Loans

3 Months Ended

Mar. 31, 2024

Receivables [Abstract]

Loans

Loans

The following table presents a summary of loans:

(Dollars in thousands)	March 31, 2024	December 31, 2023
Commercial:
Commercial real estate (1)	$2,158,518	$2,106,359
Commercial & industrial (2)	613,376	605,072
Total commercial	2,771,894	2,711,431
Residential Real Estate:
Residential real estate (3)	2,585,524	2,604,478
Consumer:
Home equity	309,302	312,594
Other (4)	18,512	19,203
Total consumer	327,814	331,797
Total loans (5)	$5,685,232	$5,647,706

(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 $13.1 million and $13.0 million, respectively, at March 31, 2024 and December 31, 2023 and net unamortized premiums on loans purchased from and serviced by other financial institutions of $273 thousand and $286 thousand, respectively, at March 31, 2024 and December 31, 2023.

Loan balances exclude accrued interest receivable of $23.8 million and $22.9 million, respectively, as of March 31, 2024 and December 31, 2023.

As of both March 31, 2024 and December 31, 2023, loans amounting to $3.4 billion, were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window. See Note 9 for additional disclosure regarding borrowings.

Concentrations of Credit Risk

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

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
March 31, 2024	Current	30-59	60-89	90 or More	Total Past Due	Total Loans
Commercial:
Commercial real estate	$2,158,518	$—	$—	$—	$—	$2,158,518
Commercial & industrial	613,106	270	—	—	270	613,376
Total commercial	2,771,624	270	—	—	270	2,771,894
Residential Real Estate:
Residential real estate	2,578,666	2,988	817	3,053	6,858	2,585,524
Consumer:
Home equity	306,423	1,969	113	797	2,879	309,302
Other	18,480	32	—	—	32	18,512
Total consumer	324,903	2,001	113	797	2,911	327,814
Total loans	$5,675,193	$5,259	$930	$3,850	$10,039	$5,685,232

(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

Included in past due loans as of March 31, 2024 and December 31, 2023, were nonaccrual loans of $5.1 million and $6.9 million, respectively. In addition, all loans 90 days or more past due at March 31, 2024 and December 31, 2023 were classified as nonaccrual.

Nonaccrual Loans

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

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

(Dollars in thousands)	March 31, 2024			December 31, 2023
	Nonaccrual Loans			Nonaccrual Loans
	With an ACL	Without an ACL	Total	With an ACL	Without an ACL	Total
Commercial:
Commercial real estate	$—	$18,729	$18,729	$10,997	$21,830	$32,827
Commercial & industrial	—	668	668	—	682	682
Total commercial	—	19,397	19,397	10,997	22,512	33,509
Residential Real Estate:
Residential real estate	8,590	1,132	9,722	8,495	1,131	9,626
Consumer:
Home equity	1,591	—	1,591	1,483	—	1,483
Other	—	—	—	—	—	—
Total consumer	1,591	—	1,591	1,483	—	1,483
Total nonaccrual loans	$10,181	$20,529	$30,710	$20,975	$23,643	$44,618
Accruing loans 90 days or more past due			$—			$—

Nonaccrual loans of $25.6 million and $37.7 million, respectively, at March 31, 2024 and December 31, 2023 were current as to the payment of principal and interest.

As of March 31, 2024 and December 31, 2023, nonaccrual loans secured by one- to four-family residential property amounting to $3.2 million and $960 thousand, respectively, were in process of foreclosure.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2024.

The following table presents interest income recognized on nonaccrual loans:

(Dollars in thousands)
Three months ended March 31,	2024	2023
Commercial:
Commercial real estate	$305	$27
Commercial & industrial	14	13
Total commercial	319	40
Residential Real Estate:
Residential real estate	116	173
Consumer:
Home equity	35	22
Other	—	1
Total consumer	35	23
Total	$470	$236

Troubled Loan Modifications

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.

Modifications to borrowers experiencing financial difficulty may include modified contractual terms that have a direct impact to contractual cash flows, including principal forgiveness, interest rate reductions, maturity extensions, other-than-insignificant payment delays, or any combination thereof.

Nonaccrual loans that become TLMs generally remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If a TLM is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status.

TLMs are reported as such for at least one year from the date of the modification. If the TLM performs in accordance with the modified contractual terms for that period of time, it would be removed from this classification.

