Insiders ranked by realized 90-day signed return on their open-market trades at Washington Trust Bancorp Inc. Minimum 3 scored trades. Returns are signed - a sale followed by a rally counts against the insider.
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.07pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.22pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.08pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
losses+8
retaliatory+3
cyberattacks+3
negatively+2
negative+2
Positive rising
enhance+2
able+1
attractive+1
best+1
strength+1
Risk Factors (Item 1A)
9,103 words
ITEM 1A. Risk Factors.
Before making any investment decision with respect to our common stock, you should carefully consider the risks described below, in addition to the other information contained in this report and in our other filings with the SEC. The risks and uncertainties described below and in our other filings are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be impaired. In that event, the market price for our common stock could decline and you may lose your investment. This report is qualified in its entirety by these risk factors.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Fluctuations in interest rates may impair the Bank’s business.
The Bank’s earnings and financial condition are largely dependent on net interest income, which is the difference between interest income from interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. However, certain assets and liabilities may react differently to changes in market interest rates. Further, interest rates on some types of assets and liabilities may fluctuate prior to changes in broader market interest rates, while rates on other types of assets and liabilities may behind. These rates are highly sensitive to many factors beyond our control, including general economic conditions, both domestic and foreign, and the monetary and fiscal policies of various governmental and regulatory authorities.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
termination+2
closed+2
bankruptcy+2
default+1
problems+1
Positive rising
improvement+3
advances+2
strength+1
improvements+1
proactively+1
MD&A (Item 7)
17,187 words
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following analysis is intended to provide the reader with a further understanding of the consolidated financial condition and results of operations of the Corporation for the periods shown. For a full understanding of this analysis, it should be read in conjunction with other sections of this Annual Report on Form 10-K, including Part I, Item 1 “Business” and Part II, Item 8 “Financial Statements and Supplementary Data.”
Information pertaining to 2023 was included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, starting on page 31 under Part II, Item 7 “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” which was filed with the SEC on February 25, 2025.
Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating the Corporation’s results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures, such as adjusted noninterest income, adjusted income before income taxes, adjusted income tax expense, adjusted effective tax rate, adjusted net income, adjusted net income available to common shareholders, adjusted diluted earnings per common share, adjusted dividend payout ratio, adjusted return on average assets and adjusted return on average equity.
We believe these non-GAAP financial measures are utilized by regulators and market analysts to evaluate the Corporation’s results of operations and financial condition, and therefore such information is useful to investors. In addition, these non-GAAP financial measures remove the impact of infrequent items that may obscure trends in the Corporation’s underlying performance. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures, which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.
When interest rates increase, loan prepayments generally decline and depositors may shift funds from accounts that have a comparatively lower cost, such as regular savings accounts, to accounts with a higher cost, such as certificates of deposit. In addition, wholesale funds may reprice more quickly and by a greater amount than the repricing of in-market deposits. When interest rates decrease, loan prepayments and the receipt of payments on mortgage-backed securities generally increase, and may result in the proceeds having to be reinvested at a lower rate than the loan or mortgage-backed security being prepaid. Changes in interest rates can also affect the value of loans and investment securities. Fixed-rate investment securities, mortgage-backed securities and mortgage loans typically decline in value as interest rates rise.
The Bank has adopted asset and liability management policies to mitigate the potential adverse effects of changes in interest rates on net interest income, primarily by altering the mix and maturity of loans, investments, funding sources, and derivatives. However, even with these policies in place, a change in interest rates can impact our results of operations or financial condition.
We may be adversely affected by volatility in U.S. and global economic conditions and changes in fiscal, monetary, trade and regulatory policies.
The economy in the U.S. and globally has experienced volatility in recent years and may continue to experience such volatility for the foreseeable future. Unfavorable or uncertain economic conditions can be caused by declines in economic growth, business activity, or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; uncertainties regarding fiscal and monetary policies; the timing and
impact of changing governmental policies, including changes in guidance and interpretation by regulatory authorities; changes in trade policies by the U.S. or other countries; supply chain disruptions; consumer spending; employment levels; labor shortages; challenging labor market conditions; wage stagnation; federal government shutdowns; energy prices; home prices; commercial property values; bankruptcies and a default by a significant market participant or class of counterparties; natural disasters; climate change; epidemics; pandemics; terrorist attacks; acts of war; or a combination of these or other factors.
Volatile business and economic conditions could have adverse effects on our business, including the following:
• investors may have less confidence in the equity markets in general and in financial services industry stocks in particular, which could place downward pressure on our stock price and resulting market valuation;
• economic and market developments may further affect consumer and business confidence levels and may cause declines in credit usage and adverse changes in payment patterns, causing increases in delinquencies and default rates;
• our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite loans become less predictive of future behaviors;
• we could suffer decreases in demand for loans or other financial products and services or decreased deposits or other investments in accounts with us;
• our wealth management services customers may liquidate investments, which together with lower asset values, may reduce the level of assets under management and administration, and thereby decrease our wealth management revenues;
• competition in the financial services industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions or otherwise; and
• the value of loans and other assets or collateral securing loans may decrease.
Inflation can have an adverse impact on our business and on our customers.
The future rate of inflation and other economic factors remain uncertain, and the Federal Reserve may decrease or increase interest rates slower or faster than anticipated. If inflation increases and interest rates rise, the value of our investment securities, particularly those with longer maturities, will decrease, although this effect is less pronounced for floating rate instruments. Prolonged periods of inflation also may impact our profitability by negatively impacting our costs and expenses, including elevated funding costs and expenses related to talent acquisition and retention, and negatively impacting the demand for our products and services. Moreover, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans.
Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely affect our business, financial condition, and results of operations.
There have been significant changes to U.S. trade policies, including tariffs affecting many countries, and there continues to be significant discussion regarding other potential changes to U.S. trade policies, treaties, and tariffs, including the potential for additional tariffs. In addition, retaliatory tariffs have been imposed and additional retaliatory tariffs are likely. Tariffs, retaliatory tariffs or other trade restrictions on products and materials that our customers import or export could cause the prices of our customers’ products to increase, which could reduce demand for such products. Any of these effects could adversely affect the ability of our customers to pay their loans or result in changes to our customers’ borrowing patterns that could have a negative effect on our business and results of operations.
Changes in the business and economic conditions in southern New England could adversely affect our financial condition and results of operations.
We primarily serve individuals and businesses located in southern New England, and a substantial portion of our loans are secured by properties in southern New England. The real estate collateral securing the Bank’s loans provides an alternate source of repayment in the event of default by the borrower. However, unlike other larger institutions, we are not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies. An economic downturn could, therefore, result in losses that materially and adversely affect our business. An economic downturn or a prolonged economic recession in southern New England could result in the following consequences:
• loan delinquencies may increase;
• problem assets and foreclosures may increase;
• demand for our products and services may decline;
• collateral for our loans may decline in value, in turn reducing a customer’s borrowing power and reducing the value of collateral securing a loan;
• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; and
• our ability to continue to originate real estate loans may be impaired.
Increased market volatility and adverse changes in financial or capital market conditions may increase our market risk.
Our liquidity, competitive position, business, results of operations and financial condition are affected by market risks such as changes in interest rates, fluctuations in equity, commodity and futures prices, the implied volatility of interest rates and credit spreads and other economic and business factors. These market risks may adversely affect, among other things, the value of our securities, the cost of debt capital and our access to credit markets, the value of AUA, fee income relating to AUA, customer allocation of capital among investment alternatives, and our competitiveness with respect to deposit pricing. In times of market stress or other unforeseen circumstances, previously uncorrelated indicators may become correlated, which may limit the effectiveness of our strategies, including our recent balance sheet repositioning, to manage these risks.
If we are unable to access the capital markets, have prolonged net deposit outflows, or our borrowing costs increase, our liquidity and competitive position will be negatively affected.
Liquidity is essential to our business. We must maintain sufficient funds to respond to the needs of depositors and borrowers. To manage liquidity, we draw upon a number of funding sources in addition to in-market deposit growth and repayments and maturities of loans and investments. Any inability to access the capital markets, illiquidity or volatility in the capital markets, a decrease in value of eligible collateral or an increase in collateral requirements (including as a result of credit concerns for short-term borrowing), changes to our relationships with our funding providers based on real or perceived changes in our risk profile, prolonged federal government shutdowns, or changes in regulations or regulatory guidance, or other events could negatively affect our access to or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, or fund asset growth and new business initiatives at a reasonable cost, in a timely manner and without adverse consequences. Additionally, our liquidity or cost of funds may be negatively impacted by the unwillingness or inability of the Federal Reserve to act as lender of last resort, unexpected simultaneous draws on lines of credit or deposits, the withdrawal of or failure to attract customer deposits, or increased regulatory liquidity, capital and margin requirements.
Although we maintain a liquid asset portfolio and have implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes in assets, liabilities, and off-balance sheet commitments under various economic conditions, a substantial, unexpected, or prolonged change in the level or cost of liquidity could have a material adverse effect on us. If the cost effectiveness or the availability of supply in these markets is reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity by other means. These alternatives may include generating customer deposits, extending the maturity of wholesale borrowings, borrowing under certain secured borrowing arrangements, using relationships developed with a variety of fixed income investors, selling or securitizing loans, and further managing loan growth and investment opportunities. These alternative means of funding may result in an increase to the overall cost of funds and may not be available under stressed conditions, which would cause us to liquidate a portion of our liquid asset portfolio to meet any funding needs.
Our cost of funds for banking operations may increase as a result of general economic conditions, interest rates and competitive pressures.
Deposits are generally a low cost and stable source of funding. We compete with banks and other financial institutions for deposits. If, as a result of general economic conditions, market interest rates, competitive pressures, or otherwise, the amount of deposits at the Bank decreases relative to its overall banking operations, the Bank may have to rely more heavily on higher cost borrowings as a source of funds, such as the FHLB, or otherwise reduce its loan growth or pursue loan sales. Higher funding costs reduce our NIM, net interest income and net income.
A significant component of our liquidity needs is met through our access to funding pursuant to our membership in the FHLB. The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for joining the FHLB is to obtain funding. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. Any deterioration in the FHLB’s performance or financial condition may affect our ability to access funding and/or require us to deem the required investment in FHLB stock to be impaired. If we are not able to access funding through the FHLB, we
may not be able to meet our liquidity needs, which could have an adverse effect on our results of operations or financial condition. Similarly, if we deem all or part of our investment in FHLB stock impaired, such action could have an adverse effect on our financial condition or results of operations.
Our loan portfolio includes commercial loans, which are generally riskier than other types of loans.
At December 31, 2025, commercial loans represented 54% of our loan portfolio. Commercial loans generally carry larger loan balances and involve a higher risk of nonpayment or late payment than residential mortgage loans. These loans may lack standardized terms and may include a balloon payment feature. The ability of a borrower to make or refinance a balloon payment may be affected by a number of factors, including the financial condition of the borrower, prevailing economic conditions (including conditions in the real estate market), interest rates, and collateral values. Repayment of these loans is generally more dependent on the economy and the successful operation of a business. Additionally, the COVID-19 pandemic has had a long-term negative impact on certain commercial real estate properties due to the risk that tenants may reduce the office space they lease as some portion of the workforce continues to work remotely on a hybrid or full-time basis. Because of the risks associated with commercial loans, we may experience higher rates of default than if our portfolio were more heavily weighted toward residential mortgage loans. Higher rates of default could have an adverse effect on our financial condition and results of operations.
A portion of our commercial loan portfolio consists of loan participations, which may have a higher risk of loss than loans we originate because we are not the lead lender and we have limited control over credit monitoring.
We occasionally purchase commercial loan participations. Although these loan participations are individually underwritten by us using standards similar to those employed for our self-originated loans, loan participations may have a higher risk of loss than loans we originate because we are limited in our ability to monitor the performance of the loan and rely significantly on the lead lender. Moreover, our decisions regarding the classification of a loan participation and provisions for credit losses associated with a loan participation are made in part based upon information provided by the lead lender. A lead lender also may not monitor a participation loan in the same manner as we would for loans that we originate. At December 31, 2025, our participation in commercial loan originated by other banks amounted to $613.5 million.
We may experience losses and expenses if security interests granted for loans are not enforceable.
When we make loans, we sometimes obtain liens, such as real estate mortgages or other asset pledges, to provide us with a security interest in collateral. If there is a loan default, we may seek to foreclose upon collateral and enforce the security interests to obtain repayment and eliminate or mitigate our loss. Drafting errors, recording errors, other defects or imperfections in the security interests granted to us and/or changes in law may render liens granted to us unenforceable. We may incur losses or expenses if security interests granted to us are not enforceable.
Environmental liability associated with our lending activities could result in losses.
In the course of business, we may acquire, through foreclosure, properties securing loans we have originated that are in default. While we believe that our credit granting process incorporates appropriate procedures for the assessment of environmental contamination risk, there is a risk that material environmental violations could be discovered on these properties, particularly with respect to commercial loans secured by real estate. In this event, we might be required to remedy these violations at the affected properties at our sole cost and expense. The cost of this remedial action could substantially exceed the value of affected properties. We may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have an adverse effect on our financial condition and results of operations.
