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What changed in WASHINGTON TRUST BANCORP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of WASHINGTON TRUST BANCORP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+382 added−360 removedSource: 10-K (2025-02-25) vs 10-K (2024-02-26)

Top changes in WASHINGTON TRUST BANCORP INC's 2024 10-K

382 paragraphs added · 360 removed · 266 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

50 edited+9 added−12 removed126 unchanged
Biggest changeWe evaluate compensation in relation to market trends and internal pay equity to ensure that we are providing fair and competitive pay; promote and recognize employees for their work -9- successes; provide training and professional development opportunities for employees to enhance their skills; offer a flexible, wide-ranging benefit package to meet the diverse needs of our workforce; and provide policies and benefits to help employees create a work-life balance.
Biggest changeWe evaluate compensation in relation to market trends and internal pay equity to ensure that we are providing fair and competitive pay; promote and recognize employees for their work successes; provide training and professional development opportunities for employees to enhance their skills; offer a flexible, wide-ranging benefit package to meet the differing needs of our workforce; and provide policies and benefits to help employees create a work-life balance. -8- Additionally, we employ a robust succession planning process, which begins by determining critical roles within the organization; identifying core competencies for individuals in those roles; identifying and assessing possible successors; and providing opportunities for those individuals to develop and hone core competencies through training, mentoring and professional experience.
If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the -14- agency must issue an order directing action to correct the deficiency and may issue an order restricting asset growth, requiring an institution to increase its ratio of tangible equity to assets or directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA.
If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order restricting asset growth, requiring an institution to increase its ratio of tangible equity to assets or directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA.
The Bancorp and the Bank are subject to federal and state laws designed to protect consumers and prohibit unfair or deceptive business practices including the Equal Credit Opportunity Act, Fair Housing Act, Home Ownership Protection Act, Fair Credit Reporting Act, as amended by the FACT Act, the GLBA, the TILA, the CRA, the Home Mortgage Disclosure -15- Act, Real Estate Settlement Procedures Act, National Flood Insurance Act and various state law counterparts.
The Bancorp and the Bank are subject to federal and state laws designed to protect consumers and prohibit unfair or deceptive business practices including the Equal Credit Opportunity Act, Fair Housing Act, Home Ownership Protection Act, Fair Credit Reporting Act, as amended by the FACT Act, the GLBA, the TILA, the CRA, the Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, National Flood Insurance Act and various state law counterparts.
The Bancorp’s currently outstanding trust preferred securities were grandfathered under this rule. In addition, under rules that became effective January 1, 2015, AOCI (positive or negative) must be reflected in Tier 1 capital; however, the Bancorp and the Bank were permitted to make a one-time, permanent election to continue to exclude AOCI from capital.
The Bancorp’s currently outstanding trust preferred securities were grandfathered under this rule. In addition, under rules that became effective January 1, 2015, AOCI (positive or negative) must be reflected in Tier 1 -12- capital; however, the Bancorp and the Bank were permitted to make a one-time, permanent election to continue to exclude AOCI from capital.
Further, the CFPB also has a broad mandate to prohibit unfair, deceptive or abusive acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms. Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines and other penalties.
Further, the CFPB also has a broad mandate to prohibit unfair, deceptive or abusive acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms. Failure to comply with consumer protection laws and -14- regulations can subject financial institutions to enforcement actions, fines and other penalties.
See “-Regulatory Capital Requirements” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. Dividend Restrictions The Bancorp is a legal entity separate and distinct from the Bank and its other subsidiaries.
See “-Regulatory Capital Requirements” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. -13- Dividend Restrictions The Bancorp is a legal entity separate and distinct from the Bank and its other subsidiaries.
The CRA requires the FDIC to evaluate the Bank’s performance in helping to meet the credit needs of the entire community it serves, including low- and moderate-income neighborhoods, consistent with its safe and sound banking operations, and to take this record into consideration when evaluating certain applications.
The CRA requires the FDIC to evaluate the Bank’s performance in helping to meet the credit needs of the entire community it serves, including low- and moderate-income neighborhoods, consistent with its safe and -11- sound banking operations, and to take this record into consideration when evaluating certain applications.
ITEM 1. Business. Washington Trust Bancorp, Inc. The Bancorp, a publicly-owned registered bank holding company that has elected to be a financial holding company, was organized in 1984 under the laws of the state of Rhode Island. The Bancorp’s common stock trades on the NASDAQ Stock Market under the symbol WASH.
ITEM 1. Business. Washington Trust Bancorp, Inc. The Bancorp, a publicly-owned registered bank holding company that has elected to be a financial holding company, was organized in 1984 under the laws of the state of Rhode Island. The Bancorp’s common stock trades on the Nasdaq under the symbol WASH.
The FDIC, the RI Division of Banking and the Connecticut Department of Banking have the authority to issue cease and desist orders; to terminate insurance of deposits; to assess civil money penalties; to issue directives to increase capital; to place the bank into receivership; and to initiate injunctive actions against banking organizations and institution-related parties. Deposit Insurance.
The FDIC, the RI Division of Banking and the Connecticut Department of Banking have the authority to issue cease and desist orders; to terminate insurance of deposits; to assess civil money penalties; to issue directives to increase capital; to -10- place the bank into receivership; and to initiate injunctive actions against banking organizations and institution-related parties. Deposit Insurance.
Deposits represent Washington Trust’s primary source of funds and are gathered primarily from the areas surrounding our branch network. The Bank offers a wide variety of deposit products with a range of interest rates and terms to consumer, commercial, non-profit and municipal deposit customers.
Deposits represent Washington Trust’s primary source of funds and are gathered primarily from the areas surrounding our branch network. The Bank offers a wide variety of products with a range of interest rates and terms to consumer, commercial, non-profit and municipal customers.
In order to form a financial subsidiary, a state-chartered bank must be “well -12- capitalized,” and such banks must comply with certain capital deduction, risk management and affiliate transaction rules, among other requirements. Brokered Deposits.
In order to form a financial subsidiary, a state-chartered bank must be “well capitalized,” and such banks must comply with certain capital deduction, risk management and affiliate transaction rules, among other requirements. Brokered Deposits.
Under the BHCA, as amended by the Dodd-Frank Act, the Bancorp is required to serve as a source of financial strength for the Bank. This support may be required at times when the Bancorp may not have the resources to -10- provide support to the Bank.
Under the BHCA, as amended by the Dodd-Frank Act, the Bancorp is required to serve as a source of financial strength for the Bank. This support may be required at times when the Bancorp may not have the resources to provide support to the Bank.
Generally, -16- however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial or other transactions relating to a sanctioned country or with certain designated persons and entities; (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons); and (iii) restrictions on transactions with or involving certain persons or entities.
Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial or other transactions relating to a sanctioned country or with certain designated persons and entities; (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or -15- control of U.S. persons); and (iii) restrictions on transactions with or involving certain persons or entities.
Prior to the effectiveness of certain provisions of the Dodd-Frank -13- Act, bank holding companies were permitted to include trust preferred securities and cumulative perpetual preferred stock in Tier 1 capital, subject to limitations.
Prior to the effectiveness of certain provisions of the Dodd-Frank Act, bank holding companies were permitted to include trust preferred securities and cumulative perpetual preferred stock in Tier 1 capital, subject to limitations.
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 -6- the benefit of a private or non-profit entity where that entity rather than the governmental entity is obligated to pay the debt service.
C&I loans also include tax-exempt loans made to states -5- 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.
In addition, the Bank has a subsidiary that was formed for the purpose of holding, monitoring and disposing of certain foreclosed properties. -8- Market Area Washington Trust’s headquarters and main office is located in Westerly in Washington County, Rhode Island. Washington Trust’s primary deposit gathering area consists of the communities that are served by its branch network.
In addition, the Bank has a subsidiary that was formed for the purpose of holding, monitoring and disposing of certain foreclosed properties. -7- Market Area Washington Trust’s headquarters and main office is located in Westerly in Washington County, Rhode Island. Washington Trust’s primary deposit gathering area consists of the communities that are served by its branch network.
We invest in our employees. Our employees are on a learning journey that continues throughout their employment and focuses on building industry and job specific knowledge, as well as refining technical and interpersonal skills. We recognize that each position builds a foundation for the next, and therefore, make a conscious effort to provide opportunities for professional growth and advancement.
Our employees are on a learning journey that continues throughout their employment and focuses on building industry and job specific knowledge, as well as refining technical and interpersonal skills. We recognize that each position builds a foundation for the next, and therefore, make a conscious effort to provide opportunities for professional growth and advancement.
Washington Trust’s residential mortgage origination business conducted in our residential mortgage lending offices located outside of Rhode Island is performed by this Bank subsidiary. The Bank has other subsidiaries whose primary functions are to provide servicing on passive investments, such as loans acquired from the Bank and investment securities.
Washington Trust’s residential mortgage origination business conducted through our residential mortgage lending offices located outside of Rhode Island is performed by this Bank subsidiary. The Bank has other subsidiaries whose primary functions are to provide servicing on passive investments, such as loans acquired from the Bank and investment securities.
Washington Trust’s deposit accounts consist of noninterest-bearing demand deposits, interest-bearing demand deposits, NOW accounts, money market accounts, savings accounts and time deposits. A variety of retirement deposit accounts are offered to customers. Additional deposit services provided to customers include debit cards, ATMs, telephone banking, internet banking, mobile banking, remote deposit capture and other cash management services.
Washington Trust’s deposit accounts consist of noninterest-bearing demand deposits, interest-bearing demand deposits, NOW accounts, money market accounts, savings accounts and time deposits. A variety of retirement deposit accounts are also offered to customers. Additional deposit services provided to customers include debit cards, ATMs, telephone banking, internet banking, mobile banking, remote deposit capture and cash management services.
The CAMELS rating system is a supervisory rating system designed to take into account and reflect all financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk.
The CAMELS rating system is a supervisory rating system designed to take into account and reflect various financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk.