The following table presents the carrying value at March 31, 2024, of TLMs made during the period indicated, segregated by class of loans and type of concession granted:

(Dollars in thousands)
Three months ended March 31, 2024	Maturity Extension	Total	% of Loan Class (1)
Commercial:
Commercial real estate	$—	$—	—	%
Commercial & industrial	668	668	—
Total commercial	668	668	—
Total	$668	$668	—	%

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

During the three months ended March 31, 2023, there were no TLMs.

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

Three months ended March 31, 2024	Weighted Average Maturity Extension (in months)
Commercial:
Commercial real estate	—
Commercial & industrial	120
Total commercial	120
Total	120

Management closely monitors the performance of TLMs to understand the effectiveness of the modifications. The following tables present 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
March 31, 2024	Current	30-59	60-89	90 or More	Total Past Due	Total Loans
Commercial:
Commercial real estate	$21,692	$—	$—	$—	$—	$21,692
Commercial & industrial	668	—	—	—	—	668
Total commercial	22,360	—	—	—	—	22,360
Total loans	$22,360	$—	$—	$—	$—	$22,360

(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	$21,830	$—	$—	$—	$—	$21,830
Commercial & industrial	—	—	—	—	—	—
Total commercial	21,830	—	—	—	—	21,830
Total loans	$21,830	$—	$—	$—	$—	$21,830

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 March 31, 2024.

Individually Analyzed Loans

Individually analyzed loans are individually assessed for credit impairment and include nonaccrual commercial loans, TLMs, as well as certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans.

As of March 31, 2024 and December 31, 2023, individually analyzed loans amounted to $34.2 million and $34.6 million, respectively, all of which were considered collateral dependent. For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. See Note 7 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

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

(Dollars in thousands)	March 31, 2024		December 31, 2023
	Carrying Value	Related Allowance	Carrying Value	Related Allowance
Commercial:
Commercial real estate (1)	$32,446	$—	$32,827	$97
Commercial & industrial (2)	668	—	682	—
Total commercial	33,114	—	33,509	97
Residential Real Estate:
Residential real estate (3)	1,131	—	1,131	—
Total	$34,245	$—	$34,640	$97

(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 includes information on credit quality indicators and gross charge-offs for the Corporation’s loan portfolio, segregated by class of loans as of March 31, 2024:

(Dollars in thousands)	Term Loans Amortized Cost by Origination Year
	2024	2023	2022	2021	2020	Prior	Revolving Loans Amortized Cost	Revolving Loans Converted to Term Loans	Total
Commercial:
CRE:
Pass	$39,504	$337,357	$606,664	$396,089	$167,540	$494,029	$44,510	$1,022	$2,086,715
Special Mention	—	13,716	—	—	—	16,536	—	—	30,252
Classified	—	7,975	—	19,346	—	14,230	—	—	41,551
Total CRE	39,504	359,048	606,664	415,435	167,540	524,795	44,510	1,022	2,158,518
Gross charge-offs	—	—	—	—	—	—	—	—	—
C&I:
Pass	41,752	53,657	125,752	50,132	49,053	184,526	96,460	556	601,888
Special Mention	—	—	4,141	1,309	—	4,369	—	—	9,819
Classified	—	—	818	183	—	668	—	—	1,669
Total C&I	41,752	53,657	130,711	51,624	49,053	189,563	96,460	556	613,376
Gross charge-offs	8	—	—	—	—	—	—	—	8
Residential Real Estate:
Residential real estate:
Current	17,794	426,177	801,966	654,646	251,358	426,725	—	—	2,578,666
Past Due	—	—	—	392	883	5,583	—	—	6,858
Total residential real estate	17,794	426,177	801,966	655,038	252,241	432,308	—	—	2,585,524
Gross charge-offs	—	—	—	—	—	—	—	—	—
Consumer:
Home equity:
Current	3,682	23,025	14,522	6,690	2,697	5,984	237,829	11,994	306,423
Past Due	—	—	139	23	142	390	668	1,517	2,879
Total home equity	3,682	23,025	14,661	6,713	2,839	6,374	238,497	13,511	309,302
Gross charge-offs	—	—	—	—	—	—	—	—	—
Other:
Current	1,020	6,457	3,422	2,585	945	3,814	237	—	18,480
Past Due	22	—	7	—	3	—	—	—	32
Total other	1,042	6,457	3,429	2,585	948	3,814	237	—	18,512
Gross charge-offs	58	—	—	—	2	2	—	—	62
Total loans	$103,774	$868,364	$1,557,431	$1,131,395	$472,621	$1,156,854	$379,704	$15,089	$5,685,232
Total gross charge-offs	$66	$—	$—	$—	$2	$2	$—	$—	$70

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

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.