We are subject to a variety of risks in connection with any sale of loans we may conduct, which could adversely affect our results of operations and financial condition.
We routinely sell newly originated residential mortgage loans and may also sell other loans or loan portfolios. When mortgage loans are sold, we are required to make customary representations and warranties to purchasers, guarantors and insurers, including government-sponsored entities, about the mortgage loans and the manner in which they were originated. Whole loan sale agreements require us to repurchase or substitute mortgage loans, or indemnify buyers againstlosses, in the event we breach these representations or warranties. In addition, we may be required to repurchase mortgage loans as a result of early payment default of the borrower on a mortgage loan. If repurchase and indemnity demands increase and such demands are valid claims and are in excess of our provision for potential losses, our results of operations and financial condition may be adversely affected.
If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings may decrease.
We periodically make a determination of an ACL based on available information, including, but not limited to, the quality of the loan portfolio as indicated by trends in loan risk ratings, payment performance, economic conditions, the value of the underlying collateral, and the level of nonperforming and criticized loans. Management relies on its loan officers and credit quality reviews, its experience, and its evaluation of economic conditions, among other factors, in determining the amount of provision required for the ACL. Provisions to this allowance result in an expense for the period. If, as a result of general economic conditions, previously incorrect assumptions, or an increase in defaulted loans, we determine that additional increases in the ACL are necessary, additional expenses may be incurred.
Determining the ACL inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and trends, all of which may undergo material changes. We cannot be sure that we will be able to identify deteriorating credits before they become nonperforming assets or that we will be able to limit losses on those loans that are identified. We have in the past been, and in the future may be, required to increase our ACL for any of several reasons. Changes in economic conditions, forecasts or individual business or personal circumstances affecting borrowers, new information regarding existing loans, the value of underlying collateral, identification of additional problem loans, and other factors, both within and outside of our control, may require an increase in the ACL. In addition, our regulators, as an integral part of their examination process, periodically review the ACL and may require us to increase the ACL by recognizing additional provisions for loan losses charged to earnings, or to charge-off loans, which, net of any recoveries, would decrease the ACL. Any such additional provisions for credit losses or charge-offs could have a material adverse effect on our financial condition and results of operations.
We are a holding company and depend on the Bank for dividends, distributions, and other payments.
The Bancorp is a legal entity separate and distinct from the Bank. Revenues and cash flows of the Bancorp (on a non-consolidated basis) are derived primarily from dividends paid to it by the Bank. The right of the Bancorp, and consequently the right of shareholders of the Bancorp, to participate in any distribution of the assets or earnings of the Bank, through the payment of such dividends or otherwise, is necessarily subject to the prior claims of creditors of the Bank (including depositors), except to the extent that certain claims of the Bancorp in a creditor capacity may be recognized.
Holders of our common stock are entitled to receive dividends only when, as, and if declared by our Board of Directors. Although we have historically declared cash dividends on our common stock, we are not required to do so, and our Board of Directors may reduce or eliminate our common stock dividend in the future. The Bancorp and the Bank are potentially subject to various regulatory restrictions on our ability to pay dividends. See Item 1 “Business-Supervision and Regulation-Dividend Restrictions” and “Business - Supervision and Regulation-Capital Adequacy and Safety and Soundness-Regulatory Capital Requirements.”
We cannot guarantee that our allocation of capital to various alternatives, including share repurchase programs, will enhance long-term shareholder value.
Our business plan calls for us to execute a variety of strategies to allocate and deploy capital including, but not limited to, continued organic balance sheet growth and diversification, implementation of share repurchase programs, and payment of regular cash dividends. If we are unable to effectively and timely deploy capital through these strategies, it may constrain growth in earnings and return on equity and thereby diminish potential growth in shareholder value. During the second quarter of 2025, our Board of Directors adopted the 2025 Repurchase Program, which authorizes the repurchase of up to 850,000 shares, or approximately 4%, of the Bancorp’s outstanding common stock. Repurchases are made at management’s discretion at prices management considers to be attractive and in the best interests of both the Corporation and its shareholders, subject to the availability of shares, general market conditions, the trading price of the shares, alternative uses for capital, and the Corporation’s financial performance.
We have credit and market risk inherent in our investment securities portfolio.
We maintain a securities portfolio, which may include obligations of U.S. government-sponsored enterprises and agencies, including mortgage-backed securities; obligations of states and political subdivisions; individual name issuer trust preferred debt securities; and corporate bonds. We seek to limit credit losses in our securities portfolios by generally purchasing only highly-rated securities. The valuation and liquidity of our securities could be adversely impacted by reduced market liquidity, increased normal bid-asked spreads and increased uncertainty of market participants, which could reduce the market value of our securities, even those with no apparent credit exposure. Inflation and rapid increases in interest rates led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. The valuation of our securities requires judgment and as market conditions change security values may also change.
Significant negative changes to valuations could result in impairments in the value of our securities portfolio, which could have an adverse effect on our financial condition or results of operations.
Potential downgrades of U.S. government agency and government-sponsored enterprise securities by one or more of the credit ratings agencies could have a material adverse effect on our operations, earnings and financial condition.
A possible future downgrade of the sovereign credit rating of the U.S. government and a decline in the perceived creditworthiness of U.S. government-related obligations could impact our ability to obtain funding that is collateralized by affected instruments, as well as affect the pricing of that funding when it is available. A downgrade may also adversely affect the market value of such instruments. We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions. Such ratings actions could have a significant adverse impact on us. Among other things, a downgrade of the sovereign credit rating of the U.S. government could adversely impact the value of our investment securities portfolio and may trigger requirements to post additional collateral for trades relative to these securities. A downgrade of the sovereign credit rating of the U.S. government or the credit ratings of related institutions, agencies or instruments could significantly exacerbate the other risks to which we are subject and any related adverse effects on the business, financial condition and results of operations.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. If such events were to occur again in the future and result in the receivership of financial institutions, there is no guarantee that the systemic risk exception would be invoked to allow the FDIC to complete its resolution of such financial institutions in a manner that fully protects depositors or counterparties. We have exposure to a number of different counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, other commercial banks, investment banks, and other financial institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or customer. In addition, our credit risk may be exacerbated when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us. There is no assurance that any such losses would not materially and adversely affect our results of operations.
Market changes or economic downturns may adversely affect demand for our fee-based services and level of wealth management AUA.
Economic downturns could affect the volume of income earned from, and demand for, fee-based services.
Revenues from mortgage banking activities are largely dependent on mortgage origination volume and sales volume. Changes in interest rates and the condition of housing markets could adversely impact the volume of residential mortgage originations, sales and related mortgage banking activities.
Revenues from wealth management services depend in large part on the level of AUA, which are primarily marketable securities. Market volatility that results in clients liquidating investments, as well as lower asset values, can reduce the level of assets under management and administration and decrease our wealth management revenues, which could materially adversely affect our results of operations.
We face continuing security risks to our data, including the information we maintain relating to our customers.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our business and to store sensitive data, including financial information regarding customers. Our electronic communications and information systems infrastructure, as well as the systems infrastructure of the third-party vendors we use to meet our data processing and communication needs, could be susceptible to cyberattacks, such as denial of service attacks, hacking, terrorist activities, or identity theft. Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. Denial of service attacks have been launched against a number of large financial services institutions. Hacking and identity theft risks, in particular, could cause serious reputational harm. Notwithstanding the strength of defensive measures, cybersecurity threats
and the tactics, techniques, and procedures used in cyberattacks change, develop, and evolve rapidly and continuously, including from growth in third-party services that facilitate or carry out cyberattacks and from emerging technologies, including artificial intelligence, which may be used to enhance the tactics, techniques, and procedures described above and facilitate new cyber threats. Although to date we have not experienced any material losses relating to cyberattacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. A failure or circumvention of our security systems could have a material adverse effect on our business operations and financial condition.
We regularly assess and test our security systems and disaster preparedness, including back-up systems, but the risks are ongoing. As a result, cybersecurity and the continued enhancement of our controls and processes to protect our systems, data and networks from attacks, unauthorized access or significant damage remain a priority. Accordingly, we may be required to expend additional resources to enhance our protective measures or to investigate and remediate any information security vulnerabilities or exposures. Any breach of our system security could result in disruption of our operations, unauthorized access to confidential customer information, significant regulatory costs, litigation exposure, and other possible damages, loss, or liability. Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect our earnings. Also, any failure to prevent a security breach or to quickly and effectively deal with such a breach could negatively impact customer confidence, damaging our reputation and undermining our ability to attract and keep customers.
We rely on other companies to provide key components of our business infrastructure.
Third-party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third-party vendors carefully, we do not control them or their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively. Replacing these third-party vendors could also entail significant delay and expense.
We may not be able to successfully implement future information technology system enhancements, which could adversely affect our business operations and profitability.
We invest significant resources in information technology system enhancements in order to provide functionality and security at an appropriate level. We may not be able to successfully implement and integrate future system enhancements, which could adversely impact the ability to provide timely and accurate financial information in compliance with legal and regulatory requirements, which could result in sanctions from regulatory authorities. Such sanctions could include fines and suspension of trading in our stock, among others. In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations.
Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components. In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time.
We may incur significant losses as a result of ineffective risk management processes and strategies.
We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance, and legal reporting systems; internal controls; management review processes; and other mechanisms. In some cases, management of our risks depends upon the use of analytical and/or forecasting models, which, in turn, rely on assumptions and estimates. If the models used to mitigate these risks are inadequate, or the assumption or estimates are inaccurate or otherwise flawed, we may fail to adequately protect against risks and may incur losses. While we believe that we have adopted appropriate management and compliance programs, compliance risks will continue to exist, particularly as we anticipate and adapt to new and evolving laws, rules and regulations and evolving interpretations by regulatory authorities. In addition, there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated, which could lead to unexpectedlosses and our results of operations or financial condition could be materially adversely affected.
Damage to our reputation could significantly harm our business, including our competitive position and business prospects.
We are dependent on our reputation within our market area, as a trusted and responsible financial services company, for all aspects of our business with customers, employees, vendors, third-party service providers, and others, with whom we conduct business or potential future businesses. Negative public opinion about the financial services industry generally (including the types of banking and wealth management services that we provide) or us specifically could adversely affect our reputation and our ability to keep and attract customers and employees. Our actual or perceived failure to address various issues could give rise to negative public opinion and reputational risk that could cause harm to us and our business prospects. These issues include, but are not limited to, legal and regulatory requirements; properly maintaining customer and employee personal information; record keeping; money-laundering; sales and trading practices; ethical issues; appropriately addressing potential conflicts of interest; and the proper identification of the legal, reputational, credit, liquidity and market risks inherent in our products. Failure to appropriately address any of these issues could also give rise to additional regulatory restrictions and legal risks, which could, among other consequences, increase the size and number of litigationclaims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses.
The proliferation of social media websites utilized by us and other third parties, as well as the personal use of social media by our employees and others, including personal blogs and social network profiles, also may increase the risk that negative, inappropriate or unauthorized information may be posted or released publicly that could harm our reputation or have other negative consequences, including as a result of our employees interacting with our customers in an unauthorized manner in various social media outlets. Any damage to our reputation could affect our ability to retain and develop the business relationships necessary to conduct business, which in turn could negatively impact our financial condition, results of operations, and the market price of our common stock.
We may not be able to compete effectively.
We operate in a highly competitive environment that includes financial and non-financial services firms, including traditional banks, online banks, financial technology companies, and investment management and wealth advisory firms, including commercial banks and trust companies, investment advisory firms, mutual fund companies, stock brokerage firms. These companies compete on the basis of, among other factors, size, location, quality and type of products and services offered, price, technology, brand recognition, and reputation. Emerging technologies, such as artificial intelligence (including machine learning and generative artificial intelligence) and quantum computing, have the potential to further intensify competition and accelerate disruption in the financial services industry. Financial technology companies now offer services traditionally provided by financial institutions. These firms use technology and mobile platforms to enhance the ability of companies and individuals to borrow, save and invest money. Additionally, financial technology companies and other firms have begun to offer services such as stablecoins that may serve as alternatives to traditional banking products such as deposits. Many of these non-financial services competitors have fewer regulatory constraints and may have lower cost structures than we do. Our long-term success depends on our ability to develop and execute strategic plans and initiatives; to develop competitive products and technologies; and to attract, retain and develop a highly skilled employee workforce. We may not be as timely or successful in assessing the evolving competitive landscape and developing or introducing new products and services as our competitors. Our business may be negatively impacted if we, or our third-party providers, do not timely develop and apply emerging technologies, or if our initiatives in these areas are deficient or fail. Our, or our third-party providers’, inability or resistance to timely innovate or adapt operations, products, and services to evolving regulatory and market environments, industry standards, and consumer preferences could result in service disruptions, harm our business, and adversely affect our results of operations and reputation.
We may be unable to attract and retain key personnel.