Consumer loans include home equity loans and lines of credit and personal installment loans. Home equity lines and home equity loans represent 94% of the total consumer portfolio at December 31, 2023. Also included in the consumer loan portfolio are purchased loans to individuals secured by general aviation aircraft.
Consumer loans include home equity loans and lines of credit and personal installment loans. Home equity lines and home equity loans represent 94% of the total consumer portfolio at December 31, 2024. Also included in the consumer loan portfolio are purchased loans to individuals secured by general aviation aircraft.
Washington Trust operates in a highly competitive wealth management services marketplace. Key competitive factors include investment performance, quality and level of service, as well as personal relationships. Principal competitors in the wealth management services business are commercial banks and trust companies, investment advisory firms, mutual fund companies, online and full-service stock brokerage firms, and other financial companies.
Washington Trust operates in a highly competitive wealth management services marketplace. Key competitive factors include investment products, level of investment performance, client services, as well as personal relationships. Principal competitors in the wealth management services business are commercial banks and trust companies, investment advisory firms, mutual fund companies, online and full-service stock brokerage firms, and other financial companies.
Wealth management revenues also include “transaction-based” revenues that are not primarily derived from the value of assets. Subsidiaries At December 31, 2023, the Bancorp’s principal subsidiary is the Bank.
Wealth management revenues also include “transaction-based” revenues that are not primarily derived from the value of assets. Subsidiaries At December 31, 2024, the Bancorp’s principal subsidiary is the Bank.
Many of these companies have greater resources than Washington Trust. Human Capital Washington Trust had 665 full-time equivalent employees at December 31, 2023. Our employees are the foundation of our success. They serve as trusted advisors, brand ambassadors, and leaders within the community, embodying our core values of quality, integrity and community.
Many of these companies have greater resources than Washington Trust. Human Capital Washington Trust had 618 full-time equivalent employees at December 31, 2024. Our employees are the foundation of our success. They serve as trusted advisors, brand ambassadors, and leaders within the community, embodying our core values of quality, integrity and community.
These assessments may result in clarification of debt service ratio calculations, changes in geographic and loan type concentrations, modifications to LTV standards for real estate collateral, changes in credit monitoring criteria and enhancements to monitoring of construction loans. Commercial Loans The commercial loan portfolio represented 48% of total loans at December 31, 2023.
These assessments may result in clarification of debt service ratio calculations, changes in geographic and loan type concentrations, modifications to LTV standards for real estate collateral, changes in credit monitoring criteria and enhancements to monitoring of construction loans. Commercial Loans The commercial loan portfolio represented 52% of total loans at December 31, 2024.
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, 2023, these purchased loans represented 4% of the total consumer loan portfolio and 0.2% of the total loan portfolio. Deposit Activities At December 31, 2023, total deposits amounted to $5.3 billion.
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, 2024, these purchased loans represented 4% of the total consumer loan portfolio and 0.2% of the total loan portfolio. Deposit Activities At December 31, 2024, total deposits amounted to $5.1 billion.
At December 31, 2023, the investment securities portfolio consisted of obligations of U.S. government agencies and U.S. -7- government-sponsored enterprises, including mortgage-backed securities; individual name issuer trust preferred debt securities; and corporate bonds. Wholesale Funding Activities The Bank is a member of the FHLB.
At December 31, 2024, the investment securities portfolio consisted of obligations of U.S. government agencies and U.S. -6- government-sponsored enterprises, including mortgage-backed securities; individual name issuer trust preferred debt securities; and corporate bonds. Wholesale Funding Activities The Bank is a member of the FHLB.
Privacy and Customer Information Security. The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to nonaffiliated third parties.
Privacy and Customer Information Security. The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to non-affiliated third parties.
As of December 31, 2023, purchased residential mortgages serviced by others were largely secured by properties located in Massachusetts and represented 2% of the total residential real estate loan portfolio and 1% of the total loan portfolio. Consumer Loans The consumer loan portfolio represented 6% of total loans as of December 31, 2023.
As of December 31, 2024, purchased residential mortgages serviced by others were largely secured by properties located in Massachusetts and represented 2% of the total residential real estate loan portfolio and 1% of the total loan portfolio. Consumer Loans The consumer loan portfolio represented 7% of total loans as of December 31, 2024.
As of December 31, 2023, the Bank had 10 branch offices located in southern Rhode Island (Washington County), 15 branch offices located in the greater Providence area in Rhode Island and one branch office located in southeastern Connecticut. As noted above, Washington Trust’s lending activities are conducted primarily in southern New England and, to a lesser extent, other states.
As of December 31, 2024, the Bank had 10 branch offices located in southern Rhode Island (Washington County), 17 branch offices located in the greater Providence area in Rhode Island and one branch office located in southeastern Connecticut. Washington Trust’s lending activities are conducted primarily in southern New England and, to a lesser extent, other states.
CRE loans frequently involve larger loan balances to single borrowers or groups of related borrowers. At December 31, 2023, CRE loans represented 78% of the total commercial loan portfolio and 37% of the total loan portfolio. C&I loans primarily provide working capital, equipment financing and financing for other business-related purposes.
CRE loans frequently involve larger loan balances to single borrowers or groups of related borrowers. At December 31, 2024, CRE loans represented 80% of the total commercial loan portfolio and 42% of the total loan portfolio. C&I loans primarily provide working capital, equipment financing and financing for other business-related purposes.
This process is essential to ensure leadership continuity in key positions, retain and develop intellectual and knowledge capital for the future, and encourage professional development. We are committed to fostering an inclusive culture that respects and values the diversity of our employees, customers, and community, where all ideas, perspectives and experiences are heard.
This process is essential to ensure leadership continuity in key positions, retain and develop intellectual and knowledge capital for the future, and encourage professional development. We are committed to fostering a culture that respects and values people - employees, customers, and community - where all ideas, perspectives and experiences are heard.
The new CRA regulations will become effective on January 1, 2026. The Bank has achieved a rating of “satisfactory” on its most recent examination dated December 5, 2022. Lending Restrictions.
However, the new CRA regulations are currently expected to become effective on January 1, 2026. The Bank has achieved a rating of “satisfactory” on its most recent examination dated December 5, 2022. Lending Restrictions.
In 2005, the Bancorp elected financial holding company status pursuant to the provisions of the GLBA. As a financial holding company, the Bancorp is authorized to engage in certain financial activities in which a bank holding company that has not elected to be a financial holding company may not engage.
As a financial holding company, the Bancorp is authorized to engage in certain financial activities in which a bank holding company that has not elected to be a financial holding company may not engage.
At December 31, 2023, Washington Trust had total assets of $7.2 billion, total deposits of $5.3 billion and total shareholders’ equity of $472.7 million. Lending Activities Washington Trust’s total loan portfolio amounted to $5.6 billion, or 78% of total assets, at December 31, 2023. The Corporation classifies loans as commercial, residential real estate or consumer.
At December 31, 2024, Washington Trust had total assets of $6.9 billion, total deposits of $5.1 billion and total shareholders’ equity of $499.7 million. Lending Activities Washington Trust’s total loan portfolio amounted to $5.1 billion, or 74% of total assets, at December 31, 2024. The Corporation classifies loans as commercial, residential real estate or consumer.
Investment Security Activities Washington Trust’s investment securities portfolio amounted to $1.0 billion, or 14% of total assets, at December 31, 2023 and 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.
Investment Security Activities Washington Trust’s investment securities portfolio amounted to $916.3 million, or 13% of total assets, at December 31, 2024 and 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.
At December 31, 2023, C&I loans represented 22% of the total commercial loan portfolio and 11% of the total loan portfolio. Residential Real Estate Loans The residential real estate loan portfolio consists of mortgage and homeowner construction loans secured by one- to four-family residential properties and represented 46% of total loans at December 31, 2023.
At December 31, 2024, C&I loans represented 20% of the total commercial loan portfolio and 10% of the total loan portfolio. Residential Real Estate Loans The residential real estate loan portfolio consists of mortgage and homeowner construction loans secured by one- to four-family residential properties and represented 41% of total loans at December 31, 2024.
However, among other permitted activities, a bank holding company may engage directly or indirectly in, and acquire control of companies engaged in, activities that the Federal Reserve has determined to be closely related to banking or managing and controlling banks, subject to certain notification requirements.
However, among other permitted activities, a bank holding company may engage directly or indirectly in, and acquire control of companies engaged in, -9- activities that the Federal Reserve has determined to be closely related to banking, subject to certain notification requirements. In 2005, the Bancorp elected financial holding company status pursuant to the provisions of the GLBA.
Additional funding sources are available through the FRBB and in other forms of borrowing, such as securities sold under repurchase agreements. As noted above under the caption “Deposit Activities,” the Corporation also utilizes wholesale brokered deposits as part of its overall funding program.
The Bank also has access to a $40.0 million unused line of credit with the FHLB. Additional funding sources are available through the FRBB and in other forms of borrowing, such as securities sold under repurchase agreements. As noted above under the caption “Deposit Activities,” the Corporation also utilizes wholesale brokered deposits as part of its overall funding program.
Wealth management services are provided through the Bank and its registered investment adviser subsidiary. See additional information under the caption “Subsidiaries.” At December 31, 2023, wealth management AUA totaled $6.6 billion. These assets are not included in the Consolidated Financial Statements. Washington Trust’s wealth management revenues represented 18% of total revenues in December 31, 2023.
Wealth management services are provided through the Bank and its registered investment adviser subsidiary. See additional information under the caption “Subsidiaries.” At December 31, 2024, wealth management AUA totaled $7.1 billion. These assets are not included in the Consolidated Financial Statements. Washington Trust’s wealth management revenues represent our largest source of noninterest income.
The Federal Reserve has established presumptions of control under which the acquisition of control of 5% or more of a class of voting securities of a bank holding company, together with other factors enumerated by the Federal Reserve, could constitute the acquisition of control of a bank holding company for purposes of the BHCA. -11- Regulation of the Bank The Bank is subject to the regulation, supervision and examination by the FDIC, the RI Division of Banking and the Connecticut Department of Banking.
