)			1,650,301						1,122,882
Total interest-bearing deposits			$4,556,236						$4,160,009
Total deposits			$5,314,478						$5,018,962

(1)Includes wholesale brokered demand deposit balances of $0 and $31,153, respectively, as of June 30, 2023 and December 31, 2022.

(2)Includes wholesale brokered time deposit balances of $601,481 and $327,044, respectively, as of June 30, 2023 and December 31, 2022.

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

(Dollars in thousands)			Scheduled Maturity						Weighted Average Rate
July 1, 2023 to December 31, 2023			$925,315						4.02		%
2024			569,983						4.28
2025			73,216						2.66
2026			34,133						2.25
2027			41,248						3.29
2028 and thereafter			6,406						3.40
Balance at June 30, 2023			$1,650,301						3.99		%

Time certificates of deposit in denominations of $250 thousand or more totaled $273.9 million and $200.9 million, respectively, at June 30, 2023 and December 31, 2022.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 9 - Borrowings

Advances payable to the FHLB amounted to $1.0 billion and $980.0 million, respectively, at June 30, 2023 and December 31, 2022.

As of June 30, 2023 and December 31, 2022, the Bank had access to a $40.0 million unused line of credit with the FHLB. Additionally, the Bank had a $215.0 million standby letter of credit with the FHLB at June 30, 2023 and December 31, 2022. This standby letter of credit was executed in 2022 to collateralize an institutional deposit. The Bank had remaining available borrowing capacity of $968.0 million and $668.3 million, respectively, with the FHLB at June 30, 2023 and December 31, 2022. The Bank pledges certain qualified investment securities and loans as collateral to the FHLB.

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of June 30, 2023:

(Dollars in thousands)			Scheduled Maturity						Weighted Average Rate
July 1, 2023 to December 31, 2023			$440,000						5.20		%
2024			220,000						4.94
2025			155,000						4.58
2026			125,000						4.43
2027			45,000						4.24
2028 and thereafter			55,000						4.17
Balance at June 30, 2023			$1,040,000						4.86		%

Note 10 - Shareholders' Equity

Stock Repurchase Program

The 2023 Repurchase Program authorizes the repurchase of up to 850,000 shares, or approximately 5%, of the Corporation’s outstanding common stock. This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The timing and actual numbers of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The 2023 Repurchase Program commenced on January 1, 2023 and expires on December 31, 2023, and may be modified, suspended, or discontinued at any time. During the six months ended June 30, 2023, the Corporation repurchased 200,000 shares, at an average price of $43.70 and a total cost of $8.7 million, all of which was repurchased in January and February.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Regulatory Capital Requirements

Capital levels at June 30, 2023 exceeded the regulatory minimum levels to be considered “well capitalized.”

The following table presents the Corporation’s and the Bank’s actual capital amounts and ratios, as well as the corresponding minimum and well capitalized regulatory amounts and ratios that were in effect during the respective periods:

(Dollars in thousands)			Actual												For Capital Adequacy Purposes												To Be “Well Capitalized” Under Prompt Corrective Action Provisions
			Amount						Ratio						Amount						Ratio						Amount						Ratio
June 30, 2023
Total Capital (to Risk-Weighted Assets):
Corporation			$603,731						11.81		%				$408,810						8.00		%				N/A						N/A
Bank			587,273						11.50						408,686						8.00						$510,858						10.00		%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation			566,735						11.09						306,608						6.00						N/A						N/A
Bank			550,277						10.77						306,515						6.00						408,686						8.00
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
Corporation			544,739						10.66						229,956						4.50						N/A						N/A
Bank			550,277						10.77						229,886						4.50						332,058						6.50
Tier 1 Capital (to Average Assets): (1)
Corporation			566,735						8.05						281,519						4.00						N/A						N/A
Bank			550,277						7.82						281,432						4.00						351,790						5.00
December 31, 2022
Total Capital (to Risk-Weighted Assets):
Corporation			605,005						12.37						391,363						8.00						N/A						N/A
Bank			588,090						12.02						391,260						8.00						489,074						10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation			571,794						11.69						293,522						6.00						N/A						N/A
Bank			554,879						11.35						293,445						6.00						391,260						8.00
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
Corporation			549,798						11.24						220,142						4.50						N/A						N/A
Bank			554,879						11.35						220,083						4.50						317,898						6.50
Tier 1 Capital (to Average Assets): (1)
Corporation			571,794						8.65						264,295						4.00						N/A						N/A
Bank			554,879						8.40						264,177						4.00						330,222						5.00

(1)    Leverage ratio.

In addition to the minimum regulatory capital required for capital adequacy purposes outlined in the table above, the Corporation is required to maintain a minimum capital conservation buffer, in the form of common equity, of 2.50% in order to avoid restrictions on capital distributions and discretionary bonuses. The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at June 30, 2023 and December 31, 2022.

The Bancorp owns the common stock of two capital trusts, which have issued trust preferred securities. In accordance with GAAP, the capital trusts are treated as unconsolidated subsidiaries. At both June 30, 2023 and December 31, 2022, $22.0 million in trust preferred securities were included in the Tier 1 capital of the Corporation for regulatory capital reporting purposes pursuant to the capital adequacy guidelines of the Federal Reserve.

In accordance with regulatory capital rules, the Corporation elected the option to delay the estimated impact of ASC 326 on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. As a result, capital ratios exclude the full impact of the increased ACL on loans and unfunded loan commitments attributed to the adoption of ASC 326, adjusted for an approximation of the after-tax provision for credit losses attributable to ASC 326

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

relative to the incurred loss methodology during the two-year deferral period. The cumulative difference at the end of the deferral period is being phased-in to regulatory capital over the three-year transition period, which began January 1, 2022.

Note 11 - Revenue from Contracts with Customers

The following tables summarize total revenues as presented in the Unaudited Consolidated Statements of Income and the related amounts that are from contracts with customers within the scope of ASC 606. As shown below, a substantial portion of our revenues are specifically excluded from the scope of ASC 606.

For the three months ended June 30,			2023									2022
(Dollars in thousands)			Revenue (1)			ASC 606 Revenue (2)						Revenue (1)			ASC 606 Revenue (2)
Net interest income			$33,500			$—						$37,515			$—
Noninterest income:
Wealth management revenues			9,048			9,048						10,066			10,066
Mortgage banking revenues			1,753			—						2,082			—
Card interchange fees			1,268			1,268						1,303			1,303
Service charges on deposit accounts			667			667						763			763
Loan related derivative income			247			—						669			—
Income from bank-owned life insurance			879			—						615			—
Other income			463			344						354			278
Total noninterest income			14,325			11,327						15,852			12,410
Total revenues			$47,825			$11,327						$53,367			$12,410

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

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

For the six months ended June 30,			2023									2022
(Dollars in thousands)			Revenue (1)			ASC 606 Revenue (2)						Revenue (1)			ASC 606 Revenue (2)
Net interest income			$70,693			$—						$72,606			$—
Noninterest income:
Wealth management revenues			17,711			17,711						20,597			20,597
Mortgage banking revenues			2,998			—						5,583			—
Card interchange fees			2,400			2,400						2,467			2,467
Service charges on deposit accounts			1,444			1,444						1,431			1,431
Loan related derivative income			196			—						970			—
Income from bank-owned life insurance			2,044			—						1,216			—
Other income			815			620						747			564
Total noninterest income			27,608			22,175						33,011			25,059
Total revenues			$98,301			$22,175						$105,617			$25,059

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

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

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands)			Three Months									Six Months
Periods ended June 30,			2023			2022						2023			2022
Revenue recognized at a point in time:
Card interchange fees			$1,268			$1,303						$2,400			$2,467
Service charges on deposit accounts			425			605						983			1,154
Other income			281			214						497			443
Revenue recognized over time:
Wealth management revenues			9,048			10,066						17,711			20,597
Service charges on deposit accounts			242			158						461			277
Other income			63			64						123			121
Total revenues from contracts in scope of Topic 606			$11,327			$12,410						$22,175			$25,059

Receivables for revenue from contracts with customers primarily consist of amounts due for wealth management services performed for which the Corporation’s performance obligations have been fully satisfied. Receivables amounted to $5.6 million and $5.1 million, respectively, at June 30, 2023 and December 31, 2022 and were included in other assets in the Unaudited Consolidated Balance Sheets.

Deferred revenues, which are considered contract liabilities under ASC 606, represent advance consideration received from customers for which the Corporation has a remaining performance obligation to fulfill. Contract liabilities are recognized as revenue over the life of the contract as the performance obligations are satisfied. The balances of contract liabilities were insignificant at both June 30, 2023 and December 31, 2022 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.

For commissions and incentives that are in scope of ASC 606, such as those paid to employees in our wealth management services and commercial banking segments in order to obtain customer contracts, contract cost assets are established. The contract cost assets are capitalized and amortized over the estimated useful life that the asset is expected to generate benefits. The carrying value of contract cost assets amounted to $1.9 million and $2.1 million, respectively, at June 30, 2023 and December 31, 2022 and were included in other assets in the Unaudited Consolidated Balance Sheets. The amortization of contract cost assets is recorded within salaries and employee benefits expense in the Unaudited Consolidated Statements of Income.

Note 12 - Defined Benefit Pension Plans

Washington Trust maintains a qualified pension plan for the benefit of certain eligible employees who were hired prior to October 1, 2007. Washington Trust also has non-qualified retirement plans to provide supplemental retirement benefits to certain employees, as defined in the plans. The defined benefit pension plans were previously amended to freeze benefit accruals after a 10-year transition period ending in December 2023.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following table presents components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss), on a pre-tax basis:

(Dollars in thousands)			Qualified Pension Plan																		Non-Qualified Retirement Plans
			Three Months									Six Months									Three Months									Six Months
Periods ended June 30,			2023			2022						2023			2022						2023			2022						2023			2022
Net Periodic Benefit Cost:
Service cost (1)			$350			$515						$701			$1,031						$39			$55						$78			$109
Interest cost (2)			887			592						1,771			1,184						177			106						353			212
Expected return on plan assets (2)			(1,148)			(1,158)						(2,295)			(2,317)						—			—						—			—
Recognized net actuarial loss (2)			—			255						—			510						60			173						119			346
Net periodic benefit cost			$89			$204						$177			$408						$276			$334						$550			$667

(1)Included in salaries and employee benefits expense in the Unaudited Consolidated Statements of Income.

(2)Included in other expenses in the Unaudited Consolidated Statements of Income.

The following table presents the measurement date and weighted-average assumptions used to determine net periodic benefit cost:

			Qualified Pension Plan												Non-Qualified Retirement Plans
For the six months ended June 30,			2023						2022						2023						2022
Measurement date			Dec 31, 2022						Dec 31, 2021						Dec 31, 2022						Dec 31, 2021
Equivalent single discount rate for benefit obligations			5.54%						3.00%						5.50%						2.89%
Equivalent single discount rate for service cost			5.60						3.11						5.61						3.16
Equivalent single discount rate for interest cost			5.43						2.67						5.40						2.48
Expected long-term return on plan assets			5.25						5.25						N/A						N/A
Rate of compensation increase			5.00						3.75						5.00						3.75

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 13 - Business Segments

The Corporation manages its operations through two reportable business segments, consisting of Commercial Banking and Wealth Management Services.

Management uses an allocation methodology to allocate income and expenses to the business lines. Direct activities are assigned to the appropriate business segment to which the activity relates. Indirect activities, such as corporate, technology and other support functions, are allocated to business segments primarily based upon full-time equivalent employee computations.

Commercial Banking

The Commercial Banking segment includes commercial, residential and consumer lending activities; mortgage banking activities; deposit generation; cash management activities; banking activities, including customer support and the operation of ATMs, telephone banking, internet banking and mobile banking services; as well as investment portfolio and wholesale funding activities.