Our success depends, in large part, on our ability to attract and retain key personnel. Certain key personnel that have regular direct contact with customers and clients often build strong relationships that are important to our business. In addition, we rely on key personnel to manage and operate our business, including major revenue producing functions, such as loan and deposit generation and wealth management services. Competition for qualified personnel in the financial services industry can be intense, and we may not be able to hire or retain the key personnel that we depend upon for success. Frequently, we compete in the market for talent with entities that are not subject to comprehensive regulation, including with respect to the structure of incentive compensation. The unexpectedloss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of the markets in which we operate, years of industry experience and the difficulty of promptly finding qualified replacement personnel. Also, the loss of key personnel could jeopardize our relationships with customers and clients and could lead to the loss of accounts. Losses of such accounts could have a material adverse impact on our business.
Natural disasters, acts of terrorism, future pandemics and other external events could harm our business.
Natural disasters can disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate, which could have a material adverse effect on our results of operations and financial condition. A significant natural disaster, such as a hurricane, blizzard, flood, fire or earthquake, could have a material adverse impact on our ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur. Acts of terrorism, war, civil unrest, or future pandemics could cause disruptions to our business or the economy as a whole. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.
The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased. In recent years, governments across the world have entered into international agreements to attempt to reduce global temperatures, in part by limiting greenhouse gas emissions. Despite the recent changes in the U.S. Administration, state legislatures and regulatory agencies may continue to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. These agreements and measures may result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational changes, each of which may require us to expend significant capital and incur compliance, operating, maintenance, and remediation costs. Consumers and businesses may also change their behavior on their own as a result of these concerns. The impact on our customers will likely vary depending on their specific attributes, including reliance on, or role in, carbon intensive activities. Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.
If we are required to write-down goodwill or other intangible assets recorded in connection with our acquisitions, our profitability would be negatively impacted.
Under GAAP, if the purchase price of an acquired company exceeds the fair value of the company’s net assets, the excess is carried on the acquirer’s balance sheet as goodwill or other identifiable intangible assets. Goodwill must be evaluated for impairment at least annually. Long-lived intangible assets are amortized and are tested for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset or asset group may not be recoverable. A significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or other factors could result in impairment of goodwill. Write-downs of the amount of any impairment, if necessary, would be charged to the results of operations in the period in which the impairment occurs. There can be no assurance that future evaluations of goodwill or intangible assets will not result in findings of impairment and related write-downs, which would have an adverse effect on our financial condition and results of operations.
Our financial statements are based in part on assumptions and estimates, which, if wrong, could cause unexpectedlosses in the future.
Pursuant to GAAP, we are required to use certain assumptions and estimates in preparing our financial statements, including in determining allowance for credit losses on loans, among other items. If assumptions or estimates underlying our financial statements are incorrect, we may experience material losses.
Changes in accounting standards can materially impact our financial statements.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board or regulatory authorities change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes are expected to continue and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements. Additionally, significant changes to accounting standards may require costly technology changes, additional training and personnel, and other expense that will negatively impact our results of operations.
Changes in tax laws and regulations, differences in interpretation of tax laws and regulations, and reductions in the value of our deferred tax assets may adversely impact our financial statements.
We are subject to tax law changes that could impact our effective income tax rate and our net deferred tax assets. Our net deferred tax assets are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We assess the deferred tax assets periodically to determine the likelihood of our ability to realize the benefits. A valuation allowance is established when it is more-likely-than-not that all or some portion of our deferred tax assets will not be realized. Management judgment is required in determining the appropriate recognition and valuation of deferred tax assets and liabilities, including projections of future taxable income, as well as the character of that income. A change in statutory tax rates and/or a change in realizability may result in a decrease or increase to our deferred tax assets. A decrease in our deferred tax assets could have a material adverse effect on our results of operations or financial condition.
Local, state or federal tax authorities may interpret tax laws and regulations differently than we do and challenge tax positions that we have taken on tax returns. This may result in differences in the treatment of revenues, deductions, credits and/or differences in the timing of these items. The differences in treatment may result in payment of additional taxes, interest, penalties, or litigation costs that could have a material adverse effect on our results.
The market price and trading volume of our stock can be volatile.
The price of our common stock can fluctuate widely in response to a variety of factors. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly. Some of the factors that could cause fluctuations or declines in the price of our common stock include, but are not limited to, actual or anticipated variations in reported operating results, recommendations by securities analysts, the level of trading activity in our common stock, our past and future dividend and share repurchase practices, new services or delivery systems offered by competitors, business combinations involving our competitors, operating and stock price performance of companies that investors deem to be comparable to us, news reports relating to trends or developments in the financial, credit, mortgage and housing markets, as well as the financial services industry, and changes in government regulations.
We may need to raise additional capital in the future and such capital may not be available when needed.
We are required by regulatory authorities to maintain adequate levels of capital to support our operations. We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. We cannot assure you that such capital will be available to us on acceptable terms or at all. Our inability to raise sufficient additional capital on acceptable terms when needed could subject us to certain activity restrictions or to a variety of enforcement remedies available to the regulatory authorities, including limitations on our ability to pay dividends or pursue acquisitions, the issuance by regulatory authorities of a capital directive to increase capital and the termination of deposit insurance by the FDIC.
Certain provisions of our articles of incorporation may have an anti-takeover effect.
Provisions of Rhode Island law, our articles of incorporation and by-laws, and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders. The combination of these provisions may inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.
RISKS RELATED TO OUR REGULATORY ENVIRONMENT
We operate in a highly regulated industry, and laws and regulations, or changes in them, could limit or restrict our activities and could have a material adverse effect on our operations.
We are subject to extensive federal and state regulation and supervision. Federal and state laws and regulations govern numerous matters affecting us, including changes in the ownership or control of banks and bank holding companies; maintenance of adequate capital and the financial condition of a financial institution; permissible types, amounts and terms of extensions of credit and investments; the manner in which we conduct mortgage banking activities; permissible non-banking activities; the level of reserves against deposits; and restrictions on dividend payments. The FDIC and the banking divisions or departments of states in which we are licensed to do business have the power to issue consent orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the Federal Reserve possesses similar powers with respect to bank holding companies. In addition, WTA, a registered investment advisor subsidiary, is
subject to regulation under federal and state securities laws and fiduciary laws. Further, we expect to become subject to future laws, rules and regulations beyond those currently proposed, adopted or contemplated in the U.S., as well as evolving interpretations of existing and future laws, rules and regulations. These and other restrictions limit the manner in which we may conduct business and obtain financing.
The Bancorp and the Bank are subject to regulatory capital requirements that could, among other things, require us to maintain higher capital resulting in lower returns on equity, and we may be required to obtain additional capital to comply or result in regulatory actions if we are unable to comply with such requirements.
The laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change. These changes could, among other things, subject us to additional costs, including costs of compliance; limit the types of financial services and products we may offer; and/or increase the ability of non-banks to offer competing financial services and products. Failure to comply with laws, regulations, policies, or supervisory guidance could result in enforcement and other legal actions by federal and state authorities, including criminal and civil penalties, the loss of FDIC insurance, revocation of a banking charter or registration as an investment adviser, other sanctions by regulatory agencies, civil money penalties, and/or reputational damage, which could have a material adverse effect on our business, financial condition, and results of operations. See “Business-Supervision and Regulation.”
Our wealth management business is highly regulated, and the regulators have the ability to limit or restrict our activities and impose fines or suspensions on the conduct of our business.
We offer wealth management services through the Bank and WTA. WTA is a registered investment adviser under the Advisers Act. The Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary, record keeping, operational and disclosure obligations. We are also subject to the provisions and regulations of ERISA to the extent that we act as a “fiduciary” under ERISA with respect to certain of our clients. ERISA and the applicable provisions of the federal tax laws impose a number of duties on persons who are fiduciaries under ERISA and prohibit certain transactions involving the assets of each ERISA plan which is a client, as well as certain transactions by the fiduciaries (and certain other related parties) to such plans. Investment contracts with institutional and other clients are typically terminable by the client, also without penalty, upon 30 to 60 days’ notice. Changes in these laws or regulations could have a material adverse impact on our profitability and mode of operations.
We are subject to numerous laws designed to protect consumers, including the CRA and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose community investment and nondiscriminatory lending requirements on financial institutions. The CFPB, the Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the CRA, the Equal Credit Opportunity Act, the Fair Housing Act or other fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on expansion and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.
We may become subject to enforcement actions even though noncompliance was inadvertent or unintentional.
The financial services industry is subject to intense scrutiny from bank supervisors in the examination process and aggressive enforcement of federal and state regulations, particularly with respect to mortgage-related practices and other consumer compliance matters, and compliance with anti-money laundering, BSA and OFAC regulations, and economic sanctions against certain foreign countries and nationals. Enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations; however, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there were systems and procedures designed to ensure compliance in place at the time.
As previously disclosed in 2023, the Bank entered into a settlement with the DOJ through an agreement to resolveallegations that it violated fair lending laws in the state of Rhode Island from 2016 to 2021. Under the settlement, the Bank agreed, over a five-year period, to (i) provide $7.0 million in loan subsidies and (ii) commit $2.0 million for focused community outreach and marketing efforts. The expenses associated with community outreach and marketing efforts are being recorded in the
period in which the activities occur and are consistent with historical spending levels. In addition, the Bank committed to opening two full-service branches in specific census tracts in Rhode Island, including the branch in Olneyville, Rhode Island that opened in 2024 and the branch in Pawtucket, Rhode Island, which is expected to open in the latter half of 2026. The settlement included no civil penalties levied against the Bank.
Failure to comply with these and other regulations or any applicable enforcement actions or settlement agreements, and supervisory expectations related thereto, may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage, or restrictions on our business.
We face significant legal risks, both from regulatory investigations and proceedings, and from private actions brought against us.
As a participant in the financial services industry, many aspects of our business involve substantial risk of legal liability. From time to time, customers and others make claims and take legal action pertaining to the performance of our responsibilities. Whether customer claims and legal action related to the performance of our responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant expenses, attention from management and financial liability. Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations. There is no assurance that litigation with private parties will not increase in the future. Actions currently pending against us may result in judgments, settlements, fines, penalties or other results adverse to us, which could materially adversely affect our business, financial condition or results of operations, or cause serious reputational harm to us.
Each presentation below reconciles the “as reported” GAAP measure to the adjusted non-GAAP measure.
Management's Discussion and Analysis
The following table presents adjusted noninterest income, adjusted noninterest expense, adjusted income before income taxes, adjusted income tax expense, adjusted effective tax rate, adjusted net income, and adjusted net income available to common shareholders:
(Dollars in thousands, except per share amounts)
Years Ended December 31,
Adjusted Noninterest Income:
Noninterest income (loss), as reported
Less adjustments:
Realized losses on securities, net
Losses on sale of portfolio loans, net
Gain on sale of bank-owned properties, net
Litigation settlement income
Total adjustments, pre-tax
Adjusted noninterest income (non-GAAP)
Adjusted Noninterest Expense:
Noninterest expense, as reported
Less adjustments:
Pension plan settlement charge
Total adjustments, pre-tax
Adjusted noninterest expense (non-GAAP)
Adjusted Income Before Income Taxes:
Income (loss) before income taxes, as reported
Less: total adjustments, pre-tax
Adjusted income before income taxes (non-GAAP)
Adjusted Income Tax Expense:
Income tax expense (benefit), as reported
Less: tax on total adjustments
Adjusted income tax expense (non-GAAP)
Adjusted Effective Tax Rate:
Effective tax rate, as reported (1)
Less: impact of adjustments
Adjusted effective tax rate (non-GAAP) (2)
Adjusted Net Income:
Net income (loss), as reported
Less: total adjustments, after-tax
Adjusted net income (non-GAAP)
Adjusted Net Income Available to Common Shareholders:
Net income (loss) available to common shareholders, as reported
Less: total adjustments available to common shareholders, after-tax
Adjusted net income available to common shareholders (non-GAAP)
(1) Calculated as income tax expense (benefit) divided by income (loss) before income taxes.
(2) Calculated as income tax expense (benefit), adjusted for the tax impact of the adjustments as outlined in the table above, divided by income (loss) before income taxes, adjusted for the pre-tax impact of the adjustments as outlined in the table above.
Management's Discussion and Analysis
The following table presents adjusted diluted earnings per common share and adjusted dividend payout ratio:
(Dollars in thousands, except per share amounts)
Years Ended December 31,
Adjusted Diluted Earnings per Common Share:
Diluted earnings (loss) per common share, as reported (1)
Less: impact of adjustments
Adjusted diluted earnings per common share (non-GAAP) (2)
Adjusted Dividend Payout Ratio:
Cash dividends declared per share, as reported
Diluted earnings (loss) per common share, as reported
Less: impact of adjustments
Adjusted diluted earnings per common share (non-GAAP)
Dividend payout ratio, as reported (3)
Adjusted dividend payout ratio (non-GAAP) (4)
(1) Net income (loss) available to common shareholders divided by weighted average diluted common and potential shares outstanding.
(2) Net income (loss) available to common shareholders, adjusted for the after-tax impact of adjustments as outlined in the table above, divided by weighted average diluted common and potential shares outstanding.
