Loans

12 Months Ended

Dec. 31, 2020

Receivables [Abstract]

Loans

Loans

The following is a summary of loans:

(Dollars in thousands)
December 31,	2020	2019
Commercial:
Commercial real estate (1)	$1,633,024	$1,547,572
Commercial & industrial (2)	817,408	585,289
Total commercial	2,450,432	2,132,861
Residential Real Estate:
Residential real estate (3)	1,467,312	1,449,090
Consumer:
Home equity	259,185	290,874
Other (4)	19,061	20,174
Total consumer	278,246	311,048
Total loans (5)	$4,195,990	$3,892,999

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

(2)Commercial & industrial (“C&I”) consists of loans to businesses and individuals, a portion of which are fully or partially collateralized by real estate. C&I also includes $199.8 million of PPP loans as of December 31, 2020.

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

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

(5)Includes net unamortized loan origination costs of $1.5 million and $5.3 million, respectively, at December 31, 2020 and 2019 and net unamortized premiums on purchased loans of $787 thousand and $995 thousand, respectively, at December 31, 2020 and 2019.

Accrued interest receivable on loans totaled $11.3 million and $11.0 million, respectively, as of December 31, 2020

and December 31, 2019.

As of both December 31, 2020 and 2019, loans amounting to $2.1 billion were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRB for the discount window. See Note 12 for additional disclosure regarding borrowings.

As disclosed in Note 1, the Corporation has elected to account for eligible loan modifications under Section 4013 of the CARES Act, as amended by the CRRSA Act. Eligible loan modifications are not required to be classified as TDRs and are not reported as past due provided that they are performing in accordance with the modified terms. Interest income will continue to be recognized unless the loan is placed on nonaccrual status in accordance with the nonaccrual loans accounting policy disclosed in Note 1. In 2020, we executed loan payment deferment modifications on 636 loans totaling $717.4 million. The majority of these modifications qualified as eligible loan modifications under Section 4013 of the CARES Act, as amended, and therefore, were not required to be classified as TDRs and were not reported as past due. See additional disclosure regarding TDRs below. As of December 31, 2020, Washington Trust has active loan payment deferment modifications on 136 loans totaling $244.7 million.

Concentrations of Credit Risk

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

Past Due Loans

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

(Dollars in thousands)	Days Past Due
December 31, 2020	30-59	60-89	Over 90	Total Past Due	Current	Total Loans
Commercial:
Commercial real estate	$265	$—	$—	$265	$1,632,759	$1,633,024
Commercial & industrial	1	2	—	3	817,405	817,408
Total commercial	266	2	—	268	2,450,164	2,450,432
Residential Real Estate:
Residential real estate	4,466	701	5,172	10,339	1,456,973	1,467,312
Consumer:
Home equity	894	129	644	1,667	257,518	259,185
Other	23	7	88	118	18,943	19,061
Total consumer	917	136	732	1,785	276,461	278,246
Total loans	$5,649	$839	$5,904	$12,392	$4,183,598	$4,195,990

(Dollars in thousands)	Days Past Due
December 31, 2019	30-59	60-89	Over 90	Total Past Due	Current	Total Loans
Commercial:
Commercial real estate	$830	$—	$603	$1,433	$1,546,139	$1,547,572
Commercial & industrial	1	—	—	1	585,288	585,289
Total commercial	831	—	603	1,434	2,131,427	2,132,861
Residential Real Estate:
Residential real estate	4,574	2,155	4,700	11,429	1,437,661	1,449,090
Consumer:
Home equity	971	729	996	2,696	288,178	290,874
Other	42	—	88	130	20,044	20,174
Total consumer	1,013	729	1,084	2,826	308,222	311,048
Total loans	$6,418	$2,884	$6,387	$15,689	$3,877,310	$3,892,999

Included in past due loans as of December 31, 2020 and 2019, were nonaccrual loans of $8.5 million and $11.5 million, respectively.

All loans 90 days or more past due at December 31, 2020 and 2019 were classified as nonaccrual.