Wealth Management Services

The Wealth Management Services segment includes investment management; holistic financial planning services; personal trust and estate services, including services as trustee, personal representative, custodian and guardian; settlement of decedents’ estates; and institutional trust services, including custody and fiduciary services.

The following tables present the statement of operations and total assets for Washington Trust’s reportable segments:

(Dollars in thousands)			Commercial Banking									Wealth Management Services									Consolidated Total
Three months ended June 30,			2023			2022						2023			2022						2023			2022
Net interest income (expense)			$33,486			$37,563						$14			($48)						$33,500			$37,515
Provision for credit losses			700			(3,000)						—			—						700			(3,000)
Net interest income (expense) after provision for credit losses			32,786			40,563						14			(48)						32,800			40,515
Noninterest income			5,142			5,619						9,183			10,233						14,325			15,852
Noninterest expenses:
Depreciation and amortization expense			858			707						358			341						1,216			1,048
Other noninterest expenses			24,449			22,504						7,351			7,525						31,800			30,029
Total noninterest expenses			25,307			23,211						7,709			7,866						33,016			31,077
Income before income taxes			12,621			22,971						1,488			2,319						14,109			25,290
Income tax expense			2,518			4,748						335			585						2,853			5,333
Net income			$10,103			$18,223						$1,153			$1,734						$11,256			$19,957
Total assets at period end			$6,938,357			$5,908,644						$73,403			$74,247						$7,011,760			$5,982,891
Expenditures for long-lived assets			1,859			1,558						17			89						1,876			1,647

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands)			Commercial Banking									Wealth Management Services															Consolidated Total
Six months ended June 30,			2023			2022						2023			2022															2023			2022
Net interest income (expense)			$70,666			$72,671						$27			($65)															$70,693			$72,606
Provision for credit losses			1,500			(2,900)						—			—															1,500			(2,900)
Net interest income (expense) after provision for credit losses			69,166			75,571						27			(65)															69,193			75,506
Noninterest income			9,573			12,131						18,035			20,880															27,608			33,011
Noninterest expenses:
Depreciation and amortization expense			1,690			1,418						713			685															2,403			2,103
Other noninterest expenses			49,082			45,114						15,095			15,079															64,177			60,193
Total noninterest expenses			50,772			46,532						15,808			15,764															66,580			62,296
Income before income taxes			27,967			41,170						2,254			5,051															30,221			46,221
Income tax expense			5,605			8,545						548			1,236															6,153			9,781
Net income			$22,362			$32,625						$1,706			$3,815															$24,068			$36,440
Total assets at period end			$6,938,357			$5,908,644						$73,403			$74,247															$7,011,760			$5,982,891
Expenditures for long-lived assets			2,995			2,288						25			193															3,020			2,481

Note 14 - Other Comprehensive Income (Loss)

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

Three months ended June 30,			2023												2022
(Dollars in thousands)			Pre-tax Amounts			Income Tax Benefit (Expense)			Net of Tax						Pre-tax Amounts			Income Tax Benefit (Expense)			Net of Tax
Available for Sale Debt Securities:
Change in fair value of available for sale debt securities			($12,929)			$3,102			($9,827)						($47,293)			$11,351			($35,942)
Cash Flow Hedges:
Change in fair value of cash flow hedges			1,696			(407)			1,289						(3,943)			946			(2,997)
Net cash flow hedge losses reclassified into earnings (1)			1,875			(449)			1,426						32			(8)			24
Net change in fair value of cash flow hedges			3,571			(856)			2,715						(3,911)			938			(2,973)
Defined Benefit Plan Obligations:
Amortization of net actuarial losses (2)			60			(15)			45						428			(103)			325
Total other comprehensive loss			($9,298)			$2,231			($7,067)						($50,776)			$12,186			($38,590)

(1)For the three months ended June 30, 2023 and 2022, the pre-tax amounts reclassified into earnings in the Unaudited Consolidated Statements of Income include a reduction of $2.1 million and an increase of $25 thousand, respectively, in interest and fees on loans, as well as a reduction of $264 thousand and an increase of $57 thousand, respectively, in FHLB interest expense.

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

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Six months ended June 30,			2023												2022
(Dollars in thousands)			Pre-tax Amounts			Income Tax Benefit (Expense)			Net of Tax						Pre-tax Amounts			Income Tax Benefit (Expense)			Net of Tax
Securities available for sale:
Change in fair value of available for sale debt securities			$4,436			($1,065)			$3,371						($112,371)			$26,969			($85,402)
Cash flow hedges:
Change in fair value of cash flow hedges			2,742			(658)			2,084						(17,144)			4,114			(13,030)
Net cash flow hedge losses (gains) reclassified into earnings (1)			4,510			(1,082)			3,428						(367)			89			(278)
Net change in fair value of cash flow hedges			7,252			(1,740)			5,512						(17,511)			4,203			(13,308)
Defined benefit plan obligations:
Amortization of net actuarial losses (2)			119			(29)			90						856			(206)			650
Total other comprehensive income (loss)			$11,807			($2,834)			$8,973						($129,026)			$30,966			($98,060)

(1)For the six months ended June 30, 2023 and 2022, the pre-tax amounts reclassified into earnings in the Unaudited Consolidated Statements of Income include a reduction of $4.9 million and an increase of $518 thousand, respectively, in interest and fees on loans, as well as a reduction of $391 thousand and an increase of $151 thousand, respectively, in FHLB interest expense.

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

The following tables present the changes in AOCL by component, net of tax:

(Dollars in thousands)			Net Unrealized Losses on Available For Sale Debt Securities												Net Unrealized Losses on Cash Flow Hedges						Net Unrealized Losses on Defined Benefit Plan Obligations						Total
For the three months ended June 30, 2023
Balance at March 31, 2023			($117,835)												($19,848)						($4,077)						($141,760)
Other comprehensive (loss) income before reclassifications			(9,827)												1,289						—						(8,538)
Amounts reclassified from accumulated other comprehensive (loss) income			—												1,426						45						1,471
Net other comprehensive (loss) income			(9,827)												2,715						45						(7,067)
Balance at June 30, 2023			($127,662)												($17,133)						($4,032)						($148,827)

(Dollars in thousands)			Net Unrealized Losses on Available For Sale Debt Securities												Net Unrealized Losses on Cash Flow Hedges						Net Unrealized Losses on Defined Benefit Plan Obligations						Total
For the six months ended June 30, 2023
Balance at December 31, 2022			($131,033)												($22,645)						($4,122)						($157,800)
Other comprehensive income before reclassifications			3,371												2,084						—						5,455
Amounts reclassified from accumulated other comprehensive income			—												3,428						90						3,518
Net other comprehensive income			3,371												5,512						90						8,973
Balance at June 30, 2023			($127,662)												($17,133)						($4,032)						($148,827)

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands)			Net Unrealized Losses on Available For Sale Debt Securities												Net Unrealized Losses on Cash Flow Hedges						Net Unrealized Losses on Defined Benefit Plan Obligations						Total
For the three months ended June 30, 2022
Balance at March 31, 2022			($56,255)												($14,348)						($8,848)						($79,451)
Other comprehensive loss before reclassifications			(35,942)												(2,997)						—						(38,939)
Amounts reclassified from accumulated other comprehensive loss			—												24						325						349
Net other comprehensive (loss) income			(35,942)												(2,973)						325						(38,590)
Balance at June 30, 2022			($92,197)												($17,321)						($8,523)						($118,041)

(Dollars in thousands)			Net Unrealized Losses on Available For Sale Debt Securities												Net Unrealized Losses on Cash Flow Hedges						Net Unrealized Losses on Defined Benefit Plan Obligations						Total
For the six months ended June 30, 2022
Balance at December 31, 2021			($6,795)												($4,013)						($9,173)						($19,981)
Other comprehensive income (loss) before reclassifications			(85,402)												(13,030)						—						(98,432)
Amounts reclassified from accumulated other comprehensive income (loss)			—												(278)						650						372
Net other comprehensive (loss) income			(85,402)												(13,308)						650						(98,060)
Balance at June 30, 2022			($92,197)												($17,321)						($8,523)						($118,041)

Note 15 - Earnings per Common Share

The following table presents the calculation of EPS:

(Dollars and shares in thousands, except per share amounts)
			Three Months												Six Months
Periods ended June 30,			2023						2022						2023						2022
Earnings for basic and diluted earnings per common share:
Net income			$11,256						$19,957						$24,068						$36,440
Less: dividends and undistributed earnings allocated to participating securities			(19)						(57)						(48)						(111)
Net income available to common shareholders			$11,237						$19,900						$24,020						$36,329
Shares:
Weighted average common shares outstanding			17,011						17,303						17,042						17,317
Dilutive effect of common stock equivalents			19						111						43						134
Weighted average diluted common shares outstanding			17,030						17,414						17,085						17,451
Earnings per common share:
Basic earnings per common share			$0.66						$1.15						$1.41						$2.10
Diluted earnings per common share			$0.66						$1.14						$1.41						$2.08

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 478,490 and 377,989, respectively, for the three and six months ended June 30, 2023, compared to 196,943 and 141,043, respectively, for the same periods in 2022.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

Note 16 - Commitments and Contingencies

Financial Instruments with Off-Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage the Corporation’s exposure to fluctuations in interest rates.  These financial instruments include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts.  These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets.  The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

Financial Instruments Whose Contract Amounts Represent Credit Risk (Unfunded Commitments)

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since some of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.  Each borrower’s creditworthiness is evaluated on a case-by-case basis.  The amount of collateral obtained is based on management’s credit evaluation of the borrower.

Standby Letters of Credit

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support the financing needs of the Bank’s commercial customers. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The collateral supporting those commitments is essentially the same as for other commitments. Most standby letters of credit extend for one year. At June 30, 2023 and December 31, 2022, there were no liabilities to beneficiaries resulting from standby letters of credit. Should the Corporation be required to make payments to the beneficiary, repayment from the customer to the Corporation is required.

Financial Instruments Whose Notional Amounts Exceed the Amount of Credit Risk

Mortgage Loan Commitments

Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale. To mitigate the interest rate risk and pricing risk associated with these rate locks and mortgage loans held for sale, the Corporation enters into forward sale commitments.  Both interest rate lock commitments and forward sale commitments are derivative financial instruments.

Loan Related Derivative Contracts

The Corporation’s credit policies with respect to interest rate contracts with commercial borrowers are similar to those used for loans.  The interest rate contracts with other counterparties are generally subject to bilateral collateralization terms.

Interest Rate Risk Management Contracts

The Corporation’s interest rate risk management contracts consist of interest rate swap agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments) computed on a notional principal amount. The credit risk associated with these transactions is the risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy.

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

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

(Dollars in thousands)			June 30, 2023						December 31, 2022
Financial instruments whose contract amounts represent credit risk (unfunded commitments):
Commitments to extend credit			$1,358,666						$1,308,873
Standby letters of credit			8,896						9,028
Financial instruments whose notional amounts exceed the amounts of credit risk:
Mortgage loan commitments:
Interest rate lock commitments			30,136						12,201
Forward sale commitments			66,285						23,150
Loan related derivative contracts:
Interest rate contracts with customers			875,201						935,099
Mirror interest rate contracts with counterparties			875,201						935,099
Risk participation-in agreements			226,976						221,247
Interest rate risk management contracts:
Interest rate swaps			100,000						320,000

See Note 6 for additional disclosure pertaining to derivative financial instruments.