(3) Cash dividends declared per share divided by diluted earnings (loss) per common share.
(4) Cash dividends declared per share divided by diluted earnings (loss) per common share, adjusted for the after-tax impact of adjustments as outlined in the table above.
The following table presents adjusted return on average assets and adjusted return on average equity:
(Dollars in thousands)
Years Ended December 31,
Adjusted Return on Average Assets:
Net (loss) income, as reported
Less: adjustments, after-tax
Adjusted net income (non-GAAP)
Total average assets, as reported
Return on average assets (1)
Adjusted return on average assets (non-GAAP) (2)
Adjusted Return on Average Equity:
Net (loss) income available to common shareholders, as reported
Less: adjustments, after-tax
Adjusted net income available to common shareholders (non-GAAP)
Total average equity, as reported
Return on average equity (3)
Adjusted return on average equity (non-GAAP) (4)
(1) Net income (loss) divided by total average assets.
(2) Net income (loss), adjusted for the after-tax impact of adjustments as outlined in the table above, divided by total average assets.
(3) Net income (loss) available to common shareholders divided by total average equity.
(4) Net income (loss) available to common shareholders, adjusted for the after-tax impact of adjustments as outlined in the table above, divided by total average equity.
Management's Discussion and Analysis
Overview
Washington Trust offers a full range of financial services, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management and trust services through its offices in Rhode Island, Massachusetts and Connecticut.
Our largest source of operating income is net interest income, which is the difference between interest earned on loans and securities and interest paid on deposits and borrowings. In addition, we generate noninterest income from a number of sources, including wealth management services, mortgage banking activities, and deposit services. Our principal noninterest expenses include salaries and employee benefit costs, outsourced services (including software-as-a-service) provided by third-party vendors, occupancy and facility-related costs, and other administrative expenses.
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. We plan to open a new full-service branch in Pawtucket, Rhode Island in the latter half of 2026.
Results of Operations
Summary
The following table presents a summarized consolidated statement of operations:
(Dollars in thousands)
Change
Years Ended December 31,
Net interest income
Noninterest income (loss)
Total revenues
Provision for credit losses
Noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Adjusted net income (non-GAAP)
Net income totaled $52.2 million for 2025, compared to a net loss of $28.1 million reported for 2024. These results included:
• In 2025, sale-leaseback transactions were completed for five branch locations and a pre-tax net gain on the sale of the bank-owned properties totaling $7.0 million was recognized within noninterest income.
• Also in 2025, and in connection with the termination of the Corporation's qualified pension plan, a pre-tax non-cash pension plan settlement charge of $6.4 million was recognized within noninterest expenses.
• In December 2024, the Bancorp completed an underwritten public offering of its common stock and used the $70.5 million in net proceeds to invest in the Bank and execute balance sheet repositioning transactions, including the sale of lower-yielding loans and securities, the purchase of debt securities, and the repayment of wholesale funding balances. As a result:
◦ Included in noninterest income (loss) in 2024 was a net pre-tax realized loss of $31.0 million on the sale of available for sale debt securities.
◦ Included in noninterest income (loss) in 2024 was a net pre-tax loss of $62.9 million when residential mortgage loans, that the Bank committed to sell, were reclassified to held for sale and written down to a fair value. The sale of these loans was completed on January 24, 2025.
◦ The net proceeds from the equity offering and the loan sale were used to pay down wholesale funding balances in December 2024 and the first quarter of 2025.
• Also in 2024, noninterest income (loss) included a net gain of $988 thousand recognized on the sale of a bank-owned operations facility and income of $2.1 million associated with a litigation settlement.
Management's Discussion and Analysis
Excluding these infrequent transactions, adjusted net income (non-GAAP) was $51.8 million in 2025, compared to $40.9 million in 2024. These results were driven by an increase in net interest income, largely reflecting the benefits of the balance sheet repositioning transactions mentioned above, and growth in wealth management and mortgage banking revenues, and were partially offset by higher salaries and benefits costs and an elevated provision for credit losses.
The following table presents a summary of performance metrics and ratios:
Years Ended December 31,
Diluted earnings (loss) per common share
Adjusted diluted earnings per common share (non-GAAP)
Return on average assets
Adjusted return on average assets (non-GAAP)
Return on average equity
Adjusted return on average equity (non-GAAP)
Management's Discussion and Analysis
Average Balances/Net Interest Margin - Fully Taxable Equivalent Basis
The following table presents daily average balance, interest, and yield/rate information, as well as net interest margin on an FTE basis. Tax-exempt income is converted to an FTE basis using the statutory federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. Unrealized gains (losses) on available for sale securities, changes in fair value on mortgage loans held for sale, and basis adjustments associated with fair value hedges are excluded from the average balance and yield calculations. Nonaccrual loans, as well as interest recognized on these loans, are included in amounts presented for loans.
Years ended December 31,
Change
(Dollars in thousands)
Average Balance
Interest
Yield/ Rate
Average Balance
Interest
Yield/ Rate
Average Balance
Interest
Yield/ Rate
Assets:
Cash and short-term investments
Mortgage loans held for sale
Taxable debt securities
Nontaxable debt securities
Total securities
FHLB stock
Commercial real estate
Commercial & industrial
Total commercial
Residential real estate
Home equity
Other
Total consumer
Total loans
Total interest-earning assets
Noninterest-earning assets
Total assets
Liabilities and Shareholders’ Equity:
Interest-bearing demand deposits
NOW accounts
Money market accounts
Savings accounts
Time deposits (in-market)
Interest-bearing in-market deposits
Wholesale brokered time deposits
Total interest-bearing deposits
FHLB advances
Junior subordinated debentures
Total interest-bearing liabilities
Noninterest-bearing demand deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income (FTE)
Interest rate spread
Net interest margin
Management's Discussion and Analysis
Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency:
(Dollars in thousands)
Years ended December 31,
Change
Commercial loans
Nontaxable debt securities
Total
Net Interest Income
Net interest income, the primary source of our operating income, totaled $153.2 million and $128.4 million, respectively, for 2025 and 2024.
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. Net interest income may also include the periodic recognition of prepayment penalty fee income associated with commercial loan payoffs. Prepayment penalty fee income amounted to $580 thousand (or a 1 basis point benefit to NIM) in 2025. Prepayment penalty fee income and its impact on NIM was insignificant in 2024. The analysis of net interest income, NIM and the yield on loans is also impacted by changes in the level of net amortization of premiums and discounts on securities and loans, which is included in interest income. As noted in the Consolidated Statements of Cash Flows, net amortization of premiums and discounts on securities and loans (a net reduction to net interest income) amounted to $1.1 million in 2025, compared to $1.3 million in 2024.
The improvement in net interest income, FTE net interest income and NIM discussed below largely reflected benefits from the balance sheet repositioning transactions previously announced in December 2024, which included the sale of lower-yielding debt securities and residential real estate loans, reinvestment into higher-yielding debt securities, and pay-down of higher-cost FHLB advances and wholesale brokered time deposits.
The following discussion presents net interest income on an FTE basis by adjusting income and yields on tax-exempt loans to be comparable to taxable loans.
FTE net interest income in 2025 amounted to $154.0 million, up by $24.7 million, or 19%, from 2024. Decreases in average interest-bearing liability balances net of decreases in average interest-earning assets, increased net interest income by $9.5 million in 2025. Decreases in funding costs outpaced decreases in asset yields, increasing net interest income by $15.2 million in 2025. NIM was 2.40% in 2025, up by 53 basis points from 1.87% in 2024.
Total average securities for 2025 decreased by $58.4 million, or 5%, from 2024, primarily due to routine pay downs. The FTE rate of return on securities was 3.45% in 2025, up by 96 basis points from 2024.
Total average loan balances decreased by $463.2 million, or 8%, from 2024, largely reflecting a decrease in residential real estate loans. The yield on total loans in 2025 was 5.28%, down by 9 basis points from 2024.
FHLB advances and brokered time deposits are utilized as wholesale funding sources. Wholesale funding balances decreased in 2025, largely reflecting benefits from the balance sheet repositioning transactions mentioned above, as well as in-market deposit growth. Rates paid on wholesale funding have declined from the prior year reflecting lower market interest rates. The average balance of FHLB advances for 2025 decreased by $426.7 million, or 33%, from 2024. The average rate paid on such advances in 2025 was 4.48%, down 44 basis points from 2024. Included in total average interest-bearing deposits were wholesale brokered deposits, which decreased by $455.9 million, or 90%, from 2024. The average rate paid on wholesale brokered deposits in 2025 was 5.04%, down by 18 basis points from 2024.
Average in-market interest-bearing deposits, which excludes wholesale brokered deposits, increased by $395.8 million, or 10%, from 2024, reflecting increases across most deposit categories. The average rate paid on in-market interest-bearing deposits in 2025 was 2.74%, down by 22 basis points from 2024, largely reflecting lower market interest rates. The average balance of noninterest-bearing demand deposits for 2025 decreased by $31.4 million, or 5%, from 2024.
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)
Changes Due To
Years Ended December 31, 2025 vs. 2024
Volume
Rate
Net Change
Interest on interest-earning assets:
Cash and short-term investments
Mortgage loans held for sale
Taxable debt securities
Nontaxable debt securities
Total securities
FHLB stock
Commercial real estate
Commercial & industrial
Total commercial
Residential real estate
Home equity
Other
Total consumer
Total loans
Total interest income
Interest on interest-bearing liabilities:
Interest-bearing demand deposits
NOW accounts
Money market accounts
Savings accounts
Time deposits (in-market)
Interest-bearing in-market deposits
Wholesale brokered time deposits
Total interest-bearing deposits
FHLB advances
Junior subordinated debentures
Total interest expense
Net interest income (FTE)
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.
The following table presents the provision for credit losses:
(Dollars in thousands)
Change
Years ended December 31,
Provision for credit losses on loans
Provision for credit losses on unfunded commitments
Provision for credit losses
Management's Discussion and Analysis
The increase in the provision for credit losses in 2025 reflected the impact of charge-offs on two commercial loan relationships. Net charge-offs totaled $14.2 million, or 0.28% of average loans in 2025, compared to $2.0 million, or 0.04% of average loans in 2024. See additional discussion regarding these two commercial loan relationships, other credit quality details and discussion regarding the ACL under the caption “Asset Quality” below.
Noninterest Income
Noninterest income is an important source of revenue for Washington Trust. The principal categories of noninterest income are shown in the following table:
(Dollars in thousands)
Change
Years Ended December 31,
Noninterest income :
Wealth management revenues
Mortgage banking revenues
Card interchange fees
Service charges on deposit accounts
Loan related derivative income
Income from bank-owned life insurance
Realized losses on securities, net
Losses on the sale of portfolio loans, net
Gain on sale of bank-owned properties, net
Other income
Total noninterest income (loss)
Adjusted noninterest income (non-GAAP)
Noninterest Income Analysis
Noninterest income amounted to $75.9 million in 2025, compared to a loss of $27.8 million in 2024. As described above, total noninterest income was impacted by infrequent transactions in both years. Excluding the impact of these transactions, adjusted noninterest income (non-GAAP) was $68.9 million in 2025, compared to $63.1 million in 2024, up by $5.8 million, or 9%.
Wealth management revenues represent our largest source of noninterest income. A substantial portion of wealth management revenues is dependent on the value of wealth management AUA and is closely tied to the performance of the financial markets. This portion of wealth management revenues is referred to as “asset-based” and includes trust and investment management fees. Wealth management revenues also include “transaction-based” revenues that are not primarily derived from the value of assets.
The categories of wealth management revenues are shown in the following table:
(Dollars in thousands)
Change
Years Ended December 31,
Wealth management revenues:
Asset-based revenues
Transaction-based revenues
Total wealth management revenues
Management's Discussion and Analysis
The following table presents wealth management AUA balances:
(Dollars in thousands)
Assets under administration at the end of period
In the third quarter of 2025, the Bank's registered investment adviser subsidiary purchased client advisory contracts from Lighthouse in an asset acquisition. The transaction closed on July 31, 2025, resulting in the acquisition of AUA totaling $195.4 million. See Note 8 to the Consolidated Financial Statements for additional disclosure.
Wealth management revenues for 2025 increased by $2.2 million, or 6%, from 2024, largely reflecting an increase in asset-based revenues. The increase in asset-based revenues correlated with the change in average AUA balances. The average balance of AUA increased by 7% over 2024, primarily reflecting net investment appreciation of AUA.
Mortgage banking revenues are dependent on mortgage origination volume and are sensitive to interest rates and the condition of housing markets. In 2025, loan origination activities increased in response to decreases in market interest rates. The composition of mortgage banking revenues and the volume of loans sold to the secondary market are shown in the following table:
(Dollars in thousands)
Change
Years Ended December 31,
Mortgage banking revenues:
Realized gains on loan sales, net (1)
Changes in fair value, net (2)
Loan servicing fee income, net (3)
Total mortgage banking revenues
Loans sold to the secondary market (4)
(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).
Mortgage banking revenues increased by $1.1 million, or 10%, in 2025. The increase in mortgage banking revenues largely reflected an increase in sales volume.