Nonaccrual Loans

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

(Dollars in thousands)
December 31,	2020	2019
Commercial:
Commercial real estate	$—	$603
Commercial & industrial	—	657
Total commercial	—	1,260
Residential Real Estate:
Residential real estate	11,981	14,297
Consumer:
Home equity	1,128	1,763
Other	88	88
Total consumer	1,216	1,851
Total nonaccrual loans	$13,197	$17,408
Accruing loans 90 days or more past due	$—	$—

For nonaccrual loans with a carrying value of $3.0 million as of December 31, 2020, no ACL was deemed necessary.

As of December 31, 2020 and December 31, 2019, nonaccrual loans secured by one- to four-family residential property amounting to $3.4 million and $5.8 million, respectively, were in process of foreclosure.

Nonaccrual loans of $4.7 million and $5.9 million, respectively, were current as to the payment of principal and interest at December 31, 2020 and December 31, 2019.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2020.

The following table presents interest income recognized on nonaccrual loans segregated by loan class:

(Dollars in thousands)	Interest Income Recognized
Year ended December 31, 2020
Commercial:
Commercial real estate	$—
Commercial & industrial	2
Total commercial	2
Residential Real Estate:
Residential real estate	379
Consumer:
Home equity	35
Other	—
Total consumer	35
Total	$416

Troubled Debt Restructurings

The recorded investment in TDRs consists of unpaid principal balance, net of charge-offs and unamortized deferred loan origination fees and costs. For accruing TDRs, the recorded investment also includes accrued interest.

The following table presents the recorded investment in TDRs and certain other information related to TDRs:

(Dollars in thousands)
December 31,	2020	2019
Accruing TDRs	$13,418	$377
Nonaccrual TDRs	2,345	492
Total TDRs	$15,763	$869
Specific reserves on TDRs included in the ACL on loans	$159	$97
Additional commitments to lend to borrowers with TDRs	$—	$—

The following table presents loans modified as a TDR:

(Dollars in thousands)			Outstanding Recorded Investment
	# of Loans		Pre-Modifications		Post-Modifications
Years ended December 31,	2020	2019	2020	2019	2020	2019
Commercial:
Commercial real estate	3	—	$1,798	$—	$1,798	$—
Commercial & industrial	5	—	6,844	—	6,844	—
Total commercial	8	—	8,642	—	8,642	—
Residential Real Estate:
Residential real estate	11	—	5,943	—	5,943	—
Consumer:
Home equity	4	—	873	—	873	—
Other	—	—	—	—	—	—
Total consumer	4	—	$873	$—	$873	$—
Total	23	—	$15,458	$—	$15,458	$—

The following table presents information on how loans were modified as a TDR:

(Dollars in thousands)
Years ended December 31,	2020	2019
Below-market interest rate concession	$—	$—
Payment deferral	7,704	—
Maturity / amortization concession	—	—
Interest only payments	6,384	—
Combination (1)	1,370	—
Total	$15,458	$—

(1)    Loans included in this classification were modified with a combination of any two of the concessions listed in this table.

The following table presents information on TDRs modified within the previous 12 months for which there was a payment default:

(Dollars in thousands)	# of Loans		Recorded Investment
Years ended December 31,	2020	2019	2020	2019
Commercial:
Commercial real estate	1	—	$850	$—
Commercial & industrial	—	—	—	—
Residential real estate:
Residential real estate	2	—	1,299	—
Consumer:
Home equity	2	—	118	—
Other	—	—	—	—
Total	5	—	$2,267	$—

Individually Analyzed Loans

Effective January 1, 2020, individually analyzed loans include nonaccrual commercial loans, reasonably expected TDRs, executed TDRs, and certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans.

As of December 31, 2020, the carrying value of individually analyzed loans amounted to $18.3 million, of which $8.4 million were considered collateral dependent. For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date.