ACL on Unfunded Commitments

The ACL on unfunded commitments is management’s estimate of expected lifetime credit losses over the expected contractual term in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. Unfunded commitments for home equity lines of credit and commercial demand loans are considered unconditionally cancellable for regulatory capital purposes and, therefore, are excluded from the calculation to estimate the ACL on unfunded commitments. For each portfolio, estimated loss rates and funding factors are applied to the corresponding balance of unfunded commitments. The estimated loss rates applied to unfunded commitments are the same quantitative and qualitative loss rates applied to the corresponding on-balance sheet amounts in determining the ACL on loans. The estimated funding factor applied to unfunded commitments represents the likelihood that the funding will occur and is based upon the Corporation’s average historical utilization rate for each portfolio.

The activity in the ACL on unfunded commitments for the three months ended June 30, 2023 is presented below:

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$1,368			$883			$2,251			$25			$—			$14			$14			$2,290
Provision			115			(6)			109			(10)			—			1			1			100
Ending Balance			$1,483			$877			$2,360			$15			$—			$15			$15			$2,390

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Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The activity in the ACL on unfunded commitments for the six months ended June 30, 2023 is presented below:

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$1,236			$988			$2,224			$50			$—			$16			$16			$2,290
Provision			247			(111)			136			(35)			—			(1)			(1)			100
Ending Balance			$1,483			$877			$2,360			$15			$—			$15			$15			$2,390

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

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$1,335			$837			$2,172			$72			$—			$17			$17			$2,261
Provision			(56)			(3)			(59)			(14)			—			2			2			(71)
Ending Balance			$1,279			$834			$2,113			$58			$—			$19			$19			$2,190

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

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$1,267			$816			$2,083			$62			$—			$16			$16			$2,161
Provision			12			18			30			(4)			—			3			3			29
Ending Balance			$1,279			$834			$2,113			$58			$—			$19			$19			$2,190

Other Contingencies

Litigation

The Corporation is involved in various claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such matters will not materially affect the consolidated balance sheets or statements of income of the Corporation.

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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, 2022, 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 and six months ended June 30, 2023 are not necessarily indicative of the results for the full-year ended December 31, 2023 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 on a national basis and in the local markets in which we operate;

•changes in customer behavior due to political, business and economic conditions, including inflation and concerns about liquidity;

•interest rate changes or volatility, as well as changes in the balance and mix of loans and deposits;

•changes in loan demand and collectability;

•the possibility that future credits 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 legislation or regulation and 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, 2022, 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.

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

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Management's Discussion and Analysis

sources, including wealth management services, mortgage banking activities and deposit services.  Our principal noninterest expenses include salaries and employee benefit costs, outsourced services provided by third-party vendors, occupancy and facility-related costs and other administrative expenses.

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. In April 2023, we opened a new full-service branch in Barrington, Rhode Island. In addition, we have plans to open a branch in Smithfield, Rhode Island and another in the Olneyville section of Providence later in 2023 or early in 2024.

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 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 that addresses each category of risk. 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 Note 4 and Note 5 to the Unaudited Consolidated Financial Statements. For further discussion regarding credit risk associated with unfunded commitments, see Note 16 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 future earnings due to changes in interest rates. 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. For detailed disclosure regarding liquidity management, see the “Liquidity and Capital Resources” 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 which 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.

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Management's Discussion and Analysis

Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, 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 are responsible for reporting on and escalating 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.

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, 2022, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC.

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Management's Discussion and Analysis

Results of Operations

Summary

The following table presents a summarized consolidated statement of operations:

(Dollars in thousands)			Three Months																		Six Months
												Change																		Change
Periods ended June 30,			2023			2022						$			%						2023			2022						$			%
Net interest income			$33,500			$37,515						($4,015)			(11		%)				$70,693			$72,606						($1,913)			(3		%)
Noninterest income			14,325			15,852						(1,527)			(10)						27,608			33,011						(5,403)			(16)
Total revenues			47,825			53,367						(5,542)			(10)						98,301			105,617						(7,316)			(7)
Provision for credit losses			700			(3,000)						3,700			123						1,500			(2,900)						4,400			152
Noninterest expense			33,016			31,077						1,939			6						66,580			62,296						4,284			7
Income before income taxes			14,109			25,290						(11,181)			(44)						30,221			46,221						(16,000)			(35)
Income tax expense			2,853			5,333						(2,480)			(47)						6,153			9,781						(3,628)			(37)
Net income			$11,256			$19,957						($8,701)			(44		%)				$24,068			$36,440						($12,372)			(34		%)

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

			Three Months									Six Months
Periods ended June 30,			2023			2022						2023			2022
Diluted earnings per common share			$0.66			$1.14						$1.41			$2.08
Return on average assets (net income divided by average assets)			0.65		%	1.37		%				0.71		%	1.26		%
Return on average equity (net income available for common shareholders divided by average equity)			9.67		%	16.11		%				10.46		%	13.98		%
Net interest income as a percentage of total revenues			70		%	70		%				72		%	69		%
Noninterest income as a percentage of total revenues			30		%	30		%				28		%	31		%

Net income totaled $11.3 million and $24.1 million, respectively, for the three and six months ended June 30, 2023, compared to $20.0 million and $36.4 million, respectively, for the same periods in 2022. Results in 2023 were impacted by steep increases in market interest rates and a decline in wealth management revenues.

In 2023, the decrease in net interest income was driven by increases in funding costs, which offset the benefit of higher yields on, and growth in, average interest-earning asset balances. The decline in noninterest income reflected lower mortgage banking revenues, as higher market interest rates have dampened mortgage activity. The decline in noninterest income also reflected lower wealth management asset-based revenues and AUA balances attributable to a higher level of client asset outflows, which were partially offset by net investment appreciation. The increased provisioning for credit losses reflected a higher level of loan growth in 2023 and continued negative outlook in economic forecasts, partially offset by continued strength in our asset and credit quality. The increase in noninterest expenses largely reflected increases in FDIC deposit insurance costs and salaries and employee benefits, as well as modest increases in a variety of other interest expense categories.

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Management's Discussion and Analysis

Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis

The following table presents average balance and interest rate information.  Tax-exempt income is converted to an FTE basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. Unrealized gains (losses) on available for sale securities and changes in fair value on mortgage loans held for sale are excluded from the average balance and yield calculations. Nonaccrual loans, as well as interest recognized on these loans, are included in amounts presented for loans.

Three months ended June 30,			2023												2022												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			$109,204			$1,279			4.70						$110,424			$188			0.68						($1,220)			$1,091			4.02
Mortgage loans held for sale			18,647			241			5.18						26,914			258			3.84						(8,267)			(17)			1.34
Taxable debt securities			1,201,973			7,403			2.47						1,096,611			4,918			1.80						105,362			2,485			0.67
FHLB stock			43,815			858			7.85						9,420			63			2.68						34,395			795			5.17
Commercial real estate			1,928,461			28,800			5.99						1,619,325			13,495			3.34						309,136			15,305			2.65
Commercial & industrial			615,101			9,458			6.17						620,543			6,115			3.95						(5,442)			3,343			2.22
Total commercial			2,543,562			38,258			6.03						2,239,868			19,610			3.51						303,694			18,648			2.52
Residential real estate			2,448,204			23,137			3.79						1,836,245			15,010			3.28						611,959			8,127			0.51
Home equity			292,195			4,082			5.60						256,771			2,075			3.24						35,424			2,007			2.36
Other			17,808			207			4.66						15,770			183			4.65						2,038			24			0.01
Total consumer			310,003			4,289			5.55						272,541			2,258			3.32						37,462			2,031			2.23
Total loans			5,301,769			65,684			4.97						4,348,654			36,878			3.40						953,115			28,806			1.57
Total interest-earning assets			6,675,408			75,465			4.53						5,592,023			42,305			3.03						1,083,385			33,160			1.50
Noninterest-earning assets			263,830												249,309												14,521
Total assets			$6,939,238												$5,841,332												$1,097,906
Liabilities and Shareholders’ Equity:
Interest-bearing demand deposits (in-market)			$393,824			$4,090			4.17						$248,764			$222			0.36						$145,060			$3,868			3.81
NOW accounts			781,226			400			0.21						883,251			151			0.07						(102,025)			249			0.14
Money market accounts			1,199,761			9,302			3.11						1,268,496			1,139			0.36						(68,735)			8,163			2.75
Savings accounts			522,300			321			0.25						566,307			119			0.08						(44,007)			202			0.17
Time deposits (in-market)			1,000,284			7,960			3.19						809,697			1,951			0.97						190,587			6,009			2.22
Interest-bearing in-market deposits			3,897,395			22,073			2.27						3,776,515			3,582			0.38						120,880			18,491			1.89
Wholesale brokered demand deposits			28			—			—						20,233			46			0.91						(20,205)			(46)			(0.91)
Wholesale brokered time deposits			650,381			7,631			4.71						352,438			335			0.38						297,943			7,296			4.33
Wholesale brokered deposits			650,409			7,631			4.71						372,671			381			0.41						277,738			7,250			4.30
Total interest-bearing deposits			4,547,804			29,704			2.62						4,149,186			3,963			0.38						398,618			25,741			2.24
FHLB advances			979,835			11,652			4.77						151,736			413			1.09						828,099			11,239			3.68
Junior subordinated debentures			22,681			374			6.61						22,681			138			2.44						—			236			4.17
Total interest-bearing liabilities			5,550,320			41,730			3.02						4,323,603			4,514			0.42						1,226,717			37,216			2.60
Noninterest-bearing demand deposits			770,075												891,883												(121,808)
Other liabilities			152,616												130,273												22,343
Shareholders’ equity			466,227												495,573												(29,346)
Total liabilities and shareholders’ equity			$6,939,238												$5,841,332												$1,097,906
Net interest income (FTE)						$33,735												$37,791												($4,056)
Interest rate spread									1.51												2.61												(1.10)
Net interest margin									2.03												2.71												(0.68)

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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 June 30,			2023			2022			Change
Commercial loans			$235			$276			($41)

Six months ended June 30,			2023												2022												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			$106,253			$2,349			4.46						$146,852			$266			0.37						($40,599)			$2,083			4.09
Mortgage loans held for sale			15,905			393			4.98						27,688			490			3.57						(11,783)			(97)			1.41
Taxable debt securities			1,197,935			14,597			2.46						1,084,246			9,148			1.70						113,689			5,449			0.76
FHLB stock			44,952			1,455			6.53						10,849			130			2.42						34,103			1,325			4.11
Commercial real estate			1,894,087			54,100			5.76						1,625,537			25,386			3.15						268,550			28,714			2.61
Commercial & industrial			622,896			18,528			6.00						627,667			12,342			3.97						(4,771)			6,186			2.03
Total commercial			2,516,983			72,628			5.82						2,253,204			37,728			3.38						263,779			34,900			2.44
Residential real estate			2,400,997			44,801			3.76						1,788,431			28,997			3.27						612,566			15,804			0.49
Home equity			289,288			7,841			5.47						251,796			3,950			3.16						37,492			3,891			2.31
Other			17,110			391			4.61						16,349			378			4.66						761			13			(0.05)
Total consumer			306,398			8,232			5.42						268,145			4,328			3.25						38,253			3,904			2.17
Total loans			5,224,378			125,661			4.85						4,309,780			71,053			3.32						914,598			54,608			1.53
Total interest-earning assets			6,589,423			144,455			4.42						5,579,415			81,087			2.93						1,010,008			63,368			1.49
Noninterest-earning assets			252,733												273,521												(20,788)
Total assets			$6,842,156												$5,852,936												$989,220
Liabilities and Shareholders’ Equity:
Interest-bearing demand deposits (in-market)			$346,255			$6,728			3.92						$248,580			$292			0.24						$97,675			$6,436			3.68
NOW accounts			801,296			758			0.19						865,647			281			0.07						(64,351)			477			0.12
Money market accounts			1,226,303			16,878			2.78						1,221,923			1,753			0.29						4,380			15,125			2.49
Savings accounts			544,159			636			0.24						563,837			191			0.07						(19,678)			445			0.17
Time deposits (in-market)			915,898			12,537			2.76						801,479			3,968			1.00						114,419			8,569			1.76
Interest-bearing in-market deposits			3,833,911			37,537			1.97						3,701,466			6,485			0.35						132,445			31,052			1.62
Wholesale brokered demand deposits			8,097			177			4.41						10,173			45			0.89						(2,076)			132			3.52
Wholesale brokered time deposits			539,333			11,579			4.33						403,826			536			0.27						135,507			11,043			4.06
Wholesale brokered deposits			547,430			11,756			4.33						413,999			581			0.28						133,431			11,175			4.05
Total interest-bearing deposits			4,381,341			49,293			2.27						4,115,465			7,066			0.35						265,876			42,227			1.92
FHLB advances			1,011,768			23,278			4.64						151,331			657			0.88						860,437			22,621			3.76
Junior subordinated debentures			22,681			728			6.47						22,681			237			2.11						—			491			4.36
Total interest-bearing liabilities			5,415,790			73,299			2.73						4,289,477			7,960			0.37						1,126,313			65,339			2.36
Noninterest-bearing demand deposits			802,506												915,918												(113,412)
Other liabilities			160,677												123,321												37,356
Shareholders’ equity			463,183												524,220												(61,037)
Total liabilities and shareholders’ equity			$6,842,156												$5,852,936												$989,220
Net interest income (FTE)						$71,156												$73,127												($1,971)
Interest rate spread									1.69												2.56												(0.87)
Net interest margin									2.18												2.64												(0.46)