The Federal Reserve has established presumptions of control under which the acquisition of control of 5% or more of a class of voting securities of a bank holding company, together with other factors enumerated by the Federal Reserve, could constitute the acquisition of control of a bank holding company for purposes of the BHCA.
We believe that providing caring, personal customer service with a human connection is an important differentiator for Washington Trust, especially in this digital age. We seek to build strong relationships with our customers and understand their needs and challenges. Our talented team is committed to providing an exceptional customer experience by listening and providing trusted advice and personalized solutions.
We believe that providing caring, personal customer service with a human connection is an important differentiator for Washington Trust, especially in this digital age. We seek to build strong relationships with our customers.
See additional information under the caption “Subsidiaries.” 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. The accounting and reporting policies of Washington Trust conform to GAAP and to general practices of the banking industry.
See additional information under the caption “Subsidiaries.” Washington Trust offers a full range of financial services, including commercial banking, mortgage banking, personal banking, and wealth management and trust services, through its offices located in Rhode Island, Connecticut, and Massachusetts. The accounting and reporting policies of Washington Trust conform to GAAP and to general practices of the banking industry.
This standby letter of credit collateralizes an institutional deposit. The Bank had remaining available borrowing capacity with the FHLB of $1.1 billion at December 31, 2023. The Bank pledges certain qualified investment securities and loans as collateral to the FHLB.
At December 31, 2024, the Bank had advances payable to the FHLB of $1.1 billion. The Bank pledges certain qualified investment securities and loans as collateral to the FHLB. At December 31, 2024, the Bank had available borrowing capacity with the FHLB of $753.0 million.
The Bank is also subject to various Rhode Island and Connecticut business and banking regulations and the regulations issued by the CFPB (as enforced by the FDIC). The Federal Reserve may also directly examine the subsidiaries of the Bancorp, including the Bank.
Regulation of the Bank The Bank is subject to the regulation, supervision and examination by the FDIC, the RI Division of Banking and the Connecticut Department of Banking. The Bank is also subject to various Rhode Island and Connecticut business and banking regulations and the regulations issued by the CFPB (as enforced by the FDIC).
Washington Trust has residential mortgage lending offices located in eastern Massachusetts (Sharon, Burlington, Braintree and Wellesley); in Glastonbury, Connecticut; and in Rhode Island (Westerly and Warwick). Washington Trust provides wealth management services from its offices located in Westerly, Narragansett and Providence, Rhode Island; Wellesley, Massachusetts; and New Haven, Connecticut.
Washington Trust provides commercial, residential and consumer lending services from its branch locations and other offices. See additional disclosure in Item 2, Properties. Washington Trust provides wealth management services from its offices located in Westerly, Narragansett and Providence, Rhode Island; Wellesley, Massachusetts; and New Haven, Connecticut.
As a program participant, we receive reciprocal amounts of deposits from other participating banks. We consider these reciprocal deposit balances to be in-market deposits as distinguished from traditional wholesale brokered deposits.
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 deposits from other participating banks. We consider these reciprocal deposit balances to be in-market deposits as distinguished from traditional wholesale brokered deposits.
Wholesale brokered deposits from out-of-market institutional sources are also utilized as part of our overall funding strategy. Washington Trust is a participant in the DDM program, the ICS program and the CDARS program.
Wholesale brokered deposits from out-of-market institutional sources are also utilized as part of our overall funding strategy. Washington Trust is a participant in the DDM, ICS, and CDARS programs. Washington Trust uses these deposit sweep services to place customer and client funds into interest-bearing demand accounts, money market accounts, and/or certificates of deposits issued by other participating banks.
Deposits 56-58, 113 VI. Return on Equity and Assets 34 Supervision and Regulation The following discussion addresses elements of the regulatory framework applicable to Washington Trust.
Investment Portfolio 45-46, 89 III. Loan Portfolio 46-52, 92 IV. Summary of Loan Loss Experience 55-58, 102 V. Deposits 58-60, 116 VI. Return on Equity and Assets 36 Supervision and Regulation The following discussion addresses elements of the regulatory framework applicable to Washington Trust.
Statistical Disclosures The information required by Securities Act Guide 3 “Statistical Disclosure by Bank Holding Companies” is located on the pages noted below. Description Page I. Distribution of Assets, Liabilities and Stockholder Equity; Interest Rates and Interest Differentials 35-37 II. Investment Portfolio 43-44, 87 III. Loan Portfolio 44-49, 90 IV. Summary of Loan Loss Experience 54-56, 100 V.
We recognize that a supportive and inclusive environment will foster increased collaboration, problem-solving, innovation and creativity, ultimately driving positive results. Statistical Disclosures The information required by Securities Act Guide 3 “Statistical Disclosure by Bank Holding Companies” is located on the pages noted below. Description Page I. Distribution of Assets, Liabilities and Stockholder Equity; Interest Rates and Interest Differentials 37-39 II.
Removed
Washington Trust uses these deposit sweep services to place customer and client funds into interest-bearing demand accounts, money market accounts, and/or certificates of 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.
Added
Our talented team is committed to providing an exceptional customer experience by listening, understanding the unique needs and challenges of each customer, and providing trusted advice and personalized solutions. We invest in our employees.
Removed
At December 31, 2023, the Bank had advances payable to the FHLB of $1.2 billion. As of December 31, 2023, the Bank had access to a $40.0 million unused line of credit with the FHLB. Additionally, the Bank had a standby letter of credit with the FHLB of $65.0 million at December 31, 2023.
Added
On July 30, 2024, the FDIC approved a notice of proposed rulemaking to amend the FDIC’s rules implementing the Change in Bank Control Act.
Removed
Washington Trust provides commercial, residential and consumer lending services from its branch locations and other offices. The Bank has commercial lending offices at its main office, in the financial district of Providence, Rhode Island, in Warwick, Rhode Island, and in New Haven, Connecticut.
Added
If adopted, the proposed rule would eliminate an exemption from prior notice to the FDIC for a proposed change in control involving the acquisition of voting securities of a depository institution holding company for which the Federal Reserve reviews a notice pursuant to the Change in Bank Control Act.
Removed
Additionally, we employ a robust succession planning process, which begins by determining critical roles within the organization; identifying core competencies for individuals in those roles; identifying and assessing possible successors; and providing opportunities for those individuals to develop and hone core competencies through training, mentoring and professional experience.
Added
As a result, if the proposed rule is adopted, the acquisition of control of a bank holding company for an insured state nonmember bank would require prior notice to both the FDIC and the Federal Reserve.
Removed
A diverse and inclusive workforce enables us to better understand the needs and challenges of our customers so we can build stronger relationships. We recognize that an inclusive environment will foster increased collaboration, problem-solving, innovation and creativity, ultimately driving positive results.
Added
The Federal Reserve may also directly examine the subsidiaries of the Bancorp, including the Bank.
Removed
We also recognize that being viewed as an employer that champions diversity, inclusion and equality of opportunity can provide a talent advantage allowing us to attract, hire and retain the best talent available.
Added
On November 16, 2023, the FDIC approved a final rule to implement a special assessment to recover such losses. For 2024, the FDIC insurance expense for the Bank was $5.5 million.
Removed
We have a formalized strategy that guides our diversity, equity & inclusion (“DE&I”) efforts, focusing on four pillars – culture and employee experience; recruitment, development and retention; leadership and workforce engagement; and impactful community relationships.
Added
On February 5, 2024, the American Bankers Association, the U.S. Chamber of Commerce, the Independent Community Bankers of America, along with four state trade associations jointly sued the Federal Reserve, FDIC, and Office of Comptroller of the Currency for exceeding their statutory authority in adopting revised regulations to implement the Community Reinvestment Act. The lawsuit filed in the U.S.
Removed
To assist us in implementing our DE&I strategy, we have formed a DE&I Council, a cross functional group of colleagues representing different perspectives, backgrounds and experiences.
Added
District Court for the Northern District of Texas requested the regulatory agencies vacate the rule and sought a preliminary injunction pausing the new rules while the court decided the merits of the case.
Removed
The DE&I Council assists us with developing a diverse talent pipeline; identifying areas for increased education and awareness; providing insight into organizational climate and culture; implementing DE&I initiatives; promoting the use of best practices; and identifying opportunities for Washington Trust to engage with its broader communities.
Added
On March 29, 2024, the district court judge granted a temporary injunction to pause the implementation of CRA final rule with respect to the plaintiff trade associations while the case moves forward. The banking agencies have appealed the issuance of the injunction to the U.S. Court of Appeals for the Fifth Circuit.
Removed
On November 16, 2023, the FDIC approved a final rule to implement a special assessment to recover such losses. Under the final rule, each insured depository institution’s assessment base for the special assessment is generally equal to estimated uninsured deposits as reported in the Consolidated Report of Condition and Income (Call Report) or Report of Assets and Liabilities of U.S.
Removed
Branches and Agencies of Foreign Banks (FFIEC 002) as of December 31, 2022, after applying the $5 billion deduction. The Bank had total reported uninsured deposits as of December 31, 2022 of less than $5 billion, and therefore the Bank is not required to pay any such special assessment.
Removed
For 2023, the FDIC insurance expense for the Bank was $4.7 million.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

44 edited+16 added−13 removed122 unchanged
Biggest changeMarket conditions 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.
Biggest changeAny inability to access the capital markets, illiquidity or volatility in the capital markets, the decrease in value of eligible collateral or increased 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.
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 pandemics could cause disruptions to our business or the economy as a whole.
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.
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 liability. 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.
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 liability. A breach could negatively impact customer confidence, damaging our reputation and undermining our ability to attract and keep customers. -21- We rely on other companies to provide key components of our business infrastructure.
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. -22- Our business may be adversely affected if we fail to adapt our products and services to evolving industry standards and consumer preferences.
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. Our business may be adversely affected if we fail to adapt our products and services to evolving industry standards and consumer preferences.
Additionally, the COVID-19 pandemic has had a potentially 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.