The following table presents the carrying value of collateral dependent individually analyzed loans as of December 31, 2020:

(Dollars in thousands)	Carrying Value	Related Allowance
Commercial:
Commercial real estate (1)	$1,792	$—
Commercial & industrial (2)	451	—
Total commercial	2,243	—
Residential Real Estate:
Residential real estate (3)	5,947	38
Consumer:
Home equity (3)	254	183
Other	—	—
Total consumer	254	183
Total	$8,444	$221

(1)    Secured by income-producing property.

(2)    Secured by business assets.

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

Prior to January 1, 2020, impaired loans individually analyzed for impairment included nonaccrual loans and executed TDRs. The following is a summary of impaired loans as of December 31, 2019:

(Dollars in thousands)	Recorded Investment (1)	Unpaid Principal	Related Allowance
No Related Allowance Recorded
Residential Real Estate:
Residential real estate	$13,968	$14,803	$—
Consumer:
Home equity	1,471	1,472	—
Other	88	88	—
Total consumer	1,559	1,560	—
Subtotal	15,527	16,363	—
With Related Allowance Recorded
Commercial:
Commercial real estate	$603	$926	$—
Commercial & industrial	657	657	580
Total commercial	1,260	1,583	580
Residential Real Estate:
Residential real estate	687	714	95
Consumer:
Home equity	292	291	291
Other	18	18	2
Total consumer	310	309	293
Subtotal	2,257	2,606	968
Total impaired loans	$17,784	$18,969	$968
Total:
Commercial	$1,260	$1,583	$580
Residential real estate	14,655	15,517	95
Consumer	1,869	1,869	293
Total impaired loans	$17,784	$18,969	$968

(1)The recorded investment in impaired loans consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs. For accruing impaired loans (TDRs for which management has concluded that the collectability of the loan is not in doubt), the recorded investment also includes accrued interest.

As required under the GAAP in effect prior to the adoption of ASC 326, the following table presents the average recorded investment balance of impaired loans and interest income recognized on impaired loans segregated by loan class:

(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized
Years ended December 31,	2019	2018	2019	2018
Commercial:
Commercial real estate	$864	$1,050	$1	$—
Commercial & industrial	2,149	5,403	106	259
Total commercial	3,013	6,453	107	259
Residential real estate:
Residential real estate	11,575	9,645	473	393
Consumer:
Home equity	1,466	1,182	58	52
Other	68	69	2	5
Total consumer	1,534	1,251	60	57
Totals	$16,122	$17,349	$640	$709

Credit Quality Indicators

Commercial

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

A description of the commercial loan categories is as follows:

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

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

Classified - Loans identified as “substandard,” “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectability. A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but

the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be determined. “Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset.

The Corporation’s procedures call for loan ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, management reviews the watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate and other selected loans. Management’s review focuses on the current status of the loans and strategies to improve the credit. An annual credit review program is conducted by a third party to provide an independent evaluation of the creditworthiness of the commercial loan portfolio, the quality of the underwriting and credit risk management practices and the appropriateness of the risk rating classifications. This review is supplemented with selected targeted internal reviews of the commercial loan portfolio.

Residential and Consumer

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

In addition, other techniques are utilized to monitor indicators of credit deterioration in the residential real estate loans and home equity consumer loans. Among these techniques is the periodic tracking of loans with an updated Fair Isaac Corporation (“FICO”) score and an estimated loan to value (“LTV”) ratio. LTV is estimated based on such factors as the location, the original LTV ratio, and the date of origination of the loan and do not reflect actual appraisal amounts. The results of these analyses and other credit review procedures, including selected targeted internal reviews, are taken into consideration in the determination of qualitative loss factors for residential real estate and home equity consumer credits.