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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)
Six months ended June 30,			2023			2022			Change
Commercial loans			$463			$521			($58)

Net Interest Income

Net interest income, the primary source of our operating income, totaled $33.5 million and $70.7 million, respectively, for the three and six months ended June 30, 2023, compared to $37.5 million and $72.6 million, respectively, for the same periods in 2022. Net interest income is affected by the level of and changes in interest rates, and changes in the amount and composition of interest-earning assets and interest-bearing liabilities.  Prepayment penalty income associated with loan payoffs is included in net interest income.

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

Net interest income includes the periodic recognition of prepayment penalty fee income associated with commercial loan payoffs. Prepayment penalty fee income amounted to $50 thousand (or 1 basis point benefit to NIM) and $174 thousand (or 1 basis point benefit to NIM), respectively, for the three and six months ended June 30, 2023, compared to $62 thousand (or 0 basis point benefit to NIM) and $138 thousand (or 0 basis point benefit to NIM), respectively, for the same periods in 2022.

The analysis of net interest income, NIM and the yield on loans is impacted by changes in the level of net amortization of premiums and discounts on securities and loans, which is included in interest income. Changes in market interest rates affect the level of loan prepayments and the receipt of payments on mortgage-backed securities. Prepayment speeds generally increase as market interest rates decline and decrease as market interest rates rise. Changes in prepayment speeds could increase or decrease the level of net amortization of premiums and discounts, thereby affecting interest income. Additionally, as PPP loans were forgiven by the SBA in the previous year, related unamortized net fee balances were accelerated and amortized, increasing net interest income.

As noted in the Unaudited Consolidated Statements of Cash Flows, net amortization of premiums and discounts on securities and loans (a net reduction to interest income) amounted to $707 thousand for the six months ended June 30, 2023, compared $1.8 million for the same period in 2022. This included no accelerated amortization of net deferred fee balances on PPP loans forgiven by the SBA for the three and six months ended June 30, 2023, compared to $323 thousand (or 2 basis points benefit to NIM) and $1.1 million (or 4 basis points benefit to NIM), respectively, for the same periods in 2022.

FTE net interest income for the three and six months ended June 30, 2023 amounted to $33.7 million and $71.2 million, respectively, down by $4.1 million and $2.0 million, respectively, from the same periods in 2022. For the three and six months ended June 30, 2023, growth in average interest-earning assets net of increased average interest-bearing liability balances, contributed approximately $1.6 million and $4.0 million, respectively, of net interest income. Increases in funding costs outpaced increases in asset yields, reducing net interest income by $5.6 million and $5.9 million, respectively, for the three and six months ended June 30, 2023.

NIM was 2.03% and 2.18%, respectively, for the three and six months ended June 30, 2023, compared to 2.71% and 2.64%, respectively, for the same periods in 2022. While NIM benefited from higher market interest rates on loans, it was adversely impacted by a higher cost of funds.

Total average securities for the three and six months ended June 30, 2023 increased by $105.4 million and $113.7 million, respectively, from the average balances for the same periods a year earlier due to purchases of debt securities. The FTE rate of return on the securities portfolio for the three and six months ended June 30, 2023 was 2.47% and 2.46%, respectively, compared to 1.80% and 1.70%, respectively, for the same periods in 2022, reflecting the impact of higher market interest rates in 2023.

Total average loan balances for the three and six months ended June 30, 2023 increased by $953.1 million and $914.6 million, respectively, from the average loan balances for the comparable 2022 periods, largely reflecting growth in average residential real estate loan and CRE balances. The yield on total loans for the three and six months ended June 30, 2023 was 4.97% and 4.85%, respectively, compared to 3.40% and 3.32%, respectively, in the corresponding periods in 2022.

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Management's Discussion and Analysis

The yield on total loans was impacted by the accelerated amortization of net deferred fee balances on PPP loans when such loans were forgiven by the SBA in 2022 and to a lesser extent by the periodic recognition of commercial loan prepayment fee income. Excluding the impact of these items, the yield on total loans for the three and six months ended June 30, 2023 was 4.97% and 4.84%, respectively, up from 3.37% and 3.26%, respectively, for the same periods in 2022, reflecting higher market interest rates.

Higher levels of wholesale funding were used in 2023 to fund balance sheet growth. The average balance of FHLB advances for the three and six months ended June 30, 2023 increased by $828.1 million and $860.4 million, respectively, compared to the average balances for the same periods in 2022. Due to increases in market interest rates, the average rate paid on such advances for the three and six months ended June 30, 2023 was 4.77% and 4.64%, respectively, up from 1.09% and 0.88%, respectively, for the same periods in 2022. Included in total average interest-bearing deposits were wholesale brokered deposits, which increased by $277.7 million and $133.4 million, respectively, from the same periods in 2022. Due to increases in market interest rates, the average rate paid on wholesale brokered deposits for the three and six months ended June 30, 2023 was 4.71% and 4.33%, respectively, compared to 0.41% and 0.28%, respectively, for the same periods in 2022.

As market interest rates rose, deposit balances shifted from lower cost deposits to higher cost deposits. Average in-market interest-bearing deposits, which excludes wholesale brokered deposits, for the three and six months ended June 30, 2023 increased by $120.9 million and $132.4 million, respectively, from the average balances for the same periods in 2022, with increases in time deposits and interest-bearing demand deposits. The average rate paid on in-market interest-bearing deposits for the three and six months ended June 30, 2023 was 2.27% and 1.97%, respectively, compared to 0.38% and 0.35%, respectively, from the same periods in 2022. The average balance of noninterest-bearing demand deposits for the three and six months ended June 30, 2023 decreased by $121.8 million and $113.4 million, respectively, from the average balances for the same periods in 2022.

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Management's Discussion and Analysis

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 June 30, 2023 vs. 2022												Six Months Ended June 30, 2023 vs. 2022
			Change Due to												Change Due to
			Volume			Rate			Net Change						Volume			Rate			Net Change
Interest on Interest-Earning Assets:
Cash, federal funds sold and other short-term investments			($2)			$1,093			$1,091						($95)			$2,178			$2,083
Mortgage loans held for sale			(92)			75			(17)						(251)			154			(97)
Taxable debt securities			510			1,975			2,485						1,035			4,414			5,449
FHLB stock			520			275			795						860			465			1,325
Commercial real estate			2,968			12,337			15,305						4,773			23,941			28,714
Commercial & industrial			(54)			3,397			3,343						(94)			6,280			6,186
Total commercial			2,914			15,734			18,648						4,679			30,221			34,900
Residential real estate			5,542			2,585			8,127						10,994			4,810			15,804
Home equity			320			1,687			2,007						658			3,233			3,891
Other			24			—			24						17			(4)			13
Total consumer			344			1,687			2,031						675			3,229			3,904
Total loans			8,800			20,006			28,806						16,348			38,260			54,608
Total interest income			9,736			23,424			33,160						17,897			45,471			63,368
Interest on Interest-Bearing Liabilities:
Interest-bearing demand deposits (in-market)			289			3,579			3,868						161			6,275			6,436
NOW accounts			(20)			269			249						(23)			500			477
Money market accounts			(65)			8,228			8,163						6			15,119			15,125
Savings accounts			(10)			212			202						(7)			452			445
Time deposits (in-market)			560			5,449			6,009						643			7,926			8,569
Interest-bearing in-market deposits			754			17,737			18,491						780			30,272			31,052
Wholesale brokered demand deposits			(23)			(23)			(46)						(11)			143			132
Wholesale brokered time deposits			504			6,792			7,296						241			10,802			11,043
Wholesale brokered deposits			481			6,769			7,250						230			10,945			11,175
Total interest-bearing deposits			1,235			24,506			25,741						1,010			41,217			42,227
FHLB advances			6,944			4,295			11,239						12,915			9,706			22,621
Junior subordinated debentures			—			236			236						—			491			491
Total interest expense			8,179			29,037			37,216						13,925			51,414			65,339
Net interest income (FTE)			$1,557			($5,613)			($4,056)						$3,972			($5,943)			($1,971)

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)			Three Months																								Six Months
															Change																								Change
Periods ended June 30,			2023						2022						$						%						2023						2022						$						%
Provision for credit losses on loans			$600						($2,929)						$3,529						120		%				$1,400						($2,929)						$4,329						148		%
Provision for credit losses on unfunded commitments			100						(71)						$171						241						100						29						$71						245
Provision for credit losses			$700						($3,000)						$3,700						123		%				$1,500						($2,900)						$4,400						152		%

The provision recognized in 2023 provided for loan growth and reflected continued negative outlook in economic forecasts, partially offset by continued strength in asset and credit quality metrics. The negative provision recorded in 2022, reflected low loss rates and strong asset and credit quality that more than offset negative trends in macroeconomic forecasts and loan growth that was concentrated in residential real estate loans.

Net charge-offs totaled $37 thousand for the three months ended June 30, 2023, compared to net recoveries of $10 thousand for the same period in 2022. For the six months ended June 30, 2023, net charge-offs totaled $84 thousand, compared to net recoveries of $158 thousand for the same period in 2022.

The ACL on loans was $39.3 million, or 0.73% of total loans, at June 30, 2023, compared to $38.0 million, or 0.74% of total loans, at December 31, 2022. See additional discussion under the caption “Asset Quality” for further information on the ACL on loans.

