Loans

12 Months Ended

Dec. 31, 2023

Receivables [Abstract]

Loans

Loans

The following table presents a summary of loans:

(Dollars in thousands)
December 31,	2023	2022
Commercial:
Commercial real estate (1)	$2,106,359	$1,829,304
Commercial & industrial (2)	605,072	656,397
Total commercial	2,711,431	2,485,701
Residential Real Estate:
Residential real estate (3)	2,604,478	2,323,002
Consumer:
Home equity	312,594	285,715
Other (4)	19,203	15,721
Total consumer	331,797	301,436
Total loans (5)	$5,647,706	$5,110,139

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

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

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

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

(5)Includes net unamortized loan origination costs of $13.0 million and $11.6 million, respectively, at December 31, 2023 and 2022 and net unamortized premiums on loans purchased from and serviced by other financial institutions of $286 thousand and $318 thousand, respectively, at December 31, 2023 and 2022.

Loan balances exclude accrued interest receivable of $22.9 million and $17.6 million, respectively, as of December 31, 2023 and 2022.

As of December 31, 2023 and 2022, loans amounting to $3.4 billion and $2.4 billion, respectively, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window. See Note 13 for additional disclosure regarding borrowings.

Concentrations of Credit Risk

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

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, 2023	Current	30-59	60-89	90 or More	Total Past Due	Total Loans
Commercial:
Commercial real estate	$2,106,359	$—	$—	$—	$—	$2,106,359
Commercial & industrial	605,062	10	—	—	10	605,072
Total commercial	2,711,421	10	—	—	10	2,711,431
Residential Real Estate:
Residential real estate	2,596,362	4,369	1,738	2,009	8,116	2,604,478
Consumer:
Home equity	309,398	2,349	112	735	3,196	312,594
Other	19,180	20	3	—	23	19,203
Total consumer	328,578	2,369	115	735	3,219	331,797
Total loans	$5,636,361	$6,748	$1,853	$2,744	$11,345	$5,647,706

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

Included in past due loans as of December 31, 2023 and 2022, were nonaccrual loans of $6.9 million and $7.2 million, respectively. In addition, all loans 90 days or more past due at December 31, 2023 and 2022 were classified as nonaccrual.

Nonaccrual Loans

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

(Dollars in thousands)
	December 31, 2023			December 31, 2022
	Nonaccrual Loans			Nonaccrual Loans
	With an ACL	Without an ACL	Total	With an ACL	Without an ACL	Total
Commercial:
Commercial real estate	$10,997	$21,830	$32,827	$—	$—	$—
Commercial & industrial	—	682	682	—	—	—
Total commercial	10,997	22,512	33,509	—	—	—
Residential Real Estate:
Residential real estate	8,495	1,131	9,626	6,009	5,885	11,894
Consumer:
Home equity	1,483	—	1,483	360	592	952
Other	—	—	—	—	—	—
Total consumer	1,483	—	1,483	360	592	952
Total	$20,975	$23,643	$44,618	$6,369	$6,477	$12,846
Accruing loans 90 days or more past due			$—			$—

Nonaccrual loans of $37.7 million and $5.7 million, respectively, at December 31, 2023 and 2022 were current as to the payment of principal and interest.

As of December 31, 2023 and 2022, nonaccrual loans secured by one- to four-family residential property amounting to $960 thousand and $2.9 million, respectively, were in process of foreclosure.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2023.

The following table presents interest income recognized on nonaccrual loans:

(Dollars in thousands)	Interest Income Recognized
Years Ended December 31,	2023	2022
Commercial:
Commercial real estate	$2,719	$—
Commercial & industrial	59	—
Total commercial	2,778	—
Residential Real Estate:
Residential real estate	466	398
Consumer:
Home equity	107	62
Other	4	3
Total consumer	111	65
Total	$3,355	$463

Troubled Loan Modifications

As disclosed in Note 2, effective January 1, 2023, the Corporation adopted ASU 2022-02, which eliminated the accounting guidance for TDRs and added enhanced disclosures with respect to certain modifications for borrowers experiencing financial difficulty.