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2020:

(Dollars in thousands)	Term Loans Amortized Cost by Origination Year
	2020	2019	2018	2017	2016	Prior	Revolving Loans Amortized Cost	Revolving Loans Converted to Term Loans	Total
Commercial:
CRE:
Pass	$283,341	$353,875	$260,917	$236,310	$136,490	$249,359	$10,333	$2,386	$1,533,011
Special Mention	756	20,235	39,387	16,222	11,318	10,367	771	—	99,056
Classified	957	—	—	—	—	—	—	—	957
Total CRE	285,054	374,110	300,304	252,532	147,808	259,726	11,104	2,386	1,633,024
C&I:
Pass	293,493	95,775	98,146	56,792	44,445	91,128	95,817	1,296	776,892
Special Mention	1,123	722	3,210	6,839	3,141	14,853	3,806	56	33,750
Classified	403	—	—	—	—	6,363	—	—	6,766
Total C&I	295,019	96,497	101,356	63,631	47,586	112,344	99,623	1,352	817,408
Residential Real Estate:
Residential real estate:
Current	463,477	253,228	146,839	155,976	128,139	309,314	—	—	1,456,973
Past Due	238	1,698	1,310	886	110	6,097	—	—	10,339
Total residential real estate	463,715	254,926	148,149	156,862	128,249	315,411	—	—	1,467,312
Consumer:
Home equity:
Current	9,838	6,771	3,898	1,474	1,217	3,955	219,085	11,280	257,518
Past Due	—	35	24	—	—	186	310	1,112	1,667
Total home equity	9,838	6,806	3,922	1,474	1,217	4,141	219,395	12,392	259,185
Other:
Current	5,214	2,241	1,237	1,544	548	7,850	308	1	18,943
Past Due	19	1	—	—	88	7	3	—	118
Total other	5,233	2,242	1,237	1,544	636	7,857	311	1	19,061
Total Loans	$1,058,859	$734,581	$554,968	$476,043	$325,496	$699,479	$330,433	$16,131	$4,195,990

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

As required under the GAAP in effect prior to the adoption of ASC 326, the following table presents the commercial loan portfolio, segregated by category of credit quality indicator as of December 31, 2019:

(Dollars in thousands)
	Pass	Special Mention	Classified
Commercial:
Commercial real estate	$1,546,139	$830	$603
Commercial & industrial	549,416	24,961	10,912
Total commercial	$2,095,555	$25,791	$11,515

As required under the GAAP in effect prior to the adoption of ASC 326, the following table presents the residential and consumer loan portfolios, segregated by category of credit quality indicator as of December 31, 2019:

(Dollars in thousands)
As of December 31, 2019	Current	Past Due
Residential Real Estate:
Residential real estate	$1,437,661	$11,429
Consumer:
Home equity	288,178	2,696
Other	20,044	130
Total consumer	$308,222	$2,826

Loan Servicing Activities

Loans sold with servicing retained result in the capitalization of loan servicing rights. The following table presents an analysis of loan servicing rights:

(Dollars in thousands)	Loan Servicing Rights	Valuation Allowance	Total
Balance at December 31, 2017	$3,613	$—	$3,613
Loan servicing rights capitalized	905	—	905
Amortization	(867)	—	(867)
Balance at December 31, 2018	3,651	—	3,651
Loan servicing rights capitalized	902	—	902
Amortization	(1,027)	—	(1,027)
Balance at December 31, 2019	3,526	—	3,526
Loan servicing rights capitalized	6,569	—	6,569
Amortization	(2,507)	—	(2,507)
Increase in impairment reserve	—	(154)	(154)
Balance at December 31, 2020	$7,588	($154)	$7,434

The following table presents estimated aggregate amortization expense related to loan servicing assets:

(Dollars in thousands)
Years ending December 31:	2021	$2,407
	2022	1,644
	2023	1,122
	2024	766
	2025	523
	2026 and thereafter	1,126
Total estimated amortization expense		$7,588

Loans sold to others are serviced by the Corporation on a fee basis under various agreements.  Loans serviced for others are not included in the Consolidated Balance Sheets.  The following table presents the balance of loans serviced for others by loan portfolio:

(Dollars in thousands)
December 31,	2020	2019
Residential real estate	$1,231,201	$586,996
Commercial	155,935	159,948
Total	$1,387,136	$746,944