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)			Three Months																								Six Months
															Change																								Change
Periods ended June 30,			2023						2022						$						%						2023						2022						$						%
Noninterest income:
Wealth management revenues			$9,048						$10,066						($1,018)						(10		%)				$17,711						$20,597						($2,886)						(14		%)
Mortgage banking revenues			1,753						2,082						(329)						(16)						2,998						5,583						(2,585)						(46)
Card interchange fees			1,268						1,303						(35)						(3)						2,400						2,467						(67)						(3)
Service charges on deposit accounts			667						763						(96)						(13)						1,444						1,431						13						1
Loan related derivative income			247						669						(422)						(63)						196						970						(774)						(80)
Income from bank-owned life insurance			879						615						264						43						2,044						1,216						828						68
Other income			463						354						109						31						815						747						68						9
Total noninterest income			$14,325						$15,852						($1,527)						(10		%)				$27,608						$33,011						($5,403)						(16		%)

Noninterest Income Analysis

Revenue from wealth management services represented 64% of total noninterest income for the six months ended June 30, 2023, compared to 62% for the same period in 2022. 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, such as commissions and other service fees 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)			Three Months																								Six Months
															Change																								Change
Periods ended June 30,			2023						2022						$						%						2023						2022						$						%
Wealth management revenues:
Asset-based revenues			$8,562						$9,641						($1,079)						(11		%)				$16,991						$19,852						($2,861)						(14		%)
Transaction-based revenues			486						425						61						14						720						745						(25)						(3)
Total wealth management revenues			$9,048						$10,066						($1,018)						(10		%)				$17,711						$20,597						($2,886)						(14		%)

Wealth management revenues for the three and six months ended June 30, 2023 decreased by $1.0 million and $2.9 million, respectively, from the same periods in 2022, reflecting a decrease in asset-based revenues. The change in asset-based revenues correlated with the change in average AUA balances. The average balance of AUA for the three and six months ended June 30, 2023 decreased by 12% and 15%, respectively, from the average balance for the same periods in 2022.

The end of period AUA balance amounted to $6.4 billion at June 30, 2023. The following table presents the changes in wealth management AUA balances:

(Dollars in thousands)
			Three Months												Six Months
Periods ended June 30,			2023						2022						2023						2022
Wealth management assets under administration:
Balance at the beginning of period			$6,163,422						$7,492,893						$5,961,990						$7,784,211
Net investment appreciation (depreciation) & income			259,788						(816,290)						546,050						(1,205,023)
Net client asset (outflows) inflows			(72,950)						(26,506)						(157,780)						70,909
Balance at the end of period			$6,350,260						$6,650,097						$6,350,260						$6,650,097

AUA and related asset-based revenues were adversely impacted by client withdrawals associated with the departure of four client-facing advisors at the end of the third quarter of 2022. These four advisors were associated with approximately $1.0 billion of AUA as of September 30, 2022. Through June 30, 2023, cumulative client asset withdrawals associated with the departure of the advisors amounted to $660 million, of which $56 million was withdrawn in the six months ended June 30, 2023 and $604 million was withdrawn in the fourth quarter of 2022. The cumulative withdrawals reduced wealth management revenues by approximately $951 thousand and $1.9 million, respectively, in the three and six months ended June 30, 2023. We currently estimate a decline in full-year 2023 revenues of approximately $3.8 million associated with these withdrawals. While there are cost savings in salaries and employee benefits expense associated with the departure of these advisors, they currently are being offset by a higher level of legal expenses also associated with this matter.

Mortgage banking revenues represented 11% of total noninterest income for the six months ended June 30, 2023, compared to 17% for the same period in 2022. These 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:

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Management's Discussion and Analysis

(Dollars in thousands)			Three Months																		Six Months
												Change																		Change
Periods ended June 30,			2023			2022						$			%						2023			2022						$			%
Mortgage banking revenues:
Realized gains on loan sales, net (1)			$827			$1,917						($1,090)			(57		%)				$1,403			$5,244						($3,841)			(73		%)
Changes in fair value, net (2)			382			(330)						712			216						468			(572)						1,040			182
Loan servicing fee income, net (3)			544			495						49			10						1,127			911						216			24
Total mortgage banking revenues			$1,753			$2,082						($329)			(16		%)				$2,998			$5,583						($2,585)			(46		%)
Loans sold to the secondary market (4)			$64,563			$79,741						($15,178)			(19		%)				$93,891			$209,869						($115,978)			(55		%)

(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 and six months ended June 30, 2023, mortgage banking revenues were down by $329 thousand and $2.6 million, respectively, compared to the same periods in 2022. The decline in mortgage banking revenues was mainly attributable to a decline in sales volume and a reduction in the sales yield. The volume of loans sold to the secondary market reflected an overall reduction in mortgage origination, refinancing and sales activity in 2023, which was driven by increase in market interest rates and changes in the housing markets. Mortgage banking revenues are also impacted by changes in the fair value of mortgage loans held for sale and forward loan commitments, which are primarily based on current market prices in the secondary market and correlate to changes in the size of the mortgage pipeline. In addition, the overall decline in mortgage banking revenues in 2023 was partially offset by higher net loan servicing fee income associated with loans sold with servicing retained. The increase in net loan servicing fee income was largely due to lower amortization of servicing rights, reflecting lower prepayment speeds on the serviced mortgage portfolio.

Income from BOLI for the six months ended June 30, 2023, was up by $828 thousand from the same period in 2022, reflecting the recognition of $658 thousand in non-taxable income in 2023 associated with the receipt of life insurance proceeds.

For the three and six months ended June 30, 2023, loan related derivative income decreased by $422 thousand and $774 thousand, respectively, from the same periods in 2022, reflecting a lower volume of commercial borrower interest rate derivative transactions.

Noninterest Expense

The following table presents noninterest expense comparisons:

(Dollars in thousands)			Three Months																								Six Months
															Change																								Change
Periods ended June 30,			2023						2022						$						%						2023						2022						$						%
Noninterest expense:
Salaries and employee benefits			$20,588						$20,381						$207						1		%				$42,372						$41,383						$989						2		%
Outsourced services			3,621						3,375						246						7						7,117						6,617						500						8
Net occupancy			2,416						2,174						242						11						4,853						4,474						379						8
Equipment			1,050						938						112						12						2,078						1,856						222						12
Legal, audit and professional fees			978						677						301						44						1,874						1,447						427						30
FDIC deposit insurance costs			1,371						402						969						241						2,243						768						1,475						192
Advertising and promotion			427						724						(297)						(41)						835						1,075						(240)						(22)
Amortization of intangibles			212						216						(4)						(2)						424						433						(9)						(2)
Other			2,353						2,190						163						7						4,784						4,243						541						13
Total noninterest expense			$33,016						$31,077						$1,939						6		%				$66,580						$62,296						$4,284						7		%

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Management's Discussion and Analysis

Noninterest Expense Analysis

Salaries and employee benefits expense, the largest component of noninterest expense, for the three and six months ended June 30, 2023 increased by $207 thousand and $989 thousand, respectively, compared to the same periods in 2022. The increase in 2023 largely reflected annual merit increases and higher staffing levels, partially offset by decreases in performance-based compensation accruals.

Outsourced services expense for the three and six months ended June 30, 2023, increased by $246 thousand and $500 thousand, respectively, compared to the same periods in the prior year, due to changes to and expansion of services provided by third party vendors.

Net occupancy expense for the three and six months ended June 30, 2023 increased by $242 thousand and $379 thousand, respectively, compared to the same periods in 2022, primarily due to branch expansion.

Legal, audit and professional fees for the three and six months ended June 30, 2023 increased by $301 thousand and $427 thousand, respectively, compared to the same periods in 2022, reflecting higher legal expenses.

FDIC deposit insurance costs for the three and six months ended June 30, 2023 increased by $969 thousand and $1.5 million, respectively, compared to the same periods in 2022, reflecting an increase in the FDIC’s deposit assessment rate and growth in assets.

Advertising and promotion expense for the three and six months ended June 30, 2023 decreased by $297 thousand and $240 thousand, respectively, due to timing of activities.

Other expense for the three and six months ended June 30, 2023 increased by $163 thousand and $541 thousand, respectively, compared to the same periods in 2022, reflecting modest increases across a variety of other noninterest expense categories.

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									Six Months
Periods ended June 30,			2023			2022						2023			2022
Income tax expense			$2,853			$5,333						$6,153			$9,781
Effective income tax rate			20.2		%	21.1		%				20.4		%	21.2		%

The effective income tax rates for the three and six months ended June 30, 2023 and 2022 differed from the federal rate of 21%, primarily due to the benefits of tax-exempt income, income from BOLI and federal tax credits, partially offset by state income tax expense.

The decrease in the effective tax rate for the three and six months ended June 30, 2023 compared to the same periods in 2022 largely reflected an increase in benefits from BOLI income.

Segment Reporting

The Corporation manages its operations through two reportable business segments, consisting of Commercial Banking and Wealth Management Services. See Note 13 to the Unaudited Consolidated Financial Statements for additional disclosure related to business segments.

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Management's Discussion and Analysis

Commercial Banking

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

(Dollars in thousands)			Three Months																		Six Months
												Change																		Change
Periods ended June 30,			2023			2022						$			%						2023			2022						$			%
Net interest income			$33,486			$37,563						($4,077)			(11		%)				$70,666			$72,671						($2,005)			(3		%)
Provision for credit losses			700			(3,000)						3,700			(123)						1,500			(2,900)						4,400			(152)
Net interest income after provision for credit losses			32,786			40,563						(7,777)			(19)						69,166			75,571						(6,405)			(8)
Noninterest income			5,142			5,619						(477)			(8)						9,573			12,131						(2,558)			(21)
Noninterest expense			25,307			23,211						2,096			9						50,772			46,532						4,240			9
Income before income taxes			12,621			22,971						(10,350)			(45)						27,967			41,170						(13,203)			(32)
Income tax expense			2,518			4,748						(2,230)			(47)						5,605			8,545						(2,940)			(34)
Net income			$10,103			$18,223						($8,120)			(45		%)				$22,362			$32,625						($10,263)			(31		%)

Net interest income for the Commercial Banking segment for the three and six months ended June 30, 2023, decreased by $4.1 million and $2.0 million, respectively, from the same periods in 2022. Net interest income was adversely impacted increases in funding costs, but this was partially offset by growth in and higher yields on average interest-earning assets.

The provision recognized in 2023 provided for loan growth and reflected continued negative outlook in economic forecasts, partially offset by continued strength in asset and credit quality metrics. See additional discussion under the caption “Provision for Credit Losses.”

Noninterest income derived from the Commercial Banking segment for the three and six months ended June 30, 2023 was down by $477 thousand and $2.6 million, respectively, from the comparable periods in 2022, reflecting lower mortgage banking revenues, lower loan related derivative income and higher BOLI income. See additional discussion under the caption “Noninterest Income” above.

Commercial Banking noninterest expenses for the three and six months ended June 30, 2023 were up by $2.1 million and $4.2 million, respectively, from the same periods in 2022, with the largest increases in FDIC deposit insurance costs, salaries and employee benefits and net occupancy costs. See additional discussion under the caption “Noninterest Expense” above.

Wealth Management Services

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

(Dollars in thousands)			Three Months																		Six Months
												Change																		Change
Periods ended June 30,			2023			2022						$			%						2023			2022						$			%
Net interest expense			$14			($48)						$62			129		%				$27			($65)						$92			142		%
Noninterest income			9,183			10,233						(1,050)			(10)						18,035			20,880						(2,845)			(14)
Noninterest expense			7,709			7,866						(157)			(2)						15,808			15,764						44			—
Income before income taxes			1,488			2,319						(831)			(36)						2,254			5,051						(2,797)			(55)
Income tax expense			335			585						(250)			(43)						548			1,236						(688)			(56)
Net income			$1,153			$1,734						($581)			(34		%)				$1,706			$3,815						($2,109)			(55		%)

For the three and six months ended June 30, 2023, noninterest income derived from the Wealth Management Services segment decreased by $1.1 million and $2.8 million, respectively, from the same periods in 2022, largely reflecting a decrease in asset-based revenues. See further discussion under the caption “Noninterest Income” above.

For the three and six months ended June 30, 2023, noninterest expenses for the Wealth Management Services segment decreased by $157 thousand and increased modestly by $44 thousand, respectively, from the comparable periods in 2022.