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.
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.
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. -23- Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.
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.
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. -24- The market price and trading volume of our stock can be volatile.
See “Business-Supervision and Regulation.” -26- 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.
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.
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 result in a significant adverse impact on us.
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 -20- creditworthiness of these organizations will affect economic conditions. Such ratings actions could result in a significant adverse impact on us.
A worsening of 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.
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; -17- • 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.
These alternatives may include generating client 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 alternatives may include generating client deposits, extending the maturity of wholesale borrowings, borrowing under certain -18- 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.
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, pandemics and other external events could harm our business.
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.
In recent years, non-financial services firms, such as financial technology companies, have begun -23- to offer services traditionally provided by financial institutions. These firms attempt to use technology and mobile platforms to enhance the ability of companies and individuals to borrow, save and invest money.
In recent years, non-financial services firms, such as financial technology companies, have begun to offer services traditionally provided by financial institutions. These firms attempt to use technology and mobile platforms to enhance the ability of companies and individuals to borrow, save and invest money.
Our cost of funds for banking operations may increase as a result of general economic conditions, interest rates and competitive pressures. Deposits are a low cost and stable source of funding. We compete with banks and other financial institutions for deposits.
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.
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.
Negative public opinion about the financial services industry generally (including the -22- 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.
If the cost effectiveness or the availability of supply in these credit markets is reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity by other means.
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.
Write-downs of the amount of any impairment, if necessary, would be charged to the results of operations in the -24- period in which the impairment occurs.
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.
The cost of such subsidies will generally be recognized over the life of the respective loans. Loan subsidies may also include down payment assistance and closing cost assistance. The Bank also will commit $2.0 million for focused community outreach and marketing efforts over a five-year period.
The cost of such subsidies will generally be recognized over the life of the respective loans. Loan subsidies may also include down payment assistance and closing cost assistance. The Bank also agreed to commit $2.0 million for focused community outreach and marketing efforts over a five-year period.
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.
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.
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 in our increasingly competitive industry.
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.
Under the settlement, the Bank will provide $7.0 million in loan subsidies over a five-year period with the goal of increasing home mortgage loans, home improvement loans, and home refinance loans in specific census tracts in Rhode Island.
Under the settlement, the Bank agreed to provide $7.0 million in loan subsidies over a five-year period with the goal of increasing home mortgage loans, home improvement loans, and home refinance loans in specific census tracts in Rhode Island.
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. -19- Our loan portfolio includes commercial loans, which are generally riskier than other types of loans. At December 31, 2023, commercial loans represented 48% of our loan portfolio.
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, 2024, commercial loans represented 52% of our loan portfolio.
The expenses associated with community outreach and marketing efforts will be recorded in the period in which the activities occur and are consistent with historical spending levels. In addition, the Bank will commit to opening two full-service branches in specific census tracts in Rhode Island, including the previously announced new branch in Olneyville, Rhode Island.
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 previously announced new branch in Olneyville, Rhode Island.
Historical credit loss experience provides the basis for the estimation of expected credit losses. We make various assumptions and judgments about the quality and collectability of the loan portfolio, the creditworthiness of borrowers, the value of the underlying collateral, the enforceability of the loan documents, current economic conditions and reasonable and supportable forecasts.
We make various assumptions and judgments about the quality and collectability of the loan portfolio, the creditworthiness of borrowers, the value of the underlying collateral, the enforceability of the loan documents, current economic conditions and reasonable and supportable forecasts.
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.
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.
The Bancorp is a legal entity separate and distinct from the Bank. Revenues of the Bancorp are derived primarily from dividends paid to it by the Bank.
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 of the Bancorp are derived primarily from dividends paid to it by the Bank.
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.
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.
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.
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.
Such 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.
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 -25- services and products.
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. -27- We face significant legal risks, both from regulatory investigations and proceedings, and from private actions brought against us.
The settlement included no civil penalties levied against the Bank. -26- 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.
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 against losses, in the event we breach these representations or warranties.
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 -19- originated.
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 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. Our ACL on loans may not be adequate to cover actual loan losses, and an increase in the ACL on loans will adversely affect our earnings.
Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define “capital” for calculating these ratios.
These and other restrictions limit the manner in which we may conduct business and obtain financing. Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define “capital” for calculating these ratios.
The economy in the United States and globally has experienced volatility in recent years and may continue to experience such volatility for the foreseeable future. There can be no assurance that economic conditions will not worsen.
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.
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. The U.S. Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change.
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.
Federal and state regulators, in reviewing our loan portfolio as part of a regulatory examination, may request that we increase our ACL.
Federal and state regulators, in reviewing our loan portfolio as part of a regulatory examination, may request that we increase our ACL. Any increases in our ACL will result in a decrease in our net income and, possibly, our capital, and could have an adverse effect on our financial condition and results of operations.
Our ACL on loans may not be adequate to cover actual loan losses, and an increase in the ACL on loans will adversely affect our earnings. We maintain an ACL on loans that is based on relevant internal and external information related to past events, current economic conditions and reasonable supportable forecasts.
We maintain an ACL on loans that is based on relevant internal and external information related to past events, current economic conditions and reasonable supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses.
There is no assurance that any such losses would not materially and adversely affect our results of operations. -21- 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.
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.
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. -25- Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our financial condition and results of operations.
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.
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, the timing and impact of changing governmental policies, natural disasters, climate change, epidemics, pandemics, terrorist attacks, acts of war, or a combination of these or other factors.
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, such as tariffs or retaliatory tariffs as those proposed by the incoming U.S.
Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses.
Small to medium-sized businesses may be impacted by higher costs as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses. -16- Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly.
In that event, the market price for our common stock could decline and you may lose your investment.
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 Inflationary pressures and increases in market interest rates may affect our results of operations and financial condition.
In addition, WTA, a registered investment advisor subsidiary, is subject to regulation under federal and state securities laws and fiduciary laws. These and other restrictions limit the manner in which we may conduct business and obtain financing.
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.
However, even with these policies in place, a change in interest rates can impact our results of operations or financial condition. We are subject to liquidity risk, which could negatively affect our funding levels. We must maintain sufficient funds to respond to the needs of depositors and borrowers.
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.
Removed
This report is qualified in its entirety by these risk factors. -17- RISKS RELATED TO OUR BUSINESS AND INDUSTRY The possibility of the economy entering a recession and/or experiencing further turmoil or volatility in the financial markets would likely have an adverse effect on our business, financial position, and results of operations.
Added
Inflation continued at elevated levels in 2024 and may remain elevated in 2025. In response to a pronounced rise in inflation, the Federal Reserve raised the federal funds rate several times in 2023.
Removed
Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation continued at elevated levels in 2023. Inflationary pressures, including the impact of recent increases in inflation, may remain elevated in 2024.
Added
While the Federal Reserve cut the federal funds rate in 2024, we cannot predict whether or when the Federal Reserve may increase or decrease the federal funds rate in the future. Moreover, while the inflation rate has decreased, prices remain high.
Removed
Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition.
Added
Sustained higher interest rates by the Federal Reserve, changes to fiscal policy, including expansion of U.S. federal deficit spending and resultant debt issuance, could also affect market interest rates, push down asset prices and weaken economic activity.
Removed
Furthermore, a prolonged period of inflation could cause wages and other costs to increase, which could adversely affect our results of operations and financial condition. -18- Fluctuations in interest rates may impair the Bank’s business.
Added
A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, any of which, could adversely affect our business, our financial condition and results of operations.
Removed
Any increases in our ACL will result in a decrease in our net income and, possibly, our capital, and could have an adverse effect on our financial condition and results of operations. -20- We are a holding company and depend on the Bank for dividends, distributions and other payments.
Added
Further, continued high market interest rates may reduce our loan origination volume, particularly refinance volume, and/or reduce our interest rate spread, which could have an adverse effect on our profitability and results of operations. Fluctuations in interest rates may impair the Bank’s business.
Removed
As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by us or by other institutions and organizations. Many of these transactions expose us to credit risk in the event of default of our counterparty or customer.
Added
Administration; 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.
Removed
For example, on May 1, 2023, First Republic Bank went into receivership and its deposits and substantially all of its assets were acquired by JPMorgan Chase Bank, National Association. Similarly, on March 10, 2023, Silicon Valley Bank went into receivership, and on March 12, 2023, Signature Bank went into receivership.
Added
Increased market volatility and adverse changes in financial or capital market conditions may increase our market risk.
Removed
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.
Added
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.
Removed
The Federal Reserve announced a program to provide loans to FDIC-insured depository institutions and certain U.S. branches and agencies of foreign banks secured by certain of such government securities to mitigate the risk of potential losses on the sale of such instruments.
Added
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.
Removed
Currently new advances (with terms up to one year) under the program can only be made through March 11, 2024.
Added
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.
Removed
There is no guarantee that the Treasury, FDIC and/or Federal Reserve, as applicable, take such actions in the future in the event of the closure of other banks or financial institutions, that they would do so in a timely fashion or that such actions, if taken, would have their intended effect.
Added
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.
Removed
The laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change. These changes could adversely and materially impact us.
Added
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.
Removed
The settlement included no civil penalties levied against the Bank. The United States District Court for the District of Rhode Island approved the settlement on October 31, 2023. The settlement resolved all claims made by the DOJ against the Bank related to its lending practices in the state of Rhode Island from 2016 to 2021.
Added
Whole loan sale agreements require us to repurchase or substitute mortgage loans, or indemnify buyers against losses, 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.
Added
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.
Added
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.
Added
Administration, Congressional leadership and regulatory agency leadership, state legislatures and federal and state regulatory agencies may continue to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

5 edited+0 added−0 removed22 unchanged
Biggest changeOur incident response and recovery plans address and guide our employees, management and the Audit Committee on our response to a cybersecurity incident. Third-Party Risk Management We have implemented controls designed to identify and mitigate cybersecurity threats associated with our use of third-party service providers.