Loan related derivative income from interest rate swap contracts with commercial borrowers increased by $1.7 million in 2025, reflecting higher transaction volume.
Other income was down by $1.9 million, or 53%, from 2024, primarily due to the receipt of income associated with a litigation settlement as mentioned above.
Management's Discussion and Analysis
Noninterest Expense
The following table presents noninterest expense comparisons:
(Dollars in thousands)
Change
Years Ended December 31,
Noninterest expense:
Salaries and employee benefits
Outsourced services
Net occupancy
Equipment
Legal, audit and professional fees
FDIC deposit insurance costs
Advertising and promotion
Amortization of intangibles
Pension plan settlement charge
Other
Total noninterest expense
Adjusted noninterest expense (non-GAAP)
Noninterest Expense Analysis
Total noninterest expense amounted to $152.4 million in 2025, compared to $137.1 million in 2024. Total noninterest expense was impacted by the termination of the Corporation’s qualified pension plan, as described under the caption “Summary” above. Excluding the impact of this infrequent transaction, adjusted noninterest expense (non-GAAP) was $146.0 million in 2025, up by $8.9 million, or 7%, from 2024.
Salaries and employee benefits expense, the largest component of noninterest expense, increased by $5.5 million, or 6%, from 2024. This included higher levels of performance- and volume-based compensation, merit increases, and increased staffing levels.
Outsourced services includes software as a service and cloud computing software costs, as well as other third-party provided processing costs. Outsourced services expense increased by $679 thousand, or 4%, from 2024, reflecting changes in third-party provided services, including volume-related changes.
Net occupancy increased by $951 thousand, or 10%, primarily due to lease expense associated with the sale-leaseback transactions that were completed in the first quarter of 2025.
FDIC deposit insurance costs for the 2025 decreased by $933 thousand, or 17%, from 2024, reflecting the impact of a decline in average assets from a year ago and a lower FDIC deposit assessment rate.
Other noninterest expense for 2025 increased by $3.0 million, or 34%, from 2024. Included in this increase was a fourth quarter 2025 $1.0 million contribution made by Washington Trust to its charitable foundation, as well as system conversion costs associated with changes in technology, and increases across a variety of noninterest expense categories.
Management's Discussion and Analysis
Income Taxes
The following table presents the Corporation’s income tax expense and effective tax rate for the periods indicated:
(Dollars in thousands)
Years ended December 31,
Income tax expense (benefit)
Adjusted income tax expense (non-GAAP)
Effective tax rate
Adjusted effective tax rate (non-GAAP)
Blended statutory rate
The effective tax rates differed from the federal rate of 21%, primarily due to state income tax expense, which was partially offset by benefits from tax-exempt income, income from BOLI, and federal tax credits. The blended statutory rates include the federal income tax rate of 21% and a blended state income tax rate net of a federal tax benefit.
In 2025, the Corporation recognized income tax expense of $15.2 million, compared to an income tax benefit of $10.8 million in 2024. The effective tax rate for 2025 was 22.5%, compared to a rate 27.7% for 2024. Income tax expense (benefit) was impacted by infrequent transactions, as described under the caption “Summary” above. Excluding the impact of these transactions, the adjusted effective tax rate (non-GAAP) increased to 22.5% in 2025 from 21.5% in 2024, reflecting changes in state tax exposure and a lower proportion of nontaxable income to adjusted pre-tax book income.
The Corporation’s net deferred tax assets amounted to $36.9 million at December 31, 2025, compared to $63.0 million at December 31, 2024. This decrease included the realization of a deferred tax asset established in December 2024 associated with the loans that were reclassified to held for sale and written down to fair value as part of the balance sheet repositioning transactions. This deferred tax asset was realized in January 2025 when the loan sale was completed. Excluding that item, the decrease largely reflected reductions in deferred tax assets associated with increases in fair value of securities available for sale. Management’s assessment considered the Corporation’s forecasted future taxable income, existing taxable temporary differences along with tax planning strategies. Management believes deferred tax assets, net of the valuation allowance, are more-likely-than-not to be realized.
See Note 11 to the Consolidated Financial Statements for additional information regarding income taxes.
Segment Reporting
The Corporation manages its operations through two reportable business segments, consisting of Banking and Wealth Management Services. See Note 18 to the Consolidated Financial Statements.
Banking
The following table presents a summarized statement of operations for the Banking business segment:
(Dollars in thousands)
Change
Years Ended December 31,
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Management's Discussion and Analysis
Net interest income for the Banking segment increased by $24.7 million, or 19%, from 2024. This improvement largely reflected benefits from the balance sheet repositioning transactions previously announced in December 2024. See additional discussion under the caption “Net Interest Income” above.
The provision for credit losses increased by $6.8 million from 2024, primarily due to elevated charge-offs in 2025. See additional discussion under the caption “Provision for Credit Losses.”
Noninterest income derived from the Banking segment was $33.9 million, compared to a loss of $69.6 million in 2024. Noninterest income in 2025 included a net gain recognized on sale-leaseback transactions. Noninterest income in 2024 included net losses recognized on balance sheet repositioning transactions, as well as a net gain on sale of a bank-owned operations facility. Excluding these items, Banking noninterest income increased by $3.4 million, or 14%, largely reflecting higher loan related derivative income and mortgage banking revenues. See additional discussion under the caption “Noninterest Income” above.
Banking noninterest expenses were up by $11.1 million, or 10%, from 2024. Included in 2025 was $4.9 million of the total pension plan settlement charge that was allocated to the Banking segment. Excluding this item, noninterest expenses for the Banking segment increased by $6.2 million, or 6%, reflecting increases in salaries and employee benefits expense, net occupancy, outsourced services, system conversion costs and charitable contribution expense. These increases were partially offset by a decrease in FDIC insurance costs. See additional disclosure 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)
Change
Years Ended December 31,
Net interest income
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Noninterest income for the Wealth Management Services segment was $42.0 million, up by $161 thousand, or 0.4%, from 2024. Included in 2024 was income of $2.1 million associated with a litigation settlement. Excluding the impact of this item, Wealth Management Services noninterest income increased by $2.3 million, or 6%, largely reflecting an increase in asset-based revenues. See further discussion of wealth management revenues under the caption “Noninterest Income” above.
Noninterest expenses for the Wealth Management Services segment increased by $4.2 million, or 15%, compared to 2024. Included in 2025 was $1.5 million of the total pension plan settlement charge that was allocated to the Wealth Management Services segment. Excluding this item, noninterest expenses for the Wealth Management Services segment increased by $2.7 million, or 10%, largely reflecting increases in salaries and employee benefits expense. See additional discussion under the caption “Noninterest Expense” above.
Management's Discussion and Analysis
Financial Condition
Summary
The following table presents selected financial condition data:
(Dollars in thousands)
Change
December 31,
Mortgage loans held for sale, at lower of cost or market
Available for sale debt securities
Total loans
Allowance for credit losses on loans
Total assets
Total deposits
FHLB advances
Total shareholders’ equity
Mortgage loans held for sale at lower of cost or market decreased from the end of 2024. As part of the previously disclosed balance sheet repositioning transactions, residential mortgage loans that were held in portfolio were reclassified to held for sale at December 31, 2024. On January 24, 2025, the sale was completed and the cash proceeds received, along with in-market deposit growth, were used to pay down FHLB advances and wholesale brokered time deposits in 2025.
Securities
I nvestment security activity is monitored by the Investment Committee, the members of which also sit on the ALCO. Asset and liability management objectives are the primary influence on the Corporation’s investment activities. However, the Corporation also recognizes that there are certain specific risks inherent in investment activities. The securities portfolio is managed in accordance with regulatory guidelines and established internal corporate investment policies that provide limitations on specific risk factors such as market risk, credit risk and concentration, liquidity risk, and operational risk to help monitor risks associated with investing in securities. Reports on the activities conducted by the Investment Committee and the ALCO are presented to the Board of Directors on a regular basis.
The Corporation’s securities portfolio is managed to generate interest income, to implement interest rate risk management strategies, and to provide a readily available source of liquidity for balance sheet management. Securities are designated as either available for sale, held to maturity or trading at the time of purchase. The Corporation does not maintain a portfolio of trading securities and does not have securities designated as held to maturity. Securities available for sale may be sold in response to changes in market conditions, prepayment risk, rate fluctuations, liquidity, or capital requirements. Debt securities available for sale are reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of tax, until realized.
Determination of Fair Value
The Corporation uses an independent pricing service to obtain quoted prices. The prices provided by the independent pricing service are generally based on observable market data in active markets. The determination of whether markets are active or inactive is based upon the level of trading activity for a particular security class. Management reviews the independent pricing service’s documentation to gain an understanding of the appropriateness of the pricing methodologies. Management also reviews the prices provided by the independent pricing service for reasonableness based upon current trading levels for similar securities. If the prices appear unusual, they are re-examined and the value is either confirmed or revised. In addition, management periodically performs independent price tests of securities to ensure proper valuation and to verify our understanding of how securities are priced. As of December 31, 2025 and 2024, 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 10 to the Consolidated Financial Statements for additional information regarding the determination of fair value of investment securities.
Management's Discussion and Analysis
Securities Portfolio
The carrying amounts of securities held are as follows:
(Dollars in thousands)
December 31,
Amount
% of Total
Amount
% of Total
Available for Sale Debt Securities:
Obligations of U.S. government agencies and U.S. government-sponsored enterprises
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
Obligations of states and political subdivisions
Individual name issuer trust preferred debt securities
Corporate bonds
Total available for sale debt securities
The securities portfolio represented 14% of total assets at December 31, 2025, compared to 13% of total assets at December 31, 2024. 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 $24.0 million, or 3%, from the end of 2024. This included purchases of U.S. government agency mortgage-backed securities totaling $75.9 million, with a weighted average yield of 5.46% and an increase of $38.4 million (pre-tax) in the fair value of available for sale securities. These increases were partially offset by $89.2 million of routine pay-downs and maturities of mortgage-backed securities and calls of trust preferred debt securities.
The carrying amounts of available for sale debt securities as of December 31, 2025 and 2024, included net unrealized losses of $94.9 million and $133.3 million, respectively. The net unrealized losses were primarily concentrated in obligations of U.S. government agencies and U.S. government-sponsored enterprises, including mortgage-backed securities, and primarily attributable to relative changes in market interest rates since the time of purchase. See Note 3 to the Consolidated Financial Statements for additional information.
Federal Home Loan Bank Stock
The Bank is a member of the FHLB, which is a cooperative that provides services to its member banking institutions. The primary reason for the Bank’s membership is to gain access to a reliable source of wholesale funding in order to manage interest rate risk. The purchase of FHLB stock is a requirement for a member to gain access to funding. The Bank purchases FHLB stock in proportion to the volume of funding received and views the purchases as a necessary long-term investment for the purposes of balance sheet liquidity and not for investment return. The Bank’s investment in FHLB stock totaled $29.5 million at December 31, 2025, compared to $49.8 million at December 31, 2024. See Note 1 to the Consolidated Financial Statements for additional information.
Loans
We primarily serve individuals and businesses located in southern New England, and a substantial portion of our loans are secured by properties in southern New England. Total loans amounted to $5.1 billion at December 31, 2025, down by $3.5 million, or 0.1%, from the end of 2024.
Management's Discussion and Analysis
The following table sets forth the composition of the Corporation’s loan portfolio:
(Dollars in thousands)
December 31,
Amount
Amount
Commercial:
Commercial real estate
Commercial & industrial
Total commercial
Residential real estate:
Residential real estate (1)
Consumer:
Home equity
Other
Total consumer
Total loans
(1) Includes negative basis adjustments associated with fair value hedges of $335 thousand and $1.5 million, respectively, at December 31, 2025 and 2024. See Note 9 to the Consolidated Financial Statements for additional disclosure.
An analysis of the maturity and interest rate sensitivity of the Corporation’s loan portfolio as of December 31, 2025 follows:
(Dollars in thousands)
Commercial
Consumer
CRE (1)
Total Commercial
Residential Real Estate (2)
Home Equity
Other
Total Consumer
Total
Amounts due in:
One year or less
After one year to five years
After five years to fifteen years
After fifteen years
Total
Interest rate terms on amounts due after one year:
Fixed rates
Variable rates
(1) Includes construction and development loans that will convert to repayment terms following the construction period and will be reclassified to either the CRE or C&I category.
(2) Includes homeowner construction loans. Maturities of homeowner construction loans are included based on their contractual conventional mortgage repayment terms following the completion of construction.
Generally, the actual maturity of loans is substantially shorter than their contractual maturity due to prepayments and, in the case of loans secured by real estate, due to payoff of loans upon the sale of the property by the borrower. The average life of loans secured by real estate tends to increase when market loan rates are higher than rates on existing portfolio loans and, conversely, tends to decrease when rates on existing portfolio loans are higher than market loan rates. Under the latter scenario, the average yield on portfolio loans tends to decrease as higher yielding loans are repaid or refinanced at lower rates. Due to the fact that the Bank may, consistent with industry practice, renew a significant portion of commercial loans at or immediately prior to their maturity by renewing the loans on substantially similar or revised terms, the principal repayments actually received by the Bank are anticipated to be significantly less than the amounts contractually due in any particular period. In other circumstances, a loan, or a portion of a loan, may not be repaid due to the borrower’s inability to satisfy the contractual terms of the loan.