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Management's Discussion and Analysis

Financial Condition

Summary

The following table presents selected financial condition data:

(Dollars in thousands)															Change
			June 30, 2023						December 31, 2022						$			%
Total securities			1,022,458						993,928						28,530			3
Total loans			5,381,113						5,110,139						270,974			5
Allowance for credit losses on loans			39,343						38,027						1,316			3
Total assets			7,011,760						6,660,051						351,709			5
Total deposits			5,314,478						5,018,962						295,516			6
FHLB advances			1,040,000						980,000						60,000			6
Total shareholders’ equity			459,161						453,669						5,492			1

Total assets amounted to $7.0 billion at June 30, 2023, up by $351.7 million, or 5%, from the end of 2022, largely reflecting loan growth.

The securities portfolio increased by $28.5 million, or 3%, from the end of 2022, reflecting purchases of debt securities and an increase in fair value of available for sale securities primarily attributable to changes in interest rates, partially offset by routine pay-downs on mortgage-backed securities.

Total loans increased by $271.0 million, or 5%, from the end of 2022, with growth in both the residential real estate and commercial portfolios.

Total deposits increased by $295.5 million, or 6%, from the end of 2022, with increases in both wholesale brokered deposits and in-market deposits. FHLB advances increased by $60.0 million, or 6%, from December 31, 2022. The increase in both wholesale brokered deposits and FHLB advances reflected higher levels of wholesale funding being utilized to fund balance sheet growth.

Shareholders’ equity increased by $5.5 million, or 1%, reflecting net income and an increase in the AOCL component of shareholders' equity due to increases in the fair value of available for sale debt securities and cash flow hedges that were primarily attributable to relative changes in market interest rates. These increases were partially offset by dividend declarations and an increase in treasury stock balances, largely due to stock repurchases in early 2023.

Securities

Investment 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 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.

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Management's Discussion and Analysis

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 June 30, 2023 and December 31, 2022, 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)			June 30, 2023												December 31, 2022
			Amount						% of Total						Amount						% of Total
Available for Sale Debt Securities:
Obligations of U.S. government-sponsored enterprises			$221,026						22		%				$199,582						20		%
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			781,184						76						774,102						78
Individual name issuer trust preferred debt securities			8,497						1						8,760						1
Corporate bonds			11,751						1						11,484						1
Total available for sale debt securities			$1,022,458						100		%				$993,928						100		%

The securities portfolio represented 15% of total assets at June 30, 2023, unchanged from December 31, 2022. 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 increased by $28.5 million, or 3%, from the end of 2022. This included purchases of U.S. government agency and U.S. government-sponsored debt securities, including mortgage-backed securities, totaling $60.2 million, with a weighted average yield of 4.98%, as well as an increase of $4.4 million (pre-tax) in the fair value of available for sale securities. These were partially offset by $35.4 million of routine pay-downs on mortgage-backed securities.

As of June 30, 2023, the carrying amount of available for sale debt securities included net unrealized losses of $168.0 million, compared to net unrealized losses of $172.4 million as of December 31, 2022. The increase in fair value of available for sale debt securities from the end of 2022 was 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 interest rates since the time of purchase. See Note 3 to the Unaudited Consolidated Financial Statements for additional information.

Loans

Total loans amounted to $5.4 billion at June 30, 2023, up by $271.0 million, or 5%, from the end of 2022.

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Management's Discussion and Analysis

The following is a summary of loans:

(Dollars in thousands)			June 30, 2023												December 31, 2022
			Amount						% of Total						Amount						% of Total
Commercial:
Commercial real estate (1)			$1,940,030						36		%				$1,829,304						36		%
Commercial & industrial (2)			611,472						11						656,397						13
Total commercial			2,551,502						47						2,485,701						49
Residential Real Estate:
Residential real estate (3)			2,510,125						47						2,323,002						45
Consumer:
Home equity			301,116						6						285,715						6
Other (4)			18,370						—						15,721						—
Total consumer			319,486						6						301,436						6
Total loans			$5,381,113						100		%				$5,110,139						100		%

(1)CRE consists of commercial mortgages primarily secured by income-producing property, as well as construction and development loans. Construction and development loans are made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings.

(2)C&I consists of loans to businesses and individuals, a portion of which are fully or partially collateralized by real estate.

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

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

Commercial Loans

The commercial loan portfolio represented 47% of total loans at June 30, 2023.

In making commercial loans, we may occasionally solicit the participation of other banks. The Bank also participates in commercial loans originated by other banks. In such cases, these loans are individually underwritten by us using standards similar to those employed for our self-originated loans. Our participation in commercial loans originated by other banks amounted to $545.3 million and $510.6 million, respectively, at June 30, 2023 and December 31, 2022. 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 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 real estate.  C&I loans also include, tax-exempt loans made to states and political subdivisions, as well as industrial development or revenue bonds issued through quasi-public corporations for the benefit of a private or non-profit entity where that entity rather than the governmental entity is obligated to pay the debt service.

Commercial Real Estate Loans

CRE loans totaled $1.9 billion at June 30, 2023, up by $110.7 million, or 6%, from the balance at December 31, 2022. In 2023, CRE loan originations and advances of approximately $151 million were partially offset by payments of approximately $53 million. Included in the net increase in CRE were reclassifications of $13 million from C&I.

Included in the CRE loan portfolio were construction and development loans of $156.3 million and $164.1 million, respectively, as of June 30, 2023 and December 31, 2022.

Shared national credit balances outstanding included in the CRE loan portfolio totaled $16.4 million and $10.5 million, respectively, at June 30, 2023 and December 31, 2022. The balances were included in the pass-rated category of commercial loan credit quality and were current with respect to contractual payment terms at both June 30, 2023 and December 31, 2022.

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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)			June 30, 2023									December 31, 2022
			Outstanding Balance			% of Total						Outstanding Balance			% of Total
Connecticut			$712,931			37		%				$691,780			38		%
Massachusetts			631,296			33						566,717			31
Rhode Island			391,913			19						387,759			21
Subtotal			1,736,140			89						1,646,256			90
All other states			203,890			11						183,048			10
Total			$1,940,030			100		%				$1,829,304			100		%

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

(Dollars in thousands)			June 30, 2023												December 31, 2022
			Count			Outstanding Balance			% of Total						Count			Outstanding Balance			% of Total
CRE Portfolio Segmentation:
Multi-family dwelling			136			$514,257			27		%				127			$469,233			26		%
Retail			101			406,728			21						108			421,617			23
Office			52			267,215			14						53			257,551			14
Hospitality			46			230,669			12						33			214,829			12
Industrial and warehouse			48			224,998			12						42			192,717			11
Healthcare			19			172,587			9						17			136,225			7
Commercial mixed use			12			45,947			2						21			54,976			3
Other			33			77,629			3						34			82,156			4
Total CRE loans			447			$1,940,030			100		%				435			$1,829,304			100		%
Average CRE loan size						$4,340												$4,205
Largest individual CRE loan outstanding						$65,444												$65,431

Commercial and Industrial Loans

C&I loans amounted to $611.5 million at June 30, 2023, down by $44.9 million, or 7%, from the balance at December 31, 2022. The net reduction in C&I reflected payments of approximately $60 million and reclassifications of $13 million to CRE, partially offset by originations and advances of $28 million.

Shared national credit balances outstanding included in the C&I loan portfolio totaled $38.4 million and $40.9 million, respectively, at June 30, 2023 and December 31, 2022. All of these loans were included in the pass-rated category of commercial loan credit quality and were current with respect to contractual payment terms at both June 30, 2023 and December 31, 2022.

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Management's Discussion and Analysis

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

(Dollars in thousands)			June 30, 2023												December 31, 2022
			Count			Outstanding Balance			% of Total						Count			Outstanding Balance			% of Total
C&I Portfolio Segmentation:
Healthcare and social assistance			64			$162,582			27		%				69			$193,052			29		%
Owner occupied and other real estate			161			80,874			13						168			72,429			11
Transportation and warehousing			18			59,727			10						20			51,347			8
Manufacturing			55			58,074			9						55			60,601			9
Educational services			16			43,104			7						19			46,708			7
Retail			47			40,319			7						50			56,012			9
Finance and insurance			46			31,591			5						55			28,313			4
Entertainment and recreation			22			24,266			4						24			25,646			4
Information			5			23,633			4						5			23,948			4
Accommodation and food services			41			13,556			2						49			17,167			3
Professional, scientific and technical			35			5,238			1						37			6,451			1
Public administration			12			3,974			1						11			3,789			1
Other			157			64,534			10						162			70,934			10
Total C&I loans			679			$611,472			100		%				724			$656,397			100		%
Average C&I loan size						$901												$907
Largest individual C&I loan outstanding						$25,373												$27,676

Residential Real Estate Loans

The residential real estate loan portfolio represented 47% of total loans at June 30, 2023.

Residential real estate loans held in portfolio amounted to $2.5 billion at June 30, 2023, up by $187.1 million, or 8%, from the balance at December 31, 2022. While total residential real estate loan origination activity has declined from the prior year, we originated a high proportion of loans for portfolio.

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

(Dollars in thousands)			June 30, 2023									December 31, 2022
			Amount			% of Total						Amount			% of Total
Massachusetts			$1,851,118			73		%				$1,698,240			73		%
Rhode Island			468,966			19						446,010			19
Connecticut			162,339			7						153,323			7
Subtotal			2,482,423			99						2,297,573			99
All other states			27,702			1						25,429			1
Total (1)			$2,510,125			100		%				$2,323,002			100		%

(1)Includes residential mortgage loans purchased from and serviced by other financial institutions totaling $56.6 million and $59.9 million, respectively, as of June 30, 2023 and December 31, 2022.

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.

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Management's Discussion and Analysis

The table below presents residential real estate loan origination activity:

(Dollars in thousands)			Three Months																		Six Months
Periods ended June 30,			2023									2022									2023									2022
			Amount			% of Total						Amount			% of Total						Amount			% of Total						Amount			% of Total
Originations for retention in portfolio (1)			$148,694			66		%				$263,762			75		%				$258,462			71		%				$428,163			69		%
Originations for sale to the secondary market (2)			77,995			34						86,459			25						105,758			29						193,078			31
Total			$226,689			100		%				$350,221			100		%				$364,220			100		%				$621,241			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																		Six Months
Periods ended June 30,			2023									2022									2023									2022
			Amount			% of Total						Amount			% of Total						Amount			% of Total						Amount			% of Total
Loans sold with servicing rights retained			$28,727			44		%				$23,478			29		%				$45,841			49		%				$38,105			18		%
Loans sold with servicing rights released (1)			35,836			56						56,263			71						48,050			51						171,764			82
Total			$64,563			100		%				$79,741			100		%				$93,891			100		%				$209,869			100		%

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

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

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 $8.7 million and $9.0 million, respectively, as of June 30, 2023 and December 31, 2022. The balance of residential mortgage loans serviced for others, which are not included in the Unaudited Consolidated Balance Sheets, amounted to $1.5 billion as of both June 30, 2023 and December 31, 2022.

Consumer Loans

Consumer loans include home equity loans and lines of credit and personal installment loans. Home equity lines of credit and home equity loans represented 94% of the total consumer portfolio at June 30, 2023. Our home equity line and home equity loan origination activities are conducted primarily in southern New England. The Bank estimates that approximately 55% 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 $319.5 million at June 30, 2023, up by $18.1 million, or 6%, from December 31, 2022, largely reflecting increases in home equity lines and loans. Purchased consumer loans, consisting of loans to individuals secured by general aviation aircraft, amounted to $12.6 million and $9.6 million, respectively, at June 30, 2023 and December 31, 2022.