Biggest changeThese plans address the prevention, detection, mitigation, and remediation of incidents, and include appropriate timely incident escalations to be followed during an incident. Third-Party Risk Management We have implemented controls designed to identify and mitigate cybersecurity threats associated with our use of third-party service providers.
He has broad technical -29- experience and expertise in information technology and holds a Bachelor of Science in Information Science and several certifications, including Cisco Certified Network Associate.
He has broad technical experience and expertise in information technology and holds a Bachelor of Science in Information Science and several certifications, including Cisco Certified Network Associate.
Our CIO joined Washington Trust as CISO in 2016 and has more than 35 years of experience in the financial, technology, auditing, and banking industries. He has expertise in technology deployment, information technology risk management and information security policies and programs. Our current CISO has served in that position since 2018 and is a 27-year employee of Washington Trust.
Our CIO joined Washington Trust as CISO in 2016 and has more than 35 years of experience in the financial, technology, auditing, and banking industries. He has expertise in technology deployment, information technology risk management and information security policies and programs. Our current CISO has served in that position since 2018 and is a 28-year employee of Washington Trust.
The results of the assessment are used to develop plans for, and prioritization of, initiatives to enhance our security controls, and to make recommendations to improve processes. -28- Technical Safeguards We regularly assess and deploy technical safeguards designed to protect our information systems from cybersecurity threats.
The results -27- of the assessment are used to develop plans for, and prioritization of, initiatives to enhance our security controls, and to make recommendations to improve processes. Technical Safeguards We regularly assess and deploy technical safeguards designed to protect our information systems from cybersecurity threats.
He has extensive experience and expertise in information technology risk management and information security policies and programs. He holds a Bachelor of Science in Computer Information Systems and several certifications, including Certified Information Systems Security Professional and Certified Information Security Auditor. Our CTO has served in that position since 2021 and is a 12-year employee of Washington Trust.
He has extensive experience and expertise in information technology risk management and -28- information security policies and programs. He holds a Bachelor of Science in Computer Information Systems and several certifications, including Certified Information Systems Security Professional and Certified Information Security Auditor. Our CTO has served in that position since 2021 and is a 13-year employee of Washington Trust.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed4 unchanged
Biggest changeAt December 31, 2023, 10 of the Corporation’s facilities were owned, 29 were leased and one branch office was owned on leased land. Lease expiration dates range from 3 months to 24 years, with additional renewal options on certain leases ranging from 3 years to 5 years. In addition, the Bank has one owned offsite-ATM in a leased space.
Biggest changeAt December 31, 2024, nine of the Corporation’s facilities were owned, 31 were leased and one branch office was owned on leased land. Lease expiration dates range from 4 months to 23 years, with additional renewal options on certain leases ranging from 1 year to 5 years.
Wealth management services are offered from offices that are located in Rhode Island (Westerly, Narragansett and Providence); in New Haven, Connecticut; and in Wellesley, Massachusetts. In addition, Washington Trust has an executive office in Providence, Rhode Island, an employment and training center and operations facilities located in Westerly, Rhode Island, as well as a loan servicing facility in Stonington, CT.
Wealth management services are offered from offices that are located in Rhode Island (Westerly, Narragansett and Providence); in New Haven, Connecticut; and in Wellesley, Massachusetts. In addition, Washington Trust has an executive office in Providence, Rhode Island, an employment and training center in Westerly, Rhode Island, as well as a loan servicing facility in Stonington, CT.
As of December 31, 2023, Washington Trust conducts business from 10 branch offices located in southern Rhode Island (Washington County), 15 branch offices located in the greater Providence area in Rhode Island and one branch office located in southeastern Connecticut. In addition to branches, Washington Trust has a number of offices in which other services are offered or conducted.
As of December 31, 2024, Washington Trust conducts business from 10 branch offices located in southern Rhode Island (Washington County), 17 branch offices located in the greater Providence area in Rhode Island and one branch office located in southeastern Connecticut. In addition to branches, Washington Trust has a number of offices in which other services are offered or conducted.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−1 removed2 unchanged
Biggest changeStock Performance Graph Set forth below is a line graph comparing the cumulative total shareholder return on the Corporation’s common stock against the cumulative total return of the NASDAQ Bank Stocks index and the NASDAQ Stock Market (U.S.) from December 31, 2018 to December 31, 2023.
Biggest changeStock Performance Graph Set forth below is a line graph comparing the cumulative total shareholder return on the Corporation’s common stock against the cumulative total return of the KBW Nasdaq Regional Banking Index and the Nasdaq Composite Index (U.S.) from December 31, 2019 to December 31, 2024.
The results presented assume that the value of the Corporation’s common stock and each index was $100.00 on December 31, 2018. The total return assumes reinvestment of dividends. The stock price performance shown on the stock performance graph and associated table below is not necessarily indicative of future price performance.
The results presented assume that the value of the Corporation’s common stock and each index was $100.00 on December 31, 2019. The total return assumes reinvestment of dividends. The stock price performance shown on the stock performance graph and associated table below is not necessarily indicative of future price performance.
Management believes that the Bank will continue to generate adequate earnings to continue to pay dividends in the future. -30- See additional disclosures on Equity Compensation Plan Information in Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” The Bancorp did not repurchase any shares during the fourth quarter of December 31, 2023.
Management believes that the Bank will continue to generate adequate earnings to continue to pay dividends in the future. -29- See additional disclosures on Equity Compensation Plan Information in Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.” The Bancorp did not repurchase any shares during the fourth quarter of December 31, 2024.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Bancorp’s common stock trades on the NASDAQ Stock Market under the symbol WASH. At January 31, 2024, there were 1,395 holders of record of the Bancorp’s common stock.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Bancorp’s common stock trades on the Nasdaq under the symbol WASH. At January 31, 2025, there were 1,344 holders of record of the Bancorp’s common stock.
The Bancorp (including the Bank prior to 1984) has recorded consecutive quarterly dividends for over 100 years.
The Bancorp (including the Bank prior to 1984) has recorded consecutive quarterly dividends for more than 100 years.
Removed
For the period ending December 31, 2018 2019 2020 2021 2022 2023 Washington Trust Bancorp, Inc. $100.00 $117.72 $103.83 $135.89 $118.94 $87.97 NASDAQ Bank Stocks $100.00 $124.38 $115.04 $164.41 $137.65 $132.92 NASDAQ Stock Market (U.S.) $100.00 $136.73 $198.33 $242.38 $163.58 $236.70
Added
For the period ending December 31, 2019 2020 2021 2022 2023 2024 Washington Trust Bancorp, Inc. $100.00 $88.20 $115.44 $101.04 $74.73 $76.82 KBW Nasdaq Regional Banking Index $100.00 $91.32 $124.78 $116.15 $115.69 $130.96 Nasdaq Composite Index (U.S.) $100.00 $145.05 $177.27 $119.63 $173.11 $224.34

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYears ended December 31, 2023 2022 Change (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Assets: Cash, federal funds sold and short-term investments $101,166 $4,975 4.92 % $119,932 $1,624 1.35 % ($18,766) $3,351 3.57 % Mortgage loans held for sale 17,384 980 5.64 29,539 1,165 3.94 (12,155) (185) 1.70 Taxable debt securities 1,185,102 29,059 2.45 1,121,413 21,827 1.95 63,689 7,232 0.50 FHLB stock 46,880 3,315 7.07 20,721 548 2.64 26,159 2,767 4.43 Commercial real estate 1,970,580 118,887 6.03 1,679,300 65,660 3.91 291,280 53,227 2.12 Commercial & industrial 615,494 38,326 6.23 632,938 28,099 4.44 (17,444) 10,227 1.79 Total commercial 2,586,074 157,213 6.08 2,312,238 93,759 4.05 273,836 63,454 2.03 Residential real estate 2,490,991 96,080 3.86 1,960,629 65,866 3.36 530,362 30,214 0.50 Home equity 297,396 17,129 5.76 263,578 10,139 3.85 33,818 6,990 1.91 Other 18,085 854 4.72 15,799 724 4.58 2,286 130 0.14 Total consumer 315,481 17,983 5.70 279,377 10,863 3.89 36,104 7,120 1.81 Total loans 5,392,546 271,276 5.03 4,552,244 170,488 3.75 840,302 100,788 1.28 Total interest-earning assets 6,743,078 309,605 4.59 5,843,849 195,652 3.35 899,229 113,953 1.24 Noninterest-earning assets 255,962 258,906 (2,944) Total assets $6,999,040 $6,102,755 $896,285 Liabilities and Shareholders’ Equity: Interest-bearing demand deposits (in-market) $415,725 $17,521 4.21 % $263,154 $2,891 1.10 % $152,571 $14,630 3.11 % NOW accounts 766,492 1,594 0.21 864,084 862 0.10 (97,592) 732 0.11 Money market accounts 1,191,036 37,145 3.12 1,198,714 8,954 0.75 (7,678) 28,191 2.37 Savings accounts 526,275 1,687 0.32 574,349 473 0.08 (48,074) 1,214 0.24 Time deposits (in-market) 1,010,629 33,609 3.33 799,645 8,630 1.08 210,984 24,979 2.25 Interest-bearing in-market deposits 3,910,157 91,556 2.34 3,699,946 21,810 0.59 210,211 69,746 1.75 Wholesale brokered demand deposits 4,015 178 4.43 20,696 494 2.39 (16,681) (316) 2.04 Wholesale brokered time deposits 602,423 28,695 4.76 386,170 3,719 0.96 216,253 24,976 3.80 Wholesale brokered deposits 606,438 28,873 4.76 406,866 4,213 1.04 199,572 24,660 3.72 Total interest-bearing deposits 4,516,595 120,429 2.67 4,106,812 26,023 0.63 409,783 94,406 2.04 FHLB advances 1,056,726 49,589 4.69 414,263 11,713 2.83 642,463 37,876 1.86 Junior subordinated debentures 22,681 1,543 6.80 22,681 739 3.26 — 804 3.54 Total interest-bearing liabilities 5,596,002 171,561 3.07 4,543,756 38,475 0.85 1,052,246 133,086 2.22 Noninterest-bearing demand deposits 778,152 923,423 (145,271) Other liabilities 169,842 142,324 27,518 Shareholders’ equity 455,044 493,252 (38,208) Total liabilities and shareholders’ equity $6,999,040 $6,102,755 $896,285 Net interest income (FTE) $138,044 $157,177 ($19,133) Interest rate spread 1.52 % 2.50 % (0.98 %) Net interest margin 2.05 % 2.69 % (0.64 %) -35- 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, 2023 2022 Change Commercial loans $946 $1,187 ($241) Net Interest Income Net interest income, the primary source of our operating income, totaled $137.1 million and $156.0 million, respectively, for 2023 and 2022.