Management's Discussion and Analysis
Commercial Loans
The commercial loan portfolio represented 54% of total loans at December 31, 2025, compared to 52% of total loans at December 31, 2024.
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 $613.5 million and $685.7 million, respectively, at December 31, 2025 and 2024. Our participation in commercial loans originated by other banks also includes shared national credits. Shared national credits are defined as participations in loans or loan commitments of at least $100.0 million that are shared by three or more banks.
Commercial loans fall into two main categories, CRE and C&I loans. CRE loans consist of commercial mortgages secured by non-owner occupied real property where the primary source of repayment is derived from rental income associated with the property or the proceeds of the sale, refinancing or permanent financing of the property. CRE loans also include construction loans made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings. C&I loans primarily provide working capital, equipment financing, and financing for other business-related purposes. C&I loans are frequently collateralized by equipment, inventory, accounts receivable, and/or general business assets. A portion of the Bank’s C&I loans is also collateralized by owner occupied real estate. C&I loans also include tax-exempt loans made to states and political subdivisions, as well as industrial development or revenue bonds issued through quasi-public corporations for the benefit of a private or non-profit entity where that entity rather than the governmental entity is obligated to pay the debt service.
From time to time, commercial loans may be reclassified between CRE and C&I categories, reflecting underlying changes in loans to/from owner occupied from/to non-owner occupied. Additionally, certain construction loans may be reclassified to C&I when the construction phase is complete and the loan transitions to permanent financing.
Commercial Real Estate Loans
CRE loans totaled $2.2 billion at December 31, 2025, up by $29.5 million, or 1%, from the balance at December 31, 2024. In 2025, CRE loan originations and advances amounted to $359.1 million and were largely offset by payments.
The following table presents a geographic summary of CRE loans by property location:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Outstanding Balance
% of Total
Outstanding Balance
% of Total
Connecticut
Massachusetts
Rhode Island
Subtotal
All other states
Total
Management's Discussion and Analysis
Management considers the CRE portfolio to be well-diversified with loans across several property types. Other than the multi-family segment that is described further below, there were no other property types within the CRE portfolio that exceeded 10% of total loans. The following table presents a summary of CRE loans by property type segmentation:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Outstanding Balance (1)
% of CRE Total
Outstanding Balance (1)
% of CRE Total
CRE Portfolio Segmentation:
Multi-family
Retail
Industrial and warehouse
Office
Hospitality
Healthcare facility
Mixed-use
Other
Total CRE loans
Construction & development loans outstanding, included above
Participation in CRE loans originated by other banks, included above (2)
Average CRE loan size (3)
Largest individual CRE loan outstanding
(1) Does not include unfunded commitments of $127.1 million and $168.3 million, respectively, as of December 31, 2025 and 2024.
(2) Includes shared national credit balances of $45.6 million and $84.7 million, respectively, as of December 31, 2025 and 2024. There were no classified shared national credit balances as of December 31, 2025, compared to $21.0 million of classified balances as of December 31, 2024.
(3) Total commitment (outstanding loan balance plus unfunded commitments) divided by number of loans.
Multi-family totaled $667.4 million as of December 31, 2025, and is our largest single CRE segment, representing 13% of total loans and 31% of the total CRE portfolio. This segment includes non-owner occupied residential properties consisting of four or more units that are rented to tenants. At December 31, 2025, the credit quality of the multi-family segment was 100% pass-rated. Also, there were no nonaccrual loans and there was one loan that was past due with respect to payment terms in this segment at December 31, 2025.
There continues to be heightened focus in the banking industry on the CRE office sector, given the continuation of remote work and elevated vacancies across the office market. As of December 31, 2025, Washington Trust’s CRE office loan segment totaled $237.7 million, or 5% of total loans and 11% of the total CRE loans. The loans are secured by non-owner occupied office properties, including medical office and lab space, located in our primary lending market area of southern New England - Massachusetts, Connecticut, and Rhode Island. Furthermore, approximately 66% of the CRE office segment balance of $237.7 million is secured by properties located in suburban areas. As of December 31, 2025, 100% of the CRE office segment was current with respect to payment terms, and 100% of the CRE office segment was on accruing status. Additionally, the credit quality of the CRE office loan segment was 73% pass-rated, 24% special mention and 3% classified as of December 31, 2025.
Commercial and Industrial Loans
C&I loans amounted to $564.1 million at December 31, 2025, up by $21.6 million, or 4%, from the balance at December 31, 2024. In 2025, C&I originations and advances amounted to $106.2 million and were largely offset by payments.
Management's Discussion and Analysis
Management considers the C&I portfolio to be well-diversified with loans across several industries. The following table presents a summary of C&I loan by industry segmentation:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Outstanding Balance (1)
% of Total
Outstanding Balance (1)
% of Total
C&I Portfolio Segmentation:
Healthcare and social assistance
Real estate rental and leasing
Transportation and warehousing
Educational services
Retail trade
Accommodation and food services
Manufacturing
Finance and insurance
Arts, entertainment and recreation
Information
Professional, scientific and technical services
Public administration
Other
Total C&I loans
Participation in C&I loans originated by other banks, included above (2)
Average C&I loan size (3)
Largest individual C&I loan outstanding
(1) Does not include unfunded commitments of $306.9 million and $307.9 million, respectively, as of December 31, 2025 and 2024.
(2) Includes shared national credit balances of $72.0 million and $71.0 million, respectively, as of December 31, 2025 and 2024; all of which were pass-rated.
(3) Total commitment (outstanding loan balance plus unfunded commitments) divided by number of loans.
Healthcare and social assistance, our largest single C&I segment, totaled $150.1 million as of December 31, 2025, representing 3% of total loans and 27% of the total C&I portfolio. This segment includes specialty medical practices, elder services, and community and mental health centers. At December 31, 2025, the credit quality of the healthcare and social assistance segment was 89% pass-rated and 11% was special mention. Also, there were no nonaccrual loans and all loans were current with respect to payment terms at December 31, 2025.
Residential Real Estate Loans
The residential real estate loan portfolio represented 40% of total loans at December 31, 2025, compared to 41% of total loans at December 31, 2024.
Residential real estate loans held in portfolio amounted to $2.1 billion at December 31, 2025, down by $75.8 million, or 4%, from the balance at December 31, 2024, as loan originations were more than offset by payments.
Management's Discussion and Analysis
The following is a geographic summary of residential real estate loans by property location:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Amount
% of Total
Amount
% of Total
Massachusetts
Rhode Island
Connecticut
Subtotal
All other states
Total (1)
(1) Includes residential mortgage loans purchased from and serviced by other financial institutions totaling $38.5 million and $46.8 million, respectively, as of December 31, 2025 and 2024.
Included in the residential real estate loan portfolio are mortgage loans purchased from and serviced by other financial institutions. These loans are individually evaluated at time of purchase to Washington Trust’s underwriting standards and are secured by one- to four-family residential properties in southern New England and other states. Purchased residential mortgages serviced by others represented 2% of the total residential real estate loan portfolio at both December 31, 2025 and 2024, and were largely secured by properties located in Massachusetts.
Residential real estate loans are originated both for sale to the secondary market as well as for retention in the Bank’s loan portfolio. We also originate residential real estate loans for various investors in a broker capacity, including conventional mortgages and reverse mortgages. Residential real estate loan origination and refinancing activities are sensitive to interest rates and the conditions of housing markets.
The table below presents residential real estate loan origination activity:
(Dollars in thousands)
Years ended December 31,
Amount
% of Total
Amount
% of Total
Originations for retention in portfolio (1)
Originations for sale to the secondary market (2)
Total
(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)
Years ended December 31,
Amount
% of Total
Amount
% of Total
Loans sold with servicing rights retained
Loans sold with servicing rights released (1)
Total
(1) Includes brokered loans (loans originated for others).
We have active relationships with various secondary market investors that purchase residential real estate loans we originate. In addition to managing our interest rate risk position and earnings through the sale of these loans, we are also able to manage our liquidity position through timely sales of residential real estate loans to the secondary market.
Loans are sold with servicing retained or released. Loans sold with servicing rights retained result in the capitalization of servicing rights. Loan servicing rights are included in other assets and are subsequently amortized as an offset to mortgage
Management's Discussion and Analysis
banking revenues over the estimated period of servicing. The net balance of capitalized servicing rights amounted to $6.6 million and $7.7 million, respectively, as of December 31, 2025 and 2024. The balance of residential mortgage loans serviced for others, which are not included in the Consolidated Balance Sheets, amounted to $1.3 billion at December 31, 2025, compared to $1.4 billion at December 31, 2024.
Consumer Loans
The consumer loan portfolio represented 6% of total loans at December 31, 2025, compared to 7% at December 31, 2024.
Consumer loans include home equity loans and lines of credit and personal installment loans. Home equity lines of credit and home equity loans represented 95% of the total consumer portfolio at December 31, 2025. Our home equity line and home equity loan origination activities are conducted primarily in southern New England. The Bank estimates that approximately 45% of the combined home equity lines of credit and home equity loan balances are first lien positions or subordinate to other Washington Trust mortgages.
Also included in the consumer loan portfolio are purchased loans to individuals secured by general aviation aircraft. These loans were individually underwritten by us at the time of purchase using standards similar to those employed for self-originated consumer loans. At December 31, 2025, these purchased loans represented 3% of the total consumer loan portfolio, compared to 4% at December 31, 2024.
The consumer loan portfolio totaled $335.9 million at December 31, 2025, up by $21.2 million, or 7%, from December 31, 2024, largely reflecting increases in home equity lines and loans.
Investment in Bank-Owned Life Insurance
BOLI amounted to $115.1 million and $106.8 million, respectively, at December 31, 2025 and 2024. BOLI provides a means to mitigate increasing employee benefit costs. The Corporation expects to benefit from the BOLI contracts as a result of the tax-free growth in cash surrender value and death benefits that are expected to be generated over time. The purchase of the life insurance policy results in an income-earning asset on the Consolidated Balance Sheets that provides monthly tax-free income to the Corporation. The largest risk to the BOLI program is credit risk of the insurance carriers. To mitigate this risk, annual financial condition reviews are completed on all carriers. BOLI is invested in the “general account” of quality insurance companies. All such general account carriers were rated as investment grade at December 31, 2025 by credit rating agencies such as A.M. Best, Moody’s and S&P. BOLI is included in the Consolidated Balance Sheets at its cash surrender value. Increases in BOLI’s cash surrender value are reported as a component of noninterest income in the Consolidated Statements of Income (Loss).
Asset Quality
Management continually monitors the asset quality of the loan portfolio using all available information. The Board of Directors monitors credit risk management through two committees, the Finance Committee and the Audit Committee. The Finance Committee has oversight responsibility for the credit granting function, including approval authority for credit granting policies, review of management’s credit granting activities and approval of large exposure credit requests. The Audit Committee has oversight responsibility for the ERM program, which includes credit risk management activities performed by management such as the monitoring of the credit quality of the loan portfolio, conducting a credit review program and determining the adequacy of the ACL. The Audit Committee also approves the policy and methodology for establishing the ACL. These committees report the results of their respective oversight functions to the Board of Directors. In addition, the Board of Directors receives information concerning asset quality measurements and trends on a regular basis.
In the course of resolving problem loans, the Corporation may choose to modify the contractual terms of certain loans. A loan that has been modified is considered a TLM when the modification is made to a borrower experiencing financial difficulty and the modification has a direct impact to the contractual cash flows. The decision to modify a loan, versus aggressively enforcing the collection of the loan, may benefit the Corporation by increasing the ultimate probability of collection. See Note 4 to the Consolidated Financial Statements for additional information regarding TLMs.
Management's Discussion and Analysis
Nonperforming Assets
Nonperforming assets are typically comprised of nonaccrual loans and OREO.
The following table presents nonperforming assets and additional asset quality data:
(Dollars in thousands)
December 31,
Commercial:
Commercial real estate
Commercial & industrial
Total commercial
Residential Real Estate:
Residential real estate
Consumer:
Home equity
Other
Total consumer
Total nonaccrual loans
OREO, net
Total nonperforming assets
Nonperforming assets to total assets
Nonperforming loans to total loans
Total past due loans to total loans
Allowance for credit losses on loans to total loans
Allowance for credit losses on loans to nonaccrual loans
Accruing loans 90 days or more past due
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. Loans are removed from nonaccrual status when they have been current as to principal and interest (generally for six months), the borrower has demonstrated an ability to comply with repayment terms, and when, in management’s opinion, the loans are considered to be fully collectible. During 2025, the Corporation made no changes in its practices or policies concerning the placement of loans into nonaccrual status.