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Management's Discussion and Analysis

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. As disclosed in Note 2, the Corporation adopted ASU 2022-02, which eliminated the accounting guidance for TDRs and added enhanced disclosures with respect to certain modifications for borrowers experiencing financial difficulty. Effective January 1, 2023, a loan that has been modified is considered a TLM when the following conditions are met: (1) the modification is considered a continuation of an existing loan and not a new loan in accordance with GAAP, (2) the modification is made to a borrower experiencing financial difficulty and (3) the modification has a direct impact to the contractual cash flows. During the three and six months ended June 30, 2023, there were no TLMs.

Nonperforming Assets

Nonperforming assets include nonaccrual loans and OREO.

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

(Dollars in thousands)			June 30, 2023			December 31, 2022
Commercial:
Commercial real estate			$—			$—
Commercial & industrial			899			—
Total commercial			899			—
Residential Real Estate:
Residential real estate			8,542			11,894
Consumer:
Home equity			966			952
Other			—			—
Total consumer			966			952
Total nonaccrual loans			10,407			12,846
OREO, net			683			—
Total nonperforming assets			$11,090			$12,846
Nonperforming assets to total assets			0.16		%	0.19		%
Nonperforming loans to total loans			0.19		%	0.25		%
Total past due loans to total loans			0.12		%	0.23		%
Allowance for credit losses on loans to total loans			0.73		%	0.74		%
Accruing loans 90 days or more past due			$—			$—

Nonaccrual Loans

During the six months ended June 30, 2023, 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)			Three Months												Six Months
For the periods ended June 30,			2023						2022						2023						2022
Balance at beginning of period			$13,980						$12,589						$12,846						$14,203
Additions to nonaccrual status			600						158						3,170						585
Loans returned to accruing status			(1,329)						(236)						(1,439)						(299)
Loans charged-off			(52)						(23)						(113)						(59)
Loans transferred to other real estate owned			—						—						(683)						—
Payments, payoffs and other changes			(2,792)						(74)						(3,374)						(2,016)
Balance at end of period			$10,407						$12,414						$10,407						$12,414

The following table presents additional detail on nonaccrual loans:

(Dollars in thousands)			June 30, 2023																					December 31, 2022
			Days Past Due																					Days Past Due
			Over 90						Under 90						Total			% (1)						Over 90						Under 90						Total			% (1)
Commercial:
Commercial real estate			$—						$—						$—			—		%				$—						$—						$—			—		%
Commercial & industrial			—						899						899			0.15						—						—						—			—
Total commercial			—						899						899			0.04						—						—						—			—
Residential Real Estate:
Residential real estate			1,468						7,074						8,542			0.34						3,779						8,115						11,894			0.51
Consumer:
Home equity			40						926						966			0.32						—						952						952			0.33
Other			—						—						—			—						—						—						—			—
Total consumer			40						926						966			0.30						—						952						952			0.32
Total nonaccrual loans			$1,508						$8,899						$10,407			0.19		%				$3,779						$9,067						$12,846			0.25		%

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

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2023.

As of June 30, 2023, the composition of nonaccrual loans was 91% residential and consumer and 9% commercial, compared to 100% residential and consumer as of December 31, 2022. Total nonaccrual loans decreased by $2.4 million from the end of 2022.

Nonaccrual residential real estate mortgage loans amounted to $8.5 million at June 30, 2023, down by $3.4 million from the end of 2022. As of June 30, 2023, the balance of nonaccrual residential mortgage loans was predominately secured by properties in Connecticut, Massachusetts and Rhode Island. Included in total nonaccrual residential real estate loans at June 30, 2023 were five loans purchased for portfolio and serviced by others amounting to $1.5 million.  Management monitors the collection efforts of its third-party servicers as part of its assessment of the collectability of nonperforming loans.

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Management's Discussion and Analysis

Past Due Loans

The following table presents past due loans by category:

(Dollars in thousands)			June 30, 2023												December 31, 2022
			Amount						% (1)						Amount						% (1)
Commercial:
Commercial real estate			$—						—		%				$1,187						0.06		%
Commercial & industrial			223						0.04						265						0.04
Total commercial			223						0.01						1,452						0.06
Residential Real Estate:
Residential real estate			4,384						0.17						8,875						0.38
Consumer:
Home equity			1,509						0.50						1,235						0.43
Other			214						1.16						16						0.10
Total consumer			1,723						0.54						1,251						0.42
Total past due loans			$6,330						0.12		%				$11,578						0.23		%

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

As of June 30, 2023 and December 31, 2022, the composition of past due loans (loans past due 30 days or more) was 96% residential and consumer and 4% commercial, compared to 87% residential and consumer and 13% commercial at December 31, 2022. Total past due loans decreased by $5.2 million from the end of 2022.

Total past due loans included $3.7 million of nonaccrual loans as of June 30, 2023, compared to $7.2 million as of December 31, 2022.

All loans 90 days or more past due at June 30, 2023 and December 31, 2022 were classified as nonaccrual.

Potential Problem Loans

The Corporation classifies certain loans as “substandard,” “doubtful,” or “loss” based on criteria consistent with guidelines provided by banking regulators.  Potential problem loans include classified accruing commercial loans that were less than 90 days past due at June 30, 2023 and other loans for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future.

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

As of June 30, 2023, there were no loans deemed to be potential problem loans.

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.

The Corporation’s general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that the collection of loan principal is unlikely. Full or partial charge-offs on collateral dependent individually analyzed loans are recognized when the collateral is deemed to be insufficient to support the carrying value of the loan. The Corporation does not recognize a recovery when new appraisals indicate a subsequent increase in value.

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Management's Discussion and Analysis

Appraisals are generally obtained with values determined on an “as is” basis from independent appraisal firms for real estate collateral dependent commercial 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.

For residential real estate loans and real estate collateral dependent consumer loans that are in the process of collection, valuations are obtained from independent appraisal firms with values determined on an “as is” basis.

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

(Dollars in thousands)			June 30, 2023												December 31, 2022
			Loans			Related Allowance			Allowance / Loans						Loans			Related Allowance			Allowance / Loans
Individually analyzed loans			$2,030			$—			—		%				$9,996			$115			1.15		%
Pooled (collectively evaluated) loans			5,379,083			39,343			0.73						5,100,143			37,912			0.74
Total			$5,381,113			$39,343			0.73		%				$5,110,139			$38,027			0.74		%

Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors. The methodology for evaluating quantitative factors consists of two basic components. The first component involves pooling loans into portfolio segments for loans that share similar risk characteristics. The second component involves individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments.

The ACL for individually analyzed loans is measured using a DCF method based upon the loan’s contractual effective interest rate, or at the loan’s observable market price, or, if the loan was collateral dependent, at the fair value of the collateral.

The ACL for pooled loans is measured utilizing a DCF methodology to estimate credit losses for each pooled portfolio segment. The methodology incorporates a probability of default and loss given default framework. Loss given default is estimated based on historical credit loss experience. Probability of default is estimated using a regression model that incorporates econometric factors. Management utilizes forecasted econometric factors with a one-year reasonable and supportable forecast period and one-year straight-line reversion period in order to estimate the probability of default for each loan portfolio segment. The DCF methodology combines the probability of default, the loss given default, prepayment speeds and remaining life of the loan to estimate a reserve for each loan. The sum of all the loan level reserves are aggregated for each portfolio segment and a loss rate factor is derived. Quantitative loss factors for pooled loans are also supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates.

The ACL on loans amounted to $39.3 million at June 30, 2023, up by $1.3 million, or 3%, from the balance at December 31, 2022. The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.73% at June 30, 2023, compared to 0.74% at December 31, 2022.

The Corporation recorded a provision for credit losses of $700 thousand and $1.5 million, respectively, for the three and six months ended June 30, 2023. The provision provided for loan growth and reflected continued negative outlook in economic forecasts, partially offset by continued strength in asset and credit quality metrics.

Net charge-offs totaled $37 thousand for the three months ended June 30, 2023, compared to net recoveries of $10 thousand for the same period in 2022. For the six months ended June 30, 2023, net charge-offs totaled $84 thousand, compared to net recoveries of $158 thousand for the same period in 2022.

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)			June 30, 2023																		December 31, 2022
			Allocated ACL						ACL to Loans						Loans to Total Portfolio (1)						Allocated ACL						ACL to Loans						Loans to Total Portfolio (1)
Commercial:
Commercial real estate			$22,026						1.14		%				36		%				$18,435						1.01		%				36		%
Commercial & industrial			9,428						1.54						11						10,356						1.58						13
Total commercial			31,454						1.23						47						28,791						1.16						49
Residential Real Estate:
Residential real estate			6,442						0.26						47						7,740						0.33						45
Consumer:
Home equity			1,039						0.35						6						1,115						0.39						6
Other			408						2.22						—						381						2.42						—
Total consumer			1,447						0.45						6						1,496						0.50						6
Total ACL on loans at end of period			$39,343						0.73		%				100		%				$38,027						0.74		%				100		%

(1)Percentage of loans outstanding in respective category 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 program, ICS program and the CDARS program. 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.

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Management's Discussion and Analysis

The following table presents a summary of deposits:

(Dollars in thousands)
			June 30, 2023												December 31, 2022
			Amount						% of Total						Amount						% of Total
Noninterest-bearing demand deposits			$758,242						14		%				$858,953						17		%
Interest-bearing demand deposits (in market)			428,306						8						302,044						6
NOW accounts			791,887						15						871,875						17
Money market accounts			1,164,557						22						1,255,805						25
Savings accounts			521,185						10						576,250						11
Time deposits (in-market)			1,048,820						20						795,838						16
Total in-market deposits			4,712,997						89						4,660,765						92
Wholesale brokered demand deposits			—						—						31,153						1
Wholesale brokered time deposits			601,481						11						327,044						7
Total wholesale brokered deposits			601,481						11						358,197						8
Total deposits			$5,314,478						100		%				$5,018,962						100		%

Total deposits amounted to $5.3 billion at June 30, 2023, up by $295.5 million, or 6%, from December 31, 2022, with increases in wholesale brokered deposits and in-market deposits.

Wholesale brokered deposits increased by $243.3 million, or 68%, from December 31, 2022, as higher levels were utilized to fund balance sheet growth.

In-market deposits, which exclude wholesale brokered deposits, were up by $52.2 million, or 1%, from the balance at December 31, 2022. As expected, due to higher market interest rates and increased competition, in-market deposits shifted from relatively lower cost products to higher cost products in 2023. As of June 30, 2023, in-market deposits were approximately 59% retail and 41% commercial. Our in-market deposits are well-diversified by industry and customer type. The average size of our in-market deposit accounts was approximately $37 thousand at June 30, 2023.

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

(Dollars in thousands)			June 30, 2023									December 31, 2022
			Balance			% of Total Deposits						Balance			% of Total Deposits
Uninsured Deposits:
Uninsured deposits (1)			$1,369,174			26		%				$1,514,900			30		%
Less: affiliate deposits (2)			119,034			2						210,444			4
Uninsured deposits, excluding affiliate deposits			1,250,140			24						1,304,456			26
Less: fully-collateralized preferred deposits (3)			313,237			6						329,868			7
Uninsured deposits, after exclusions			$936,903			18		%				$974,588			19		%

(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 $1.0 billion at June 30, 2023, up by $60.0 million, or 6%, from the balance at the end of 2022.

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

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Management's Discussion and Analysis

Liquidity and Capital Resources

Liquidity 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 68% of total average assets in the six months ended June 30, 2023.  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.

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)			June 30, 2023						December 31, 2022
Contingent Liquidity:
Federal Home Loan Bank of Boston (1)			$968,004						$668,295
Federal Reserve Bank of Boston (2)			25,007						27,059
Unencumbered securities			729,830						691,893
Total contingent liquidity			$1,722,841						$1,387,247
Percentage of total contingent liquidity to uninsured deposits			125.8		%				91.6		%
Percentage of total contingent liquidity to uninsured deposits, after exclusions			183.9		%				142.3		%

(1)As of June 30, 2023 and December 31, 2022, loans with a carrying value of $2.9 billion and $2.4 billion, respectively, and securities available for sale with carrying values of $97.4 million and $102.1 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.

