Loans

12 Months Ended

Dec. 31, 2021

Receivables [Abstract]

Loans

Loans

The following is a summary of loans:

(Dollars in thousands)
December 31,	2021	2020
Commercial:
Commercial real estate (1)	$1,639,062	$1,633,024
Commercial & industrial (2)	641,555	817,408
Total commercial	2,280,617	2,450,432
Residential Real Estate:
Residential real estate (3)	1,726,975	1,467,312
Consumer:
Home equity	247,697	259,185
Other (4)	17,636	19,061
Total consumer	265,333	278,246
Total loans (5)	$4,272,925	$4,195,990

(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 $38.0 million and $199.8 million, respectively, of PPP loans as of December 31, 2021 and 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 $6.7 million and $1.5 million, respectively, at December 31, 2021 and 2020 and net unamortized premiums on loans purchased from and serviced by other financial institutions of $414 thousand and $787 thousand, respectively, at December 31, 2021 and 2020.

Loan balances exclude accrued interest receivable of $10.3 million and $11.3 million, respectively, as of December 31, 2021 and 2020.

As of December 31, 2021 and 2020, loans amounting to $2.2 billion and $2.1 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window. See Note 12 for additional disclosure regarding borrowings.

As disclosed in Note 1, the Corporation elected to account for eligible loan modifications under Section 4013 of the CARES Act, as amended by the CRRSA Act. Through December 31, 2021, we processed loan payment deferral modifications, or “deferments”, on 654 loans totaling $727.7 million, of which active deferments remain on 2 loans totaling $9.7 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.

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, 2021	30-59	60-89	Over 90	Total Past Due	Current	Total Loans
Commercial:
Commercial real estate	$—	$—	$—	$—	$1,639,062	$1,639,062
Commercial & industrial	3	—	—	3	641,552	641,555
Total commercial	3	—	—	3	2,280,614	2,280,617
Residential Real Estate:
Residential real estate	1,784	3,176	4,662	9,622	1,717,353	1,726,975
Consumer:
Home equity	580	77	108	765	246,932	247,697
Other	21	—	—	21	17,615	17,636
Total consumer	601	77	108	786	264,547	265,333
Total loans	$2,388	$3,253	$4,770	$10,411	$4,262,514	$4,272,925

(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

Included in past due loans as of December 31, 2021 and 2020, were nonaccrual loans of $9.4 million and $8.5 million, respectively. In addition, all loans 90 days or more past due at December 31, 2021 and 2020 were classified as nonaccrual.

Nonaccrual Loans

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

(Dollars in thousands)
December 31,	2021	2020
Commercial:
Commercial real estate	$—	$—
Commercial & industrial	—	—
Total commercial	—	—
Residential Real Estate:
Residential real estate	13,576	11,981
Consumer:
Home equity	627	1,128
Other	—	88
Total consumer	627	1,216
Total nonaccrual loans	$14,203	$13,197
Accruing loans 90 days or more past due	$—	$—

Nonaccrual loans of $4.8 million and $4.7 million, respectively, at December 31, 2021 and 2020 were current as to the payment of principal and interest. In addition, no ACL was deemed necessary on nonaccrual loans with a carrying value of $4.2 million and $3.0 million, respectively, as of December 31, 2021 and 2020.

As of December 31, 2021 and 2020, nonaccrual loans secured by one- to four-family residential property amounting to $1.5 million and $3.4 million, respectively, were in process of foreclosure.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2021.

The following table presents interest income recognized on nonaccrual loans:

(Dollars in thousands)	Interest Income Recognized
Years Ended December 31,	2021	2020
Commercial:
Commercial real estate	$—	$—
Commercial & industrial	—	2
Total commercial	—	2
Residential Real Estate:
Residential real estate	459	379
Consumer:
Home equity	52	35
Other	1	—
Total consumer	53	35
Total	$512	$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 other pertinent information:

(Dollars in thousands)
December 31,	2021	2020
Accruing TDRs	$16,564	$13,418
Nonaccrual TDRs	2,819	2,345
Total TDRs	$19,383	$15,763
Specific reserves on TDRs included in the ACL on loans	$148	$159
Additional commitments to lend to borrowers with TDRs	$—	$—

The following table presents TDRs occurring during the period indicated and the recorded investment pre- and post- modification:

(Dollars in thousands)			Outstanding Recorded Investment
	# of Loans		Pre-Modifications		Post-Modifications
Years ended December 31,	2021	2020	2021	2020	2021	2020
Commercial:
Commercial real estate	2	3	$9,859	$1,798	$9,859	$1,798
Commercial & industrial	—	5	—	6,844	—	6,844
Total commercial	2	8	9,859	8,642	9,859	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	2	23	$9,859	$15,458	$9,859	$15,458