Interest income that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms was approximately $933 thousand in 2025, compared to $1.6 million in 2024. Interest income attributable to these loans included in the Consolidated Statements of Income (Loss) amounted to approximately $646 thousand and $908 thousand, respectively, in 2025 and 2024.
Management's Discussion and Analysis
The following table presents the activity in nonaccrual loans:
(Dollars in thousands)
Years ended December 31,
Balance at beginning of period
Additions to nonaccrual status
Loans returned to accruing status
Loans charged-off
Payments, payoffs and other changes
Balance at end of period
The Corporation’s 2025 results were adversely impacted by charge-offs on two nonaccrual commercial loan relationships.
The first loan relationship was a C&I participation in a shared national credit to a telecom infrastructure construction contractor. The contractor filed for Chapter 11 bankruptcy in the second quarter of 2025 due to cash flow problems, and at that time, the Corporation placed the loan relationship on nonaccrual status. As of June 30, 2025, this individually analyzed collateral dependent relationship had a carrying value of $9.3 million, of which $1.4 million was past due. Utilizing the information available at that time, which included collateral valuations (estimated bids from the sale of the company and estimated recovery of receivables), management established a specific reserve of $2.3 million at June 30, 2025, which covered approximately 25% of the carrying value. Based on ensuing developments in the bankruptcy proceedings during the third quarter, which included bidders dropping out of the sale process, the company sold via auction on August 28, 2025 significantly below expectations. Additionally, the bank group, which included the Bank, approved the sale of the receivables on September 15, 2025. As a result of these updated recovery estimates, the Corporation revised its estimate of expected credit losses on this relationship and recognized a charge-off of $8.3 million in the third quarter. The remaining carrying value of $1.0 million as of September 30, 2025 was collected in October 2025.
The second loan was a CRE loan secured by an office property in our primary lending area of southern New England. This loan was previously placed on nonaccrual status in 2023 and was also modified and reported as a TLM. As of June 30, 2025, this individually analyzed collateral dependent loan had a carrying value of $4.3 million, net of previous charge-offs taken. Based on an appraisal received in the first quarter of 2025, management concluded that no additional specific reserve was warranted for this loan at June 30, 2025. In September 2025, the Corporation changed its exit strategy and decided to sell this loan. Late in September, the sale closed, proceeds of $1.2 million were received, and a charge-off of $3.0 million was recognized.
The following table presents additional detail on nonaccrual loans:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Days Past Due
Days Past Due
Current
90 or More
Total Nonaccrual
Current
90 or More
Total Nonaccrual
Commercial:
Commercial real estate
Commercial & industrial
Total commercial
Residential Real Estate:
Residential real estate
Consumer:
Home equity
Other
Total consumer
Total nonaccrual loans
(1) Percentage of nonaccrual loans to the total loans outstanding within the respective class.
Management's Discussion and Analysis
There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2025.
As of December 31, 2025, there were no nonaccrual commercial loans and the composition of nonaccrual loans was 100% residential and consumer. This compared to 55% residential and consumer and 45% commercial as of December 31, 2024.
Nonaccrual loans at December 31, 2025 totaled $12.9 million, down by $10.4 million from the end of 2024. This decline was concentrated in CRE office segment and reflected charge-offs, as well as a loan payoff and proceeds received on a note sale.
As of December 31, 2025, the balance of nonaccrual residential real estate loans was predominately secured by properties in Massachusetts, Connecticut and Rhode Island. Included in total nonaccrual residential real estate loans at December 31, 2025 were two loans purchased for portfolio and serviced by others totaling $506 thousand. Management monitors the collection efforts of its third-party servicers as part of its assessment of the collectability of nonperforming loans.
Past Due Loans
The following table presents past due loans by class:
(Dollars in thousands)
December 31,
Amount
Amount
Commercial:
Commercial real estate
Commercial & industrial
Total commercial
Residential Real Estate:
Residential real estate
Consumer:
Home equity
Other
Total consumer
Total past due loans
(1) Percentage of past due loans to the total loans outstanding within the respective class.
The composition of past due loans (loans past due 30 days or more) was 94% residential and consumer and 6% commercial at December 31, 2025. This compared to 92% residential and consumer and 8% commercial of December 31, 2024.
Total past due loans decreased by $599 thousand from the end of 2024.
Total past due loans included $8.3 million of nonaccrual loans as of December 31, 2025, compared to $6.4 million of as of December 31, 2024.
All loans 90 days or more past due at December 31, 2025 and 2024 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 December 31, 2025 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 presented above. They are assessed for loss exposure using the methods described in Note 4 to the Consolidated Financial Statements under the caption “Credit Quality
Management's Discussion and Analysis
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 increased allowance coverage and provision for credit losses on loans.
Management has identified $28.4 million in potential problem loans at December 31, 2025, compared to $28.2 million at December 31, 2024. As of December 31, 2025, the balance of potential problem loans largely consisted of two CRE office segment loans secured by properties in our primary lending market area. At December 31, 2025, these loans were current with respect to payment terms.
Allowance for Credit Losses on Loans
The ACL on loans is management’s estimate of expected lifetime credit losses on loans carried at amortized cost. The ACL on loans is established through a provision for credit losses recognized in earnings. The ACL on loans is reduced by charge-offs on loans and is increased by recoveries of amounts previously charged off.
The Corporation’s general practice is to identify problem credits early. To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of underlying collateral, and the strength of guarantors. Full or partial charge-offs are recognized as promptly as practicable when available information confirms that the collection of loan principal is unlikely. For collateral dependent loans, this confirming information may include an appraisal that reflects a shortfall between the value of the collateral and the carrying value of the loan or a deficiency balance following the sale of the collateral.
Appraisals are generally obtained with values determined on an “as is” basis from independent appraisal firms for real estate collateral dependent loans in the process of collection or when warranted by other deterioration in the borrower’s credit status. New appraisals are generally obtained for nonaccrual loans or when management believes it is warranted. The Corporation has continued to maintain appropriate professional standards regarding the professional qualifications of appraisers and has an internal review process to monitor the quality of appraisals.
The Corporation does not recognize a recovery when new appraisals indicate a subsequent increase in value.
The following table presents additional detail on the Corporation’s loan portfolio and associated allowance:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Loans
Related Allowance
Allowance / Loans
Loans
Related Allowance
Allowance / Loans
Individually analyzed loans
Pooled (collectively evaluated) loans (1)
Total
(1) The amount reported for pooled loans excludes negative basis adjustment associated with fair value hedges of $335 thousand and $1.5 million, respectively, at December 31, 2025 and December 31, 2024. See Note 9 to the Consolidated Financial Statements for additional disclosure.
The ACL on loans amounted to $37.2 million at December 31, 2025, down by $4.7 million, or 11%, from the balance at December 31, 2024. The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.73% at December 31, 2025, compared to 0.82% at December 31, 2024. ACL on loans as a percentage of nonaccrual loans was 288.14% at December 31, 2025, compared to 180.03% at December 31, 2024
Net charge-offs totaled $14.2 million, or 0.28% of average loans, in 2025, compared to $2.0 million, or 0.04% of average loans, in 2024. See additional discussion regarding charge-offs on two nonaccrual commercial loan relationships above under the caption “Nonaccrual Loans.”
Various loan loss allowance coverage ratios are affected by the timing and extent of charge-offs, particularly with respect to individually analyzed collateral dependent loans. The decrease in the ACL on loans from December 31, 2024 reflects the impact of elevated charge-offs in 2025, as well as net improvements in loss given default estimates and regression analysis results, which were reflective of the performance of the overall loan portfolio and changes in econometric forecasts. For
Management's Discussion and Analysis
additional information regarding the ACL methodology, see Note 1 to the Consolidated Financial Statements, as well as disclosure under the caption “Critical Accounting Policies and Estimates.”
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.
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)
December 31, 2025
December 31, 2024
Allocated ACL
ACL to Loans
Loans to Total Portfolio (1)
Allocated ACL
ACL to Loans
Loans to Total Portfolio (1)
Commercial:
Commercial real estate
Commercial & industrial
Total commercial
Residential Real Estate:
Residential real estate
Consumer:
Home equity
Other
Total consumer
Total ACL on loans at end of period
(1) Percentage of loans outstanding in respective class to total loans outstanding.
Management's Discussion and Analysis
The following table reflects the activity in the ACL on loans during the years presented:
(Dollars in thousands)
December 31,
Balance at beginning of period
Charge-offs:
Commercial:
Commercial real estate
Commercial & industrial
Total commercial
Residential real estate:
Residential real estate
Consumer:
Home equity
Other
Total consumer
Total charge-offs
Recoveries:
Commercial:
Commercial real estate
Commercial & industrial
Total commercial
Residential real estate:
Residential real estate
Consumer:
Home equity
Other
Total consumer
Total recoveries
Net charge-offs
Provision charged to earnings
Balance at end of period
Net charge-offs to average loans
Sources of Funds
Our sources of funds include in-market deposits, wholesale brokered deposits, FHLB advances, other borrowings, and proceeds from the sales, maturities, and payments of loans and investment securities. The Corporation uses funds to originate and purchase loans, purchase investment securities, conduct operations, expand the branch network, and pay dividends to shareholders.
Deposits
The Corporation offers a wide variety of deposit products to consumer and business customers. Deposits provide an important source of funding for the Bank, as well as an ongoing stream of fee revenue.
The Bank is a participant in the DDM, ICS, and CDARS programs. The Bank uses these deposit sweep services to place customer and client funds into interest-bearing demand accounts, money market accounts, and/or time deposits issued by other participating banks. Customer and client funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount of FDIC insurance. As a program participant, we receive reciprocal amounts of
Management's Discussion and Analysis
deposits from other participating banks. We consider these reciprocal deposit balances to be in-market deposits as distinguished from traditional wholesale brokered deposits.
The following table presents a summary of deposits:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Balance Change
Amount
% of Total
Amount
% of Total
Noninterest-bearing demand deposits
Interest-bearing demand deposits (in-market)
NOW accounts
Money market accounts
Savings accounts
Time deposits (in-market)
Total in-market deposits
Wholesale brokered time deposits
Total deposits
Total deposits amounted to $5.3 billion at December 31, 2025, up by $154.2 million, or 3%, from December 31, 2024, reflecting increases in in-market deposits, partially offset by a decline in wholesale brokered time deposits.
In-market deposits, which exclude wholesale brokered deposits, were up by $451.7 million, or 9%, from the balance at December 31, 2024, largely reflecting increases in savings and interest-bearing demand deposits. Competition for deposits in our market area is strong, and continued demand for higher‑cost deposit products remains. Washington Trust remains focused on maintaining existing depositor relationships and supporting organic deposit growth.
There were no wholesale brokered time deposits at December 31, 2025, compared to $297.5 million at December 31, 2024. See disclosure regarding wholesale funding under the caption “Borrowings” below.
The following table presents a summary of the Bank’s uninsured deposits:
(Dollars in thousands)
December 31, 2025
December 31, 2024
Balance
% of Total Deposits
Balance
% of Total Deposits
Uninsured Deposits:
Uninsured deposits (1)
Less: affiliate deposits (2)
Uninsured deposits, excluding affiliate deposits
Less: fully-collateralized preferred deposits (3)
Uninsured deposits, after exclusions
(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.
Management's Discussion and Analysis
The following table presents the amount of time certificates of deposit in denominations of $250 thousand or more at December 31, 2025, maturing during the periods indicated:
(Dollars in thousands)
Three months or less
Over three months to six months
Over six months to 12 months
Over 12 months
Total time deposits
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 $626.0 million at December 31, 2025, down by $499.0 million from the balance at the end of 2024. For additional information regarding FHLB advances see Note 13 to the Consolidated Financial Statements.
Both FHLB advances and wholesale brokered time deposits decreased from the end of 2024, reflecting increases in in-market deposits, the redeployment of cash resulting from the previously disclosed balance sheet repositioning transactions, and timing of liquidity management activities.
Liquidity and Capital Resources
Liquidity Management
The Corporation proactively manages its liquidity and cash flow requirements with the intent to maintain stable, cost-effective funding and to promote the strength of its overall balance sheet. The liquidity position of the Corporation is continuously monitored by management and adjustments are made to appropriately balance sources and uses of funds, as needed. For further details surrounding the Corporation’s liquidity risks and related strategy, see the “Risk Management – Liquidity Risk Management” section below.
Capital Resources
Total shareholders’ equity amounted to $543.6 million at December 31, 2025, up by $43.9 million from December 31, 2024. The net increase primarily reflected net income of $52.2 million and an improvement of $39.9 million in the AOCL component of shareholders' equity, partially offset by a dividend declarations of $43.5 million and a net increase in treasury stock of $6.1 million. See Note 19 to the Consolidated Financial Statements for additional disclosure regarding changes in AOCL. The net increase in treasury stock included the Corporation’s repurchase of 267,658 shares, at an average price of $27.26 and a total cost of $7.4 million, under its 2025 Repurchase Program.
Washington Trust declared dividends of $2.24 per share in 2025, unchanged from dividends per share declared in 2024. The dividend payout ratio was 82.7 % in 2025, compared to (137.4%) in 2024. The adjusted dividend payout ratio (non-GAAP) was 83.3% in 2025, compared to 94.5% in 2024.