Biggest changeYears ended December 31, 2024 2023 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 $129,119 $6,977 5.40 % $101,166 $4,975 4.92 % $27,953 $2,002 0.48 % Mortgage loans held for sale 34,040 1,775 5.21 17,384 980 5.64 16,656 795 (0.43) Taxable debt securities 1,118,092 27,850 2.49 1,185,102 29,059 2.45 (67,010) (1,209) 0.04 Nontaxable debt securities 185 9 4.86 — — — 185 9 4.86 Total securities 1,118,277 27,859 2.49 1,185,102 29,059 2.45 (66,825) (1,200) 0.04 FHLB stock 57,286 4,771 8.33 46,880 3,315 7.07 10,406 1,456 1.26 Commercial real estate 2,145,496 135,323 6.31 1,970,580 118,887 6.03 174,916 16,436 0.28 Commercial & industrial 583,827 37,623 6.44 615,494 38,326 6.23 (31,667) (703) 0.21 Total commercial 2,729,323 172,946 6.34 2,586,074 157,213 6.08 143,249 15,733 0.26 Residential real estate 2,537,903 105,253 4.15 2,490,991 96,080 3.86 46,912 9,173 0.29 Home equity 302,980 21,136 6.98 297,396 17,129 5.76 5,584 4,007 1.22 Other 18,277 882 4.83 18,085 854 4.72 192 28 0.11 Total consumer 321,257 22,018 6.85 315,481 17,983 5.70 5,776 4,035 1.15 Total loans 5,588,483 300,217 5.37 5,392,546 271,276 5.03 195,937 28,941 0.34 Total interest-earning assets 6,927,205 341,599 4.93 6,743,078 309,605 4.59 184,127 31,994 0.34 Noninterest-earning assets 253,957 255,962 (2,005) Total assets $7,181,162 $6,999,040 $182,122 Liabilities and Shareholders’ Equity: Interest-bearing demand deposits (in-market) $550,652 $24,156 4.39 % $415,725 $17,521 4.21 % $134,927 $6,635 0.18 % NOW accounts 701,989 1,572 0.22 766,492 1,594 0.21 (64,503) (22) 0.01 Money market accounts 1,127,960 42,710 3.79 1,191,036 37,145 3.12 (63,076) 5,565 0.67 Savings accounts 489,998 3,704 0.76 526,275 1,687 0.32 (36,277) 2,017 0.44 Time deposits (in-market) 1,172,500 47,595 4.06 1,010,629 33,609 3.33 161,871 13,986 0.73 Interest-bearing in-market deposits 4,043,099 119,737 2.96 3,910,157 91,556 2.34 132,942 28,181 0.62 Wholesale brokered demand deposits — — — 4,015 178 4.43 (4,015) (178) (4.43) Wholesale brokered time deposits 504,638 26,361 5.22 602,423 28,695 4.76 (97,785) (2,334) 0.46 Wholesale brokered deposits 504,638 26,361 5.22 606,438 28,873 4.76 (101,800) (2,512) 0.46 Total interest-bearing deposits 4,547,737 146,098 3.21 4,516,595 120,429 2.67 31,142 25,669 0.54 FHLB advances 1,312,391 64,539 4.92 1,056,726 49,589 4.69 255,665 14,950 0.23 Junior subordinated debentures 22,681 1,593 7.02 22,681 1,543 6.80 — 50 0.22 Total interest-bearing liabilities 5,882,809 212,230 3.61 5,596,002 171,561 3.07 286,807 40,669 0.54 Noninterest-bearing demand deposits 664,557 778,152 (113,595) Other liabilities 154,019 169,842 (15,823) Shareholders’ equity 479,777 455,044 24,733 Total liabilities and shareholders’ equity $7,181,162 $6,999,040 $182,122 Net interest income (FTE) $129,369 $138,044 ($8,675) Interest rate spread 1.32 % 1.52 % (0.20 %) Net interest margin 1.87 % 2.05 % (0.18 %) -37- 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, 2024 2023 Change Commercial loans $916 $946 ($30) Nontaxable debt securities 1 — 1 Total $917 $946 ($29) Net Interest Income Net interest income, the primary source of our operating income, totaled $128.4 million and $137.1 million, respectively, for 2024 and 2023.
Quarterly, the ALCO reports on the status of liquidity and interest rate risk matters to the Audit Committee. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Corporation’s liquidity, capital adequacy, growth, risk and profitability goals.
Quarterly, the ALCO reports on the status of liquidity and interest rate risk matters to the Corporation’s Audit Committee. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Corporation’s liquidity, capital adequacy, growth, risk, and profitability goals.
Appraisals are generally obtained with values determined on an “as is” basis from independent appraisal firms for real estate collateral dependent commercial 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.
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.
Because income simulations assume that the Corporation’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.
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.
Potential problem loans include classified accruing commercial loans that were less than 90 days past due at December 31, 2023 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 include classified accruing commercial loans that were less than 90 days past due at December 31, 2024 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.
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 and floors.
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.
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 the Consolidated Statements of Income.
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 the Consolidated Statements of Income (Loss).
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 -45- Management's Discussion and Analysis particular period.
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 -47- Management's Discussion and Analysis particular period.
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 -56- Management's Discussion and Analysis reciprocal amounts of deposits from 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 -58- Management's Discussion and Analysis deposits from other participating banks.
The following table sets forth the estimated change in net interest income from 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, 2023 and 2022.
The following table sets forth the estimated change in net interest income from 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, 2024 and December 31, 2023.
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, 2023 and 2022, management did not make any adjustments to the prices provided by the pricing service.
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, 2024 and 2023, management did not make any adjustments to the prices provided by the pricing service.
For additional information on these arrangements and the expected timing of applicable payments as of December 31, 2023 , 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.
For additional information on these arrangements and the expected timing of applicable payments as of December 31, 2024 , 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.
The Bank is a participant in the DDM program, ICS program and the CDARS program. 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.
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.
Activities which 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.
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.
As of December 31, 2023 and 2022, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation.
As of December 31, 2024 and December 31, 2023, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation.
Financial Statements and Supplementary Data.” Information pertaining to 2021 was included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, starting on page 32 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 23, 2023.
Financial Statements and Supplementary Data.” Information pertaining to 2022 was included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, starting on page 32 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 26, 2024.
(2) As of December 31, 2023, 2022 and 2021, loans with a carrying value of $71.0 million, $20.9 million and $8.2 million, respectively. and securities available for sale with a carrying value of $13.1 million, $12.7 million and $13.5 million, respectively, were pledged to the FRBB resulting in this additional unused borrowing capacity.
(2) As of December 31, 2024, 2023 and 2022, loans with a carrying value of $68.5 million, $71.0 million and $20.9 million, respectively, and securities available for sale with a carrying value of $13.9 million, $13.1 million and $12.7 million, respectively, were pledged to the FRBB resulting in this additional unused borrowing capacity.
Additionally, the ACL on loans is reduced by charge-offs on loans and increased by recoveries of amounts previously charged-off. At December 31, 2023 the ACL on loans totaled $41.1 million, compared to $38.0 million at December 31, 2022. A significant portion of our ACL is allocated to the commercial portfolio (both CRE and C&I).
Additionally, the ACL on loans is reduced by charge-offs on loans and increased by recoveries of amounts previously charged-off. At December 31, 2024 the ACL on loans totaled $42.0 million, compared to $41.1 million at December 31, 2023. A significant portion of our ACL is allocated to the commercial portfolio (both CRE and C&I).
As of December 31, 2023 and 2022, the ACL allocated to the total commercial portfolio was $32.2 million and $28.8 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.
As of December 31, 2024 and 2023, the ACL allocated to the total commercial portfolio was $33.8 million and $32.2 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 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, 2023 in estimation of the ACL on loans recognized on the Consolidated Balance Sheet.
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, 2024 in estimation of the ACL on loans recognized on the Consolidated Balance Sheets.
The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk. See Notes 9 and 21 to the Consolidated Financial Statements for additional information.
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.
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 $23.3 million and $53.3 million at December 31, 2023.
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 $24.3 million and $53.5 million at December 31, 2024.
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. Commercial Loans The commercial loan portfolio represented 48% of total loans at December 31, 2023, compared to 49% of total loans at December 31, 2022.
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. Commercial Loans The commercial loan portfolio represented 52% of total loans at December 31, 2024, compared to 48% of total loans at December 31, 2023.
During 2023, 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 $3.4 million in 2023, compared to $640 thousand in 2022.
During 2024, 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 $1.6 million in 2024, compared to $3.4 million in 2023.
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, a 13- to 24-month horizon and a 60-month horizon.
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- -62- Management's Discussion and Analysis month horizon.
Our participation in commercial loans originated by other banks amounted to $652.7 million and $510.6 million, respectively, at December 31, 2023 and 2022. Our participation in commercial loans originated by other banks also includes shared national credits. Commercial loans fall into two main categories, CRE and C&I loans.
Our participation in commercial loans originated by other banks amounted to $685.7 million and $652.7 million, respectively, at December 31, 2024 and 2023. Our participation in commercial loans originated by other banks also includes shared national credits. Commercial loans fall into two main categories, CRE and C&I loans.
There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2023. As of December 31, 2023, the composition of nonaccrual loans was 75% commercial and 25% residential and consumer. This compared to 100% residential and consumer as of December 31, 2022.