(2)As of June 30, 2023 and December 31, 2022, loans with a carrying value of $18.5 million and $20.9 million, respectively, and securities available for sale with a carrying value of $12.9 million and $12.7 million, respectively, were pledged to the FRBB for the discount window resulting in this additional unused borrowing capacity.

In addition to the amounts presented above, the Bank also had access to a $40.0 million unused line of credit with the FHLB. Additionally, $215.0 million of availability was utilized in the year to collateralize an institutional deposit through a standby letter of credit with the FHLB.

The ALCO establishes and monitors internal liquidity measures to manage liquidity exposure. Liquidity remained within target ranges established by the ALCO during the six months ended June 30, 2023.  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

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Management's Discussion and Analysis

derivative contracts and interest rate risk management contracts. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. The Corporation’s credit policies with respect to interest rate contracts with commercial borrowers, commitments to extend credit, and standby letters of credit are similar to those used for loans. Some commitments to extend credit and standby letters of credit are expected to expire without being drawn upon, and thus, total amounts do not necessarily represent future cash requirements. Interest rate risk management contracts with other counterparties are generally subject to bilateral collateralization terms. These contracts with various counterparties may subject the Corporation to various cash flow requirements, which may include posting of cash as collateral for arrangements that are in a liability position. For additional information on derivative financial instruments and financial instruments with off-balance sheet risk see Notes 6 and 16 to the Consolidated Financial Statements.

Capital Resources

Total shareholders’ equity amounted to $459.2 million at June 30, 2023, up by $5.5 million from December 31, 2022. The increase included net income of $24.1 million. In addition, the AOCL component of shareholders' equity increased by $9.0 million, reflecting increases in the fair value of cash flow hedges and available for sale debt securities primarily attributable to changes in market interest rates. These increases to shareholders’ equity were partially offset by $19.1 million in dividend declarations and a net increase in treasury stock balances of $7.1 million. The net increase in treasury stock included the repurchase of 200,000 shares in January and February at an average price of $43.70 and a total cost of $8.7 million, under the 2023 Repurchase Program.

The Corporation declared a quarterly dividend of 56 cents per share for the three months ended June 30, 2023, compared to 54 cents per share declared for the same period in 2022. On a year-to-date basis, dividend declarations totaled $1.12 per share in 2023, compared to $1.08 in 2022.

The ratio of total equity to total assets was 6.55% at June 30, 2023, compared to a ratio of 6.81% at December 31, 2022.  Book value per share was $26.98 at June 30, 2023, compared to $26.40 at December 31, 2022.

The Bancorp and the Bank are subject to various regulatory capital requirements and are considered “well capitalized” with the Bancorp having a total risk-based capital ratio of 11.81% at June 30, 2023, compared to 12.37% at December 31, 2022.

See Note 10 to the Unaudited Consolidated Financial Statements for additional discussion regarding shareholders’ equity, including the stock repurchase program and regulatory capital requirements.

Asset/Liability Management and Interest Rate Risk

Interest rate risk is the risk of loss to future earnings due to changes in interest rates. The ALCO is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. Periodically, the ALCO reports on the status of liquidity and interest rate risk matters to the Bank’s Board of Directors. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent 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 and floors. 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 Notes 6 and 16 to the Unaudited Consolidated Financial Statements for additional information.

The ALCO uses income simulation to measure interest rate risk inherent in the Corporation’s financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 12-month horizon, a 13- to 24-month horizon and a 60-month horizon. The simulations assume that the size and general composition of the Corporation’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from low-cost savings to higher-cost time deposits in selected interest rate scenarios. Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios. The characteristics of financial instrument classes are reviewed periodically by the ALCO to ensure their accuracy and consistency.

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Management's Discussion and Analysis

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 June 30, 2023 and December 31, 2022, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Corporation’s balance sheet remain stable for a 60-month period.  In addition to measuring the change in net interest income as compared to an unchanged rate scenario, the ALCO also measures the trend of both net interest income and NIM over a 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios.

The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve of up to 500 basis points, as well as parallel changes in interest rates of up to 400 basis points.  Because income simulations assume that the Corporation’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.

The following table sets forth the estimated change in net interest income from an unchanged rate scenario over the periods indicated for parallel changes in market interest rates using the Corporation’s on- and off-balance sheet financial instruments as of June 30, 2023 and December 31, 2022.  Interest rates are assumed to shift by a parallel 100, 200 or 300 basis points upward, as well as 100 or 200 basis points downward over a 12-month period, except for savings deposits, which are assumed to shift by lesser amounts due to their relative historical insensitivity to market interest rate movements.  Since market interest rates have risen sharply, management has incorporated the down 200 basis point scenario into the tabular presentation 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.

			June 30, 2023									December 31, 2022
			Months 1 - 12			Months 13 - 24						Months 1 - 12			Months 13 - 24
100 basis point rate decrease			(3.08)		%	(0.52		%)				(1.09)		%	1.55		%
200 basis point rate decrease			(6.26)			(2.02)						(4.17)			(5.21)
100 basis point rate increase			0.53			(5.74)						(0.78)			(5.45)
200 basis point rate increase			3.81			(6.89)						0.35			(7.65)
300 basis point rate increase			7.23			(8.11)						1.42			(10.07)

The relative change in interest rate sensitivity from December 31, 2022, as shown in the above table, was attributable to changes in balance sheet composition and market rates, as well as the March 31, 2023 termination of an interest rate swap contract that was designated as a cash flow hedge to hedge the risk associated with a pool of variable rate commercial loans. This receive-fixed, pay-floating interest rate swap previously mitigated exposure to declining rates and reduced positive exposure to rising rates. See Note 6 to the Unaudited Consolidated Financial Statements for additional information on the termination.

As of June 30, 2023, the ALCO estimates that negative exposure of net interest income to falling rates as compared to an unchanged rate scenario results from a more rapid decline in earning asset yields compared to rates paid on deposits.  If market interest rates were to fall and remain lower for a sustained period, certain savings and time deposit rates could decline more slowly and by a lesser amount than other market interest rates.  For simulation purposes, deposit rate changes are anticipated to lag behind other market interest rates in both timing and magnitude.  Asset yields would likely decline more rapidly than deposit costs as current asset holdings mature or reprice, since cash flow from mortgage-related prepayments and redemption of callable securities would increase as market interest rates fall. The negative exposure in down rate scenarios reflects the insensitivity of certain deposit rates to market interest rate declines as they approach their floors.

As of June 30, 2023, the positive exposure of net interest income in Year 1 to rising rates as compared to an unchanged rate scenario results from a more rapid projected relative rate of increase in asset yields than funding costs over the near term. For simulation purposes, deposit rate changes are anticipated to lag behind other market interest rates in both timing and magnitude. The negative exposure to rising rates in Year 2 is due to a higher level of longer-term fixed rate assets, as well as larger proportion of wholesale funds to total sources of funds. Fixed rate assets would not reprice upward in a rising rate

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Management's Discussion and Analysis

environment. Wholesale funds generally would reprice more quickly and by a greater amount than the repricing of in-market deposits in response to changes in market interest rates. As market rates increase, ALCO modeling assumes that deposits shift from low cost to higher cost deposits. This assumption reflects historical operating conditions in rising rate cycles. Although asset yields would increase in a rising interest rate environment, the cumulative impact of relative growth in rate-sensitive higher cost deposit categories and wholesale funds suggests that the increase in the Corporation’s cost of funds could result in a relative decline in net interest income in Year 2 compared to an unchanged rate scenario.

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

As part of its policy response to the COVID-19 pandemic in 2020, the Federal Reserve reduced its target range for the Fed Funds rate to 0% - 0.25%. This, and various Federal stimulus programs, had the effect of attracting low cost deposits across the banking industry. During 2022 and into 2023, the Federal Reserve reversed policy and increased the target range to 5.00% - 5.25% as of June 30, 2023. This policy change has resulted in higher rates on existing deposit products and a shift of low cost balances into higher cost alternatives, which could continue into the future, particularly if interest rates continue to rise. As such, the ALCO has modeled deposit shifts out of these low cost categories into higher cost alternatives in the rising rate simulation scenarios presented above. Deposit balances may also be subject to possible outflow to non-bank alternatives in a rising rate environment, as well as due to heightened uncertainty in the banking industry. This may cause interest rate sensitivity to differ from the results as presented. Another significant simulation assumption is the sensitivity of savings deposits to fluctuations in interest rates. Income simulation results assume that changes in both savings deposit rates and balances are related to changes in short-term interest rates. The relationship between short-term interest rate changes and deposit rate and balance changes may differ from the ALCO’s estimates used in income simulation.

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.

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 Corporation also 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 June 30, 2023 and December 31, 2022 resulting from immediate parallel rate shifts:

(Dollars in thousands)
Security Type			Down 100 Basis Points						Up 200 Basis Points
U.S. government-sponsored enterprise securities (callable)			$7,653						($19,998)
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			56,522						(106,680)
Trust preferred debt and other corporate debt securities			(9)						10
Total change in market value as of June 30, 2023			$64,166						($126,668)
Total change in market value as of December 31, 2022			$63,712						($125,079)

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Management's Discussion and Analysis

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.

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, 2022.

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.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Information regarding quantitative and qualitative disclosures about market risk appears under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the caption “Asset/Liability Management and Interest Rate Risk.”

For 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, 2022, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, the Corporation carried out an evaluation under the supervision and with the participation of the Corporation’s management, including the Corporation’s principal executive officer and principal financial officer, of the Corporation’s disclosure controls and procedures as of the period ended June 30, 2023.  Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Corporation’s disclosure controls and procedures are effective and designed to ensure that information required to be disclosed by the Corporation in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Corporation’s management including its Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosures.  The Corporation will continue to review and document its disclosure controls and procedures and consider such changes in future evaluations of the effectiveness of such controls and procedures, as it deems appropriate.

Internal Control Over Financial Reporting

There has been no change in the Corporation’s internal controls over financial reporting during the quarter ended June 30, 2023 that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.  Other Information

Item 1.  Legal Proceedings

The Corporation is involved in various claims and legal proceedings arising out of the ordinary course of business.  Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such matters will not materially affect the consolidated financial position or results of operations of the Corporation.

Item 1A.  Risk Factors

There have been no material changes in the risk factors described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 23, 2023 and Part II. Item 1A “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed with the SEC on May 4, 2023.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 5.  Other Information

During the three months ended June 30, 2023, none of the Corporation’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

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Item 6.  Exhibits

(a) Exhibits.  The following exhibits are included as part of this Form 10-Q:

Exhibit Number
31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Filed herewith.
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Filed herewith.
32.1			Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Furnished herewith. (1)
101			The following materials from Washington Trust Bancorp, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2023 formatted in Inline XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related Notes to these consolidated financial statements.
104			The cover page from the Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 2023 has been formatted in Inline XBRL and contained in Exhibit 101.

(1)These certifications are not “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Securities Exchange Act.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WASHINGTON TRUST BANCORP, INC.

(Registrant)

Date:

August 3, 2023

By:

/s/ Edward O. Handy III

Edward O. Handy III

Chairman and Chief Executive Officer

(principal executive officer)

Date:

August 3, 2023

By:

/s/ Ronald S. Ohsberg

Ronald S. Ohsberg

Senior Executive Vice President, Chief Financial Officer and Treasurer

(principal financial officer)

Date:

August 3, 2023

By:

/s/ Maria N. Janes

Maria N. Janes

Executive Vice President, Chief Accounting Officer and Controller

(principal accounting officer)

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