The following table presents the carrying value at December 31, 2023, of TLMs made during the period indicated, segregated by class of loans and type of concession granted:

(Dollars in thousands)
Year ended December 31, 2023	Maturity Extension	Combination (1)	Total	% (2)
Commercial:
Commercial real estate	$13,780	$8,050	$21,830	1	%
Commercial & industrial	—	—	—	—
Total commercial	13,780	8,050	21,830	1
Total	$13,780	$8,050	$21,830	—	%

(1)Combination includes an interest rate reduction, payment deferral and maturity extension.

(2)Percentage of TLMs to the total loans outstanding within the respective loan class.

The following table presents the financial effect of TLMs made during the period indicated, segregated by class of loans:

(Dollars in thousands)
Year ended December 31, 2023	Weighted Average Interest Rate Reduction		Weighted Average Maturity Extension (in months)	Weighted Average Other-than-Insignificant Payment Delay (in months)
Commercial:
Commercial real estate	3	%	10	12
Commercial & industrial	—		—	—
Total commercial	3		10	12
Total	3	%	10	12

Management closely monitors the performance of TLMs to understand the effectiveness of the modifications. The following table presents an aging analysis as of the date indicated, of TLMs that have been modified in the past 12 months:

(Dollars in thousands)	Days Past Due
December 31, 2023	30-59	60-89	Over 90	Total Past Due	Current	Total Loans
Commercial:
Commercial real estate	$—	$—	$—	$—	$21,830	$21,830
Commercial & industrial	—	—	—	—	—	—
Total commercial	—	—	—	—	21,830	21,830
Total loans	$—	$—	$—	$—	$21,830	$21,830

The total carrying value of TLMs at December 31, 2023 were included in nonaccrual loans. There were no TLMs made in the previous 12 months for which there was a subsequent payment default.

There were no significant commitments to lend additional funds to borrowers experiencing financial difficulty whose loans were TLMs at December 31, 2023.

Troubled Debt Restructurings

As disclosed in Note 2, effective January 1, 2023, the Corporation adopted ASU 2022-02, which eliminated the accounting guidance for TDRs. Historical disclosures that were required prior to adoption of ASU 2022-02 are shown below.

The following table presents the recorded investment in TDRs and other pertinent information:

(Dollars in thousands)
December 31, 2022
Accruing TDRs	$3,571
Nonaccrual TDRs	5,073
Total	$8,644
Specific reserves on TDRs included in the ACL on loans	$115
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
Year ended December 31, 2022	# of Loans	Pre-Modification	Post-Modification
Commercial:
Commercial real estate	—	$—	$—
Commercial & industrial	3	1,687	1,687
Total commercial	3	1,687	1,687
Total	3	$1,687	$1,687

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

(Dollars in thousands)
Years ended December 31, 2022
Below-market interest rate concession	$—
Payment deferral	—
Maturity / amortization concession	—
Interest only payments	—
Combination (1)	1,687
Total	$1,687

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

In 2022, there were no TDRs modified within the previous 12 months for which there was a payment default.

Individually Analyzed Loans

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

As of December 31, 2023, the carrying value of individually analyzed loans amounted to $34.6 million, all of which were considered collateral dependent. As of December 31, 2022, individually analyzed loans amounted to $10.0 million, of which $8.5 million were considered collateral dependent. For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. See Note 10 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

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

(Dollars in thousands)	December 31, 2023		December 31, 2022
	Carrying Value	Related Allowance	Carrying Value	Related Allowance
Commercial:
Commercial real estate (1)	$32,827	$97	$2,103	$—
Commercial & industrial (2)	682	—	—	—
Total commercial	33,509	97	2,103	—
Residential Real Estate:
Residential real estate (3)	1,131	—	5,760	—
Consumer:
Home equity (3)	—	—	592	—
Other	—	—	—	—
Total consumer	—	—	592	—
Total	$34,640	$97	$8,455	$—

(1)    Secured by income-producing property.

(2)    Secured by business assets.