There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 2024. As of December 31, 2024, the composition of nonaccrual loans was 45% commercial and 55% residential and consumer. This compared to 75% commercial and 25% residential and consumer as of December 31, 2023.
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 for a 60-month period.
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 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 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.
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.
For further -34- Management's Discussion and Analysis 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.
See additional discussion regarding interest rate sensitivity under the caption “Asset/Liability Management and Interest Rate Risk.” NIM was 2.05% in 2023, down by 64 basis points from 2.69% in 2022. While NIM benefited from higher market interest rate on loans, it was adversely impacted by a higher cost of funds.
See additional discussion regarding interest rate sensitivity under the caption “Asset/Liability Management and Interest Rate Risk.” NIM was 1.87% in 2024, down by 18 basis points from 2.05% in 2023. While NIM benefited from higher market interest rates on loans, it was adversely impacted by a higher cost of funds.
Total past due loans included $6.9 million of nonaccrual loans as of December 31, 2023, compared to $7.2 million of as of December 31, 2022. All loans 90 days or more past due at December 31, 2023 and 2022 were classified as nonaccrual.
Total past due loans included $6.4 million of nonaccrual loans as of December 31, 2024, compared to $6.9 million of as of December 31, 2023. All loans 90 days or more past due at December 31, 2024 and 2023 were classified as nonaccrual.
The average balance of noninterest-bearing demand deposits for 2023 decreased by $145.3 million, or 16%, from the average balance in 2022. 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 average balance of noninterest-bearing demand deposits for 2024 decreased by $113.6 million, or 15%, from the average balance in 2023. 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.
Book value per share was $27.75 at December 31, 2023, compared to $26.40 at December 31, 2022. 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 11.58% at December 31, 2023, compared to 12.37% at December 31, 2022.
Book value per share was $25.93 at December 31, 2024, compared to $27.75 at December 31, 2023. 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 12.47% at December 31, 2024, compared to 11.58% at December 31, 2023.
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 $22.9 million in potential problem loans at December 31, 2023, compared to $927 thousand at December 31, 2022.
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. -55- Management's Discussion and Analysis Management has identified $28.2 million in potential problem loans at December 31, 2024, compared to $22.9 million at December 31, 2023.
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.
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.
The following table presents nonperforming assets and additional asset quality data: (Dollars in thousands) December 31, 2023 2022 Commercial: Commercial real estate $32,827 $— Commercial & industrial 682 — Total commercial 33,509 — Residential Real Estate: Residential real estate 9,626 11,894 Consumer: Home equity 1,483 952 Other — — Total consumer 1,483 952 Total nonaccrual loans 44,618 12,846 OREO, net 683 — Total nonperforming assets $45,301 $12,846 Nonperforming assets to total assets 0.63% 0.19% Nonperforming loans to total loans 0.79% 0.25% Total past due loans to total loans 0.20% 0.23% Allowance for credit losses on loans to total loans 0.73% 0.74% Allowance for credit losses on loans to nonaccrual loans 92.02% 296.02% 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.
The following table presents nonperforming assets and additional asset quality data: (Dollars in thousands) December 31, 2024 2023 Commercial: Commercial real estate $10,053 $32,827 Commercial & industrial 515 682 Total commercial 10,568 33,509 Residential Real Estate: Residential real estate 10,767 9,626 Consumer: Home equity 1,972 1,483 Other — — Total consumer 1,972 1,483 Total nonaccrual loans 23,307 44,618 OREO, net — 683 Total nonperforming assets $23,307 $45,301 Nonperforming assets to total assets 0.34% 0.63% Nonperforming loans to total loans 0.45% 0.79% Total past due loans to total loans 0.23% 0.20% Allowance for credit losses on loans to total loans 0.82% 0.73% Allowance for credit losses on loans to nonaccrual loans 180.03% 92.02% 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.
The net unrealized losses were 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.
The net unrealized losses at December 31, 2024 and 2023 were concentrated mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises and were 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.
Liquidity remained within target ranges established by the ALCO during 2023. 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.
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.
We believe the key to future growth is providing customers with convenient in-person service and digital banking solutions. In April 2023, we opened a new full-service branch in Barrington, Rhode Island and in January 2024, we opened a new full-service branch in Smithfield, Rhode Island. We plan to open another branch in the Olneyville section of Providence in mid-2024.
We believe the key to future growth is providing customers with convenient in-person service and digital banking solutions. In January 2024, we opened a new full-service branch in Smithfield, Rhode Island and in September 2024, we opened a new full-service branch in the Olneyville section of Providence.
This reflected loan growth and slowdown of loan prepayment speeds, changes in asset and credit quality, and our current estimate of forecasted economic conditions. Econometric factors have been stable to improving in 2023 with our forecast reflecting a lower probability of a recession.
The provision recognized in 2023 reflected loan growth and slowdown of loan prepayment speeds, changes in asset and credit quality, and our estimate of forecasted economic conditions. Econometric factors were stable to improving in 2023, with our forecast reflecting a lower probability of a recession.
The average size of our in-market deposit accounts was approximately $36 thousand at December 31, 2023.
The average size of our in-market deposit accounts was approximately $37 thousand at December 31, 2024.
As of December 31, 2023, the carrying amount of available for sale debt securities included net unrealized losses of $152.2 million, compared to net unrealized losses of $172.4 million as of December 31, 2022.
As of December 31, 2024, the carrying amount of available for sale debt securities included net unrealized losses of $133.3 million, compared to net unrealized losses of $152.2 million as of December 31, 2023.
Liquidity and Capital Resources Liquidity 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 67% of total average assets in the twelve months ended December 31, 2023.
See additional discussion under the caption “Overview.” Liquidity and Capital Resources Liquidity 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 66% of total average assets in the twelve months ended December 31, 2024.
(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). -39- Management's Discussion and Analysis Mortgage banking revenues decreased by $2.1 million, or 24%, in 2023.
(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 $4.3 million, or 65%, in 2024.
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.
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.
(3) Uninsured deposits of states and political subdivisions, which are secured or collateralized as required by state law. -57- 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, 2023, maturing during the periods indicated: (Dollars in thousands) Three months or less $61,452 Over three months to six months 67,474 Over six months to 12 months 98,355 Over 12 months 43,922 Total time deposits $271,203 Borrowings Borrowings primarily consist of FHLB advances, which are used as a source of funding for liquidity and interest rate risk management purposes.
(3) Uninsured deposits of states and political subdivisions, which are secured or collateralized as required by state law. -59- 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, 2024, maturing during the periods indicated: (Dollars in thousands) Three months or less $144,460 Over three months to six months 101,973 Over six months to 12 months 57,614 Over 12 months 49,838 Total time deposits $353,885 Borrowings Borrowings primarily consist of FHLB advances, which are used as a source of funding for liquidity and interest rate risk management purposes.
Prepayment penalty fee income amounted to $272 thousand (or 1 basis point benefit to NIM) and $183 thousand (or no basis point benefit to NIM), respectively, in 2023 and 2022.
Prepayment penalty fee income amounted to $70 thousand (or 0 basis point benefit to NIM) and $272 thousand (or 1 basis point benefit to NIM), respectively, in 2024 and 2023.
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 represent our largest source of noninterest income. A substantial portion of wealth -40- Management's Discussion and Analysis 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.
Borrowing capacity is impacted by the amount and type of assets available to be pledged. -58- Management's Discussion and Analysis The table below presents a summary of contingent liquidity balances by source: (Dollars in thousands) December 31, 2023 2022 2021 Contingent Liquidity: Federal Home Loan Bank of Boston (1) $1,086,607 $668,295 $1,642,377 Federal Reserve Bank of Boston (2) 65,759 27,059 16,919 Noninterest-bearing cash 54,970 49,727 46,985 Unencumbered investment securities 680,857 691,893 702,963 Total contingent liquidity $1,888,193 $1,436,974 $2,409,244 Percentage of total contingent liquidity to uninsured deposits 149.8 % 94.9 % 179.8 % Percentage of total contingent liquidity to uninsured deposits, after exclusions 195.9 % 147.4 % 239.8 % (1) As of December 31, 2023, 2022 and 2021, loans with a carrying value of $3.4 billion, $2.4 billion and $2.2 billion, respectively, and securities available for sale with a carrying value of $94.3 million, $102.1 million and $163.2 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.
Borrowing capacity is impacted by the amount and type of assets available to be pledged. -60- Management's Discussion and Analysis The table below presents a summary of contingent liquidity balances by source: (Dollars in thousands) December 31, 2024 2023 2022 Contingent Liquidity: Federal Home Loan Bank of Boston (1) $752,951 $1,086,607 $668,295 Federal Reserve Bank of Boston (2) 70,286 65,759 27,059 Available cash liquidity (3) 36,647 54,970 49,727 Unencumbered securities 597,771 680,857 691,893 Total contingent liquidity $1,457,655 $1,888,193 $1,436,974 Percentage of total contingent liquidity to uninsured deposits 106.9 % 149.8 % 94.9 % Percentage of total contingent liquidity to uninsured deposits, after exclusions 136.1 % 195.9 % 147.4 % (1) As of December 31, 2024, 2023 and 2022, loans with a carrying value of $2.8 billion, $3.4 billion and $2.4 billion, respectively, and securities available for sale with a carrying value of $74.2 million, $94.3 million and $102.1 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.
The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve of up to 500 basis points, as well -60- Management's Discussion and Analysis as parallel changes in interest rates of up to 400 basis points.
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.
Net charge-offs totaled $520 thousand, or 0.01% of average loans, in 2023, compared to net recoveries of $368 thousand, or 0.01% of average loans, in 2022. The ACL on loans was $41.1 million, or 0.73% of total loans, at December 31, 2023, compared to $38.0 million, or 0.74% of total loans, at December 31, 2022.
Net charge-offs totaled $2.0 million, or 0.04% of average loans, in 2024, compared to net charge-offs of $520 thousand, or 0.01% of average loans, in 2023. The ACL on loans was $42.0 million, or 0.82% of total loans, at December 31, 2024, compared to $41.1 million, or 0.73% of total loans, at December 31, 2023.