The following table presents TDRs occurring during the period indicated by type of modification:

(Dollars in thousands)
Years ended December 31,	2021	2020
Below-market interest rate concession	$—	$—
Payment deferral	—	7,704
Maturity / amortization concession	—	—
Interest only payments	9,859	6,384
Combination (1)	—	1,370
Total	$9,859	$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,	2021	2020	2021	2020
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

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, 2021, the carrying value of individually analyzed loans amounted to $21.1 million, of which $14.4 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:

(Dollars in thousands)	December 31, 2021		December 31, 2020
	Carrying Value	Related Allowance	Carrying Value	Related Allowance
Commercial:
Commercial real estate (1)	$10,603	$—	$1,792	$—
Commercial & industrial (2)	—	—	451	—
Total commercial	10,603	—	2,243	—
Residential Real Estate:
Residential real estate (3)	3,803	534	5,947	38
Consumer:
Home equity (3)	—	—	254	183
Other	—	—	—	—
Total consumer	—	—	254	183
Total	$14,406	$534	$8,444	$221

(1)    Secured by income-producing property.

(2)    Secured by business assets.

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

Credit Quality Indicators

Commercial

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

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

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

The Corporation’s procedures call for loan risk ratings and classifications to be revised whenever information becomes available that indicates a change is warranted. On a quarterly basis, management reviews a watched asset list, which generally consists of commercial loans that are risk-rated 6 or worse, highly leveraged transaction loans, high-volatility commercial real estate, loans with active deferrals resulting from the COVID-19 pandemic, and other selected loans. Management’s review focuses on the current status of the loans, the appropriateness of risk ratings and strategies to improve the credit.

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

Residential and Consumer

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

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

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2021:

(Dollars in thousands)	Term Loans Amortized Cost by Origination Year
	2021	2020	2019	2018	2017	Prior	Revolving Loans Amortized Cost	Revolving Loans Converted to Term Loans	Total
Commercial:
CRE:
Pass	$417,705	$212,649	$260,940	$206,164	$163,132	$266,067	$7,015	$2,202	$1,535,874
Special Mention	9,089	489	33,982	28,432	—	20,273	320	—	92,585
Classified	—	958	—	2,685	6,959	1	—	—	10,603
Total CRE	426,794	214,096	294,922	237,281	170,091	286,341	7,335	2,202	1,639,062
C&I:
Pass	116,959	78,601	104,827	87,619	51,579	83,182	89,686	911	613,364
Special Mention	—	—	606	4,599	6,195	15,605	1,186	—	28,191
Classified	—	—	—	—	—	—	—	—	—
Total C&I	116,959	78,601	105,433	92,218	57,774	98,787	90,872	911	641,555
Residential Real Estate:
Residential real estate:
Current	733,658	353,742	158,140	85,656	88,365	297,792	—	—	1,717,353
Past Due	—	1,402	1,167	2,379	763	3,911	—	—	9,622
Total residential real estate	733,658	355,144	159,307	88,035	89,128	301,703	—	—	1,726,975
Consumer:
Home equity:
Current	10,434	5,850	3,703	2,380	1,064	3,592	211,488	8,421	246,932
Past Due	—	—	185	—	—	245	115	220	765
Total home equity	10,434	5,850	3,888	2,380	1,064	3,837	211,603	8,641	247,697
Other:
Current	5,536	3,264	1,313	407	747	6,090	258	—	17,615
Past Due	21	—	—	—	—	—	—	—	21
Total other	5,557	3,264	1,313	407	747	6,090	258	—	17,636
Total Loans	$1,293,402	$656,955	$564,863	$420,321	$318,804	$696,758	$310,068	$11,754	$4,272,925

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 tables above, renewals subject to full credit evaluation before being granted are reported as originations in the period renewed.

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, 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
Loan servicing rights capitalized	5,671	—	5,671
Amortization	(3,438)	—	(3,438)
Decrease in impairment reserve	—	154	154
Balance at December 31, 2021	$9,821	$—	$9,821

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

(Dollars in thousands)
Years ending December 31:	2022	$2,211
	2023	1,713
	2024	1,328
	2025	1,029
	2026	797
	2027 and thereafter	2,743
Total estimated amortization expense		$9,821

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,	2021	2020
Residential real estate	$1,509,319	$1,231,201
Commercial	119,873	155,935
Total	$1,629,192	$1,387,136