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

Credit Quality Indicators

Commercial

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

A description of the commercial loan categories is as follows:

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

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

Classified - Loans identified as “substandard,” “doubtful” or “loss” based on criteria consistent with guidelines provided by banking regulators. A “substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. The loans are closely watched and are either already on nonaccrual status or may be placed on nonaccrual status when management determines there is uncertainty of collectability. A “doubtful” loan is placed on nonaccrual status and has a high probability of loss, but the extent of the loss is difficult to quantify due to dependency upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. A loan in the “loss” category is considered generally uncollectible or the timing or amount of payments cannot be

determined. “Loss” is not intended to imply that the loan has no recovery value, but rather, it is not practical or desirable to continue to carry the asset.

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

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

Residential and Consumer

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

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

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2023:

(Dollars in thousands)	Term Loans Amortized Cost by Origination Year
	2023	2022	2021	2020	2019	Prior	Revolving Loans Amortized Cost	Revolving Loans Converted to Term Loans	Total
Commercial:
CRE:
Pass	$327,139	$598,946	$396,468	$168,451	$167,484	$333,356	$42,095	$1,032	$2,034,971
Special Mention	—	—	—	—	—	16,630	—	—	16,630
Classified	21,830	—	18,430	—	14,498	—	—	—	54,758
Total CRE	348,969	598,946	414,898	168,451	181,982	349,986	42,095	1,032	2,106,359
Gross charge-offs	—	—	—	—	—	373	—	—	373
C&I:
Pass	55,607	124,894	52,282	49,812	72,876	145,361	90,664	587	592,083
Special Mention	11,119	—	—	—	181	—	—	—	11,300
Classified	—	818	189	—	682	—	—	—	1,689
Total C&I	66,726	125,712	52,471	49,812	73,739	145,361	90,664	587	605,072
Gross charge-offs	37	—	—	—	—	—	—	—	37
Residential Real Estate:
Residential real estate:
Current	431,563	808,442	666,447	255,554	113,462	320,894	—	—	2,596,362
Past Due	—	—	—	886	594	6,636	—	—	8,116
Total residential real estate	431,563	808,442	666,447	256,440	114,056	327,530	—	—	2,604,478
Gross charge-offs	—	—	—	—	—	—	—	—	—
Consumer:
Home equity:
Current	24,925	14,997	6,829	2,919	1,982	3,696	241,459	12,591	309,398
Past Due	—	—	—	—	130	829	1,301	936	3,196
Total home equity	24,925	14,997	6,829	2,919	2,112	4,525	242,760	13,527	312,594
Gross charge-offs	—	—	—	—	—	—	—	—	—
Other:
Current	6,777	3,530	3,685	1,001	120	3,824	243	—	19,180
Past Due	21	—	—	—	—	—	2	—	23
Total other	6,798	3,530	3,685	1,001	120	3,824	245	—	19,203
Gross charge-offs	159	—	8	—	—	—	—	—	167
Total Loans	$878,981	$1,551,627	$1,144,330	$478,623	$372,009	$831,226	$375,764	$15,146	$5,647,706
Total gross charge-offs	$196	$—	$8	$—	$—	$373	$—	$—	$577

The following table summarizes the Corporation’s loan portfolio by credit quality indicator and loan portfolio segment as of December 31, 2022:

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

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. In addition, loans with extensions of maturity dates of more than three months are reported as originations in the period extended.

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, 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
Loan servicing rights capitalized	957	—	957
Amortization	(1,763)	—	(1,763)
Balance at December 31, 2022	9,015	—	9,015
Loan servicing rights capitalized	1,069	—	1,069
Amortization	(1,538)	—	(1,538)
Increase in impairment reserve	—	(34)	(34)
Balance at December 31, 2023	$8,546	($34)	$8,512

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

(Dollars in thousands)
Years ending December 31:	2024	$1,330
	2025	1,123
	2026	948
	2027	801
	2028	676
	2029 and thereafter	3,668
Total estimated amortization expense		$8,546

Loans sold to others may be 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,	2023	2022
Residential real estate	$1,454,342	$1,457,896
Commercial	135,954	107,762
Total	$1,590,296	$1,565,658