The ratio of total equity to total assets amounted to 8.21% at December 31, 2025, compared to a ratio of 7.21% at December 31, 2024. Book value per share was $28.56 at December 31, 2025, compared to $25.93 at December 31, 2024.
The Bancorp and the Bank are subject to various regulatory capital requirements and are considered “well capitalized,” with a total risk-based capital ratio of 12.95% at December 31, 2025, compared to 12.47% at December 31, 2024.
See Note 14 to the Consolidated Financial Statements for additional discussion regarding shareholders’ equity.
Risk Management
The Corporation has a comprehensive ERM program through which the Corporation identifies, measures, monitors and controls current and emerging material risks.
Management's Discussion and Analysis
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 the payment of the loans may be sufficient to assure repayment, but in other cases the Corporation may experience significant credit losses which could have an adverse effect on its operating results. The Corporation makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of the real estate and other assets serving as collateral for the repayment of loans. Credit risk also exists with respect to investment securities. For further discussion regarding the credit risk and the credit quality of the Corporation’s loan portfolio, see Notes 4 and 5 to the Consolidated Financial Statements. For further discussion regarding credit risk associated with unfunded commitments, see Note 21 to the Consolidated Financial Statements. For further discussion regarding the Corporation’s securities portfolio, see Note 3 to the Consolidated Financial Statements.
Interest rate risk is the risk of loss to earnings due to movements in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows. It exists because the repricing frequency and magnitude of interest-earning assets and interest-bearing liabilities are not identical. See additional disclosure under the caption “Asset/Liability Management and Interest Rate Risk” below.
Liquidity risk is the risk that the Corporation will not have the ability to generate adequate amounts of cash in the most economical way for it to meet its maturing liability obligations and customer loan demand. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. See additional disclosure under the caption “Liquidity Risk Management” below.
Price and market risk refers to the risk of loss arising from adverse changes in interest rates and other relevant market rates and prices, such as equity prices. Interest rate risk, discussed above, is the most significant market risk to which the Corporation is exposed. The Corporation is also exposed to financial market risk and housing market risk.
Compliance risk represents the risk of regulatory sanctions or financial loss resulting from the failure to comply with laws, rules, and regulations and standards of good banking practice. Activities that may expose the Corporation to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, adherence to all applicable laws and regulations and employment and tax matters.
Strategic and reputation risk represent the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess existing and new opportunities and threats in business, markets and products.
Operational risk is the risk of loss due to human behavior, inadequate or failed internal processes, systems and controls, information technology changes or failures, and external influences such as market conditions, fraudulent activities, cybersecurity incidents, natural disasters and security risks.
ERM is an overarching program that includes all areas of the Corporation. A framework approach is utilized to assign responsibility and to ensure that the various business units and activities involved in the risk management life cycle are effectively integrated. The Corporation has adopted the “three lines of defense” concept that is an industry best practice for ERM. Business units are the first line of defense in managing risk. They are responsible for identifying, measuring, monitoring, and controlling current and emerging risks. They must report on and escalate their concerns. Corporate functions such as Credit Risk Management, Financial Administration, Information Assurance and Compliance, represent the second line of defense. They are responsible for policy setting and for reviewing and challenging the risk management activities of the business units. They collaborate closely with business units on planning and resource allocation with respect to risk management. Internal Audit is a third line of defense. They provide independent assurance to the Board of Directors of the effectiveness of the first and second lines in fulfilling their risk management responsibilities.
Management's Discussion and Analysis
For additional factors that could adversely impact Washington Trust’s future results of operations and financial condition, see the section labeled “Risk Factors” in Item 1A of this Annual Report on Form 10-K.
Asset/Liability Management and Interest Rate Risk
The ALCO establishes policies governing liquidity and interest rate risk and reports quarterly to the Corporation’s Audit Committee. The objective of the ALCO is to manage assets and funding sources in alignment with the Corporation’s liquidity, capital adequacy, growth, risk, and profitability goals.
The Corporation utilizes the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, interest rate contracts, and the pricing and structure of loans and deposits, to manage interest rate risk. The interest rate contracts may include interest rate swaps, caps, floors, and collars. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to terms of the contract. The notional amount of the interest rate contracts is the amount upon which interest and other payments are based. The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk. See Note 9 to the Consolidated Financial Statements for additional information.
The ALCO uses income simulation to measure interest rate risk inherent in the Corporation’s financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 12-month horizon and a 13- to 24-month horizon. The simulations assume that the size and general composition of the Corporation’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from lower-cost to higher-cost deposits in selected interest rate scenarios. The simulations at December 31, 2024 incorporated the reclassification of residential mortgage loans from portfolio to held for sale and the sale of these loans completing in January 2025. The simulations at December 31, 2024 assumed the proceeds from the sale of loans were used to pay down maturing wholesale funding balances. Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios. Mortgage-backed securities and residential real estate loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income. The characteristics of financial instrument classes are reviewed periodically by the ALCO to ensure their accuracy and consistency.
Deposit balances may also be subject to possible outflow to non-bank alternatives in a rising rate environment. This may cause interest rate sensitivity to differ from the results as presented. Another significant simulation assumption is the sensitivity of savings deposits to fluctuations in interest rates. Income simulation results assume that changes in both savings deposit rates and balances are related to changes in short-term interest rates. The relationship between short-term interest rate changes and deposit rate and balance changes may differ from the ALCO’s estimates used in income simulation.
The ALCO reviews simulation results to determine whether the Corporation’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. As of December 31, 2025 and December 31, 2024, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Corporation’s balance sheet remain stable. The unchanged rate scenario as of December 31, 2025 shows net interest income trending higher over the next 12- and 24-month periods.
The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including parallel changes in interest rates and scenarios showing the effect of steepening or flattening changes in the yield curve. Because income simulations assume that the Corporation’s balance sheet will generally remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts. It should also be noted that the static balance sheet assumption does not necessarily reflect the Corporation’s expectation for future balance sheet growth, which is a function of the business environment and customer behavior.
While the ALCO reviews and updates simulation assumptions and also periodically back-tests the simulation results to ensure that the assumptions are reasonable and current, income simulation may not always prove to be an accurate indicator of
Management's Discussion and Analysis
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.
The following table sets forth the estimated change in net interest income compared to an unchanged rate scenario over the periods indicated for parallel changes in market interest rates using the Corporation’s on- and off-balance sheet financial instruments as of December 31, 2025 and December 31, 2024. Interest rates are assumed to shift by parallel rate changes as shown in the table below. Further, deposits are assumed to have certain minimum rate levels below which they will not fall. It should be noted that the rate scenarios shown do not necessarily reflect the ALCO’s view of the “most likely” change in interest rates over the periods indicated.
December 31, 2025
December 31, 2024
Months 1-12
Months 13-24
Months 1-12
Months 13-24
100 basis point rate decrease
200 basis point rate decrease
300 basis point rate decrease
100 basis point rate increase
200 basis point rate increase
300 basis point rate increase
The relative change in interest rate sensitivity from December 31, 2024, as shown in the above table, was attributable to changes in balance sheet composition and market interest rates. The changes included in-market deposit growth and also reflected the balance sheet repositioning transactions previously announced in December 2024, which included a reduction in loans and a lower level of wholesale funding. Lower levels of wholesale funding improve the Corporation’s interest rate exposure in rising rate scenarios, but reduce the benefit in declining rate scenarios because wholesale funding reprices more quickly and by a greater amount than the repricing of in-market deposits in response to changes in market rates.
The ALCO estimates that as interest rates change, interest-earning assets would reprice more quickly than interest-bearing liabilities. In-market deposit rate changes are modeled to lag behind other market interest rates in both pace and magnitude. In addition, prepayments of loans and securities generally increase as market interest rates decline and decrease as market interest rates rise.
Additionally, the Corporation monitors the potential change in market value of its available for sale debt securities in changing interest rate environments. The purpose is to determine market value exposure that may not be captured by income simulation, but which might result in changes to the Corporation’s capital position. Results are calculated using industry-standard analytical techniques and securities data.
The following table summarizes the potential change in market value of the Corporation’s available for sale debt securities as of December 31, 2025 and 2024 resulting from immediate parallel rate shifts:
(Dollars in thousands)
Security Type
Down 100 Basis Points
Up 200 Basis Points
Obligations of U.S. government agencies and U.S. government-sponsored enterprises
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
Obligations of states and political subdivisions
Trust preferred debt and other corporate debt securities
Total change in market value as of December 31, 2025
Total change in market value as of December 31, 2024
Liquidity Risk Management
Liquidity is the ability of a financial institution to meet maturing liability obligations and customer loan demand. The Corporation’s primary source of liquidity is in-market deposits, which funded approximately 76% of total average assets in
Management's Discussion and Analysis
the year ended December 31, 2025. 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)
December 31,
Contingent Liquidity:
Federal Home Loan Bank of Boston (1)
Federal Reserve Bank of Boston (2)
Available cash liquidity (3)
Unencumbered securities
Total contingent liquidity
Percentage of total contingent liquidity to uninsured deposits
Percentage of total contingent liquidity to uninsured deposits, after exclusions
(1) As of December 31, 2025, 2024 and 2023, loans with a carrying value of $2.9 billion, $2.8 billion and $3.4 billion, respectively, and securities available for sale with a carrying value of $71.8 million, $74.2 million and $94.3 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.
(2) As of December 31, 2025, 2024 and 2023, loans with a carrying value of $58.3 million, $68.5 million and $71.0 million, respectively, and securities available for sale with a carrying value of $57.6 million, $13.9 million and $13.1 million, respectively, were pledged to the FRBB resulting in this additional unused borrowing capacity.
(3) Available cash liquidity excludes amounts restricted for collateral purposes and designated for operating needs.
Borrowing capacity at December 31, 2024 was reduced by the reclassification of residential mortgage loan collateral to held for sale as part of the balance sheet repositioning transactions. On January 24, 2025, the sale of these loans was completed and the cash proceeds received were used to pay down FHLB advances or other wholesale funding balances in the first quarter of 2025.
In addition to the amounts presented above, the Bank also had access to a $40.0 million unused line of credit with the FHLB at December 31, 2025, 2024 and 2023.
The ALCO establishes and monitors internal liquidity measures to manage liquidity exposure. Liquidity remained within target ranges established by the ALCO during 2025. 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, borrowings and defined benefit
Management's Discussion and Analysis
pension plans. For additional information on these arrangements and the expected timing of applicable payments as of December 31, 2025 , see the following notes to the Consolidated Financial Statements: Note 7 for leases, Note 12 for time deposits, Note 13 for borrowings and Note 16 for defined benefit pension plans.
Also, in the ordinary course of business, the Corporation engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These financial transactions include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts. 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 9 and 21 to the Consolidated Financial Statements.
Impact of Inflation on Changing Prices
The Corporation’s consolidated financial statements and related notes have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical U.S. dollars without considering changes in the relative purchasing power of money over time due to inflation.
A substantial portion of the Corporation’s assets and liabilities are monetary in nature and as a result interest rates have a more significant impact on the overall performance of the Corporation than the general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as inflation. There is no precise method, however, to measure the effects of inflation on the Corporation’s consolidated financial statements. And, we cannot predict whether or when the Federal Reserve may increase or decrease interest rates in the future.
For additional discussion on interest due to changes in interest rates, see the caption “Asset/Liability Management and Interest Rate Risk” above.
Furthermore, a prolonged period of inflation could cause wages and other costs to increase.
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.
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. Additionally, the ACL on loans is reduced by charge-offs on loans and increased by recoveries of amounts previously charged-off. At December 31, 2025 the ACL on loans totaled $37.2 million, compared to $42.0 million at December 31, 2024. A significant portion of our ACL is allocated to the commercial portfolio (both CRE and C&I). As of December 31, 2025 and 2024, the ACL allocated to the total commercial portfolio was $29.5 million and $33.8 million, respectively.
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.
Management's Discussion and Analysis
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 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.
Because the methodology is based upon historical experience and trends, current economic data, reasonable and supportable forecasts, as well as management’s judgment, factors may arise that result in different estimations. Deteriorating conditions or assumptions could lead to further increases in the ACL on loans; conversely, improving conditions or assumptions could lead to further reductions in the ACL on loans.
In estimating the ACL on loans, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management’s estimate. Given the concentration of ACL allocation to the total commercial portfolio and the significant judgments made by management in deriving the qualitative loss factors, management analyzed the impact that changes in qualitative judgments could have. The range of impact was an ACL allocated to the total commercial loan portfolio between $20.7 million and $56.6 million at December 31, 2025. The sensitivity and related range of impact is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at December 31, 2025 in estimation of the ACL on loans recognized on the Consolidated Balance Sheets.
If the assumptions underlying the determination of the ACL prove to be incorrect, the ACL may not be sufficient to cover actual loan losses and an increase to the ACL may be necessary to allow for different assumptions or adverse developments. In addition, a problem with one or more loans could require a significant increase to the ACL.
Recently Issued Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on the Corporation’s financial statements.