The table below presents residential real estate loan sales activity: (Dollars in thousands) Years ended December 31, 2023 2022 Amount % of Total Amount % of Total Loans sold with servicing rights retained $108,177 43 % $99,849 29 % Loans sold with servicing rights released (1) 141,795 57 239,899 71 Total $249,972 100 % $339,748 100 % (1) Includes brokered loans (loans originated for others).
The table below presents residential real estate loan sales activity: (Dollars in thousands) Years ended December 31, 2024 2023 Amount % of Total Amount % of Total Loans sold with servicing rights retained $128,918 31 % $108,177 43 % Loans sold with servicing rights released (1) 287,223 69 141,795 57 Total $416,141 100 % $249,972 100 % (1) Includes brokered loans (loans originated for others).
Commercial Real Estate Loans CRE loans totaled $2.1 billion at December 31, 2023, up by $277.1 million, or 15%, from the balance at December 31, 2022. In 2023, CRE loan originations and advances amounted to $420.8 million and were partially offset by principal payments of $158.4 million.
Commercial Real Estate Loans CRE loans totaled $2.2 billion at December 31, 2024, up by $48.1 million, or 2%, from the balance at December 31, 2023. In 2024, CRE loan originations and advances amounted to $272.5 million and were partially offset by principal payments.
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 $6.5 million, or 1%, from the end of 2022.
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.
See further discussion of wealth management revenues under the caption “Noninterest Income” above. Noninterest expenses for the Wealth Management Services segment decreased by $1.2 million, or 4%, compared to 2022, largely reflecting a decrease in salaries and employee benefits expense, partially offset by higher legal expenses. See additional discussion under the caption “Noninterest Expense” above.
See further discussion of wealth management revenues under the caption “Noninterest Income” above. Noninterest expenses for the Wealth Management Services segment decreased by $2.3 million, or 8%, compared to 2023, largely reflecting decreases in salaries and employee benefits expense, legal fees, and other expenses. See additional discussion under the caption “Noninterest Expense” above.
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.
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.
Interest income attributable to these loans included in the Consolidated Statements of Income amounted to approximately $2.9 million and $463 thousand, respectively, in 2023 and 2022. -51- Management's Discussion and Analysis The following table presents the activity in nonaccrual loans: (Dollars in thousands) Years ended December 31, 2023 2022 Balance at beginning of period $12,846 $14,203 Additions to nonaccrual status 40,276 3,591 Loans returned to accruing status (1,636) (699) Loans charged-off (577) (184) Loans transferred to other real estate owned (683) — Payments, payoffs and other changes (5,608) (4,065) Balance at end of period $44,618 $12,846 The following table presents additional detail on nonaccrual loans: (Dollars in thousands) December 31, 2023 December 31, 2022 Days Past Due Days Past Due Current 30-89 90 or More Total Nonaccrual % (1) Current 30-89 90 or More Total Nonaccrual % (1) Commercial: Commercial real estate $32,827 $— $— $32,827 1.56 % $— $— $— $— — % Commercial & industrial 682 — — 682 0.11 — — — — — Total commercial 33,509 — — 33,509 1.24 — — — — — Residential Real Estate: Residential real estate 4,105 3,512 2,009 9,626 0.37 4,933 3,182 3,779 11,894 0.51 Consumer: Home equity 127 621 735 1,483 0.47 717 235 — 952 0.33 Other — — — — — — — — Total consumer 127 621 735 1,483 0.45 717 235 — 952 0.32 Total nonaccrual loans $37,741 $4,133 $2,744 $44,618 0.79 % $5,650 $3,417 $3,779 $12,846 0.25 % (1) Percentage of nonaccrual loans to the total loans outstanding within the respective class.
Interest income attributable to these loans included in the Consolidated Statements of Income (Loss) amounted to approximately $908 thousand and $2.9 million, respectively, in 2024 and 2023. -53- Management's Discussion and Analysis The following table presents the activity in nonaccrual loans: (Dollars in thousands) Years ended December 31, 2024 2023 Balance at beginning of period $44,618 $12,846 Additions to nonaccrual status 8,284 40,276 Loans returned to accruing status (14,410) (1,636) Loans charged-off (2,413) (577) Loans transferred to other real estate owned — (683) Payments, payoffs and other changes (12,772) (5,608) Balance at end of period $23,307 $44,618 The following table presents additional detail on nonaccrual loans: (Dollars in thousands) December 31, 2024 December 31, 2023 Days Past Due Days Past Due Current 30-89 90 or More Total Nonaccrual % (1) Current 30-89 90 or More Total Nonaccrual % (1) Commercial: Commercial real estate $10,053 $— $— $10,053 0.47 % $32,827 $— $— $32,827 1.56 % Commercial & industrial — 515 — 515 0.09 682 — — 682 0.11 Total commercial 10,053 515 — 10,568 0.39 33,509 — — 33,509 1.24 Residential Real Estate: Residential real estate 5,975 2,419 2,373 10,767 0.51 4,105 3,512 2,009 9,626 0.37 Consumer: Home equity 832 233 907 1,972 0.66 127 621 735 1,483 0.47 Other — — — — — — — — Total consumer 832 233 907 1,972 0.63 127 621 735 1,483 0.45 Total nonaccrual loans $16,860 $3,167 $3,280 $23,307 0.45 % $37,741 $4,133 $2,744 $44,618 0.79 % (1) Percentage of nonaccrual loans to the total loans outstanding within the respective class.
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 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.
See Notes 3 and 10 to the Consolidated Financial Statements for additional information regarding the determination of fair value of investment securities. -43- Management's Discussion and Analysis Securities Portfolio The carrying amounts of securities held are as follows: (Dollars in thousands) December 31, 2023 2022 Amount % of Total Amount % of Total Available for Sale Debt Securities: Obligations of U.S. government-sponsored enterprises $225,742 23 % $199,582 20 % Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 753,956 75 774,102 78 Individual name issuer trust preferred debt securities 8,793 1 8,760 1 Corporate bonds 11,889 1 11,484 1 Total available for sale debt securities $1,000,380 100 % $993,928 100 % The securities portfolio represented 14% of total assets at December 31, 2023, compared to 15% of total assets at December 31, 2022.
See Notes 3 and 10 to the Consolidated Financial Statements for additional information regarding the determination of fair value of investment securities. -45- Management's Discussion and Analysis Securities Portfolio The carrying amounts of securities held are as follows: (Dollars in thousands) December 31, 2024 2023 Amount % of Total Amount % of Total Available for Sale Debt Securities: Obligations of U.S. government agencies and U.S. government-sponsored enterprises $38,612 4 % $225,742 23 % Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises 855,147 94 753,956 75 Obligations of states and political subdivisions 655 — — — Individual name issuer trust preferred debt securities 9,221 1 8,793 1 Corporate bonds 12,670 1 11,889 1 Total available for sale debt securities $916,305 100 % $1,000,380 100 % The securities portfolio represented 13% of total assets at December 31, 2024, compared to 14% of total assets at December 31, 2023.
(Dollars in thousands) December 31, 2023 December 31, 2022 Allocated ACL ACL to Loans Loans to Total Portfolio (1) Allocated ACL ACL to Loans Loans to Total Portfolio (1) Commercial: Commercial real estate $24,144 1.15 % 37 % $18,435 1.01 % 36 % Commercial & industrial 8,088 1.34 11 10,356 1.58 13 Total commercial 32,232 1.19 48 28,791 1.16 49 Residential Real Estate: Residential real estate 7,403 0.28 46 7,740 0.33 45 Consumer: Home equity 1,048 0.34 6 1,115 0.39 6 Other 374 1.95 — 381 2.42 — Total consumer 1,422 0.43 6 1,496 0.50 6 Total ACL on loans at end of period $41,057 0.73 % 100 % $38,027 0.74 % 100 % (1) Percentage of loans outstanding in respective class to total loans outstanding. -55- 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, 2023 2022 2021 Balance at beginning of period $38,027 $39,088 $44,106 Charge-offs: Commercial: Commercial real estate 373 — — Commercial & industrial 37 36 307 Total commercial 410 36 307 Residential real estate: Residential real estate — — 107 Consumer: Home equity — — 183 Other 167 148 66 Total consumer 167 148 249 Total charge-offs 577 184 663 Recoveries: Commercial: Commercial real estate — 445 — Commercial & industrial 12 29 41 Total commercial 12 474 41 Residential real estate: Residential real estate 3 21 89 Consumer: Home equity 10 12 91 Other 32 45 25 Total consumer 42 57 116 Total recoveries 57 552 246 Net charge-offs (recoveries) 520 (368) 417 Provision charged to earnings 3,550 (1,429) (4,601) Balance at end of period $41,057 $38,027 $39,088 Net charge-offs (recoveries) to average loans 0.01 % (0.01 %) 0.01 % 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.
(Dollars in thousands) December 31, 2024 December 31, 2023 Allocated ACL ACL to Loans Loans to Total Portfolio (1) Allocated ACL ACL to Loans Loans to Total Portfolio (1) Commercial: Commercial real estate $26,485 1.23 % 42 % $24,144 1.15 % 37 % Commercial & industrial 7,277 1.34 10 8,088 1.34 11 Total commercial 33,762 1.25 52 32,232 1.19 48 Residential Real Estate: Residential real estate 6,832 0.32 41 7,403 0.28 46 Consumer: Home equity 1,031 0.35 6 1,048 0.34 6 Other 335 1.91 1 374 1.95 — Total consumer 1,366 0.43 7 1,422 0.43 6 Total ACL on loans at end of period $41,960 0.82 % 100 % $41,057 0.73 % 100 % (1) Percentage of loans outstanding in respective class to total loans outstanding. -57- 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, 2024 2023 2022 Balance at beginning of period $41,057 $38,027 $39,088 Charge-offs: Commercial: Commercial real estate 1,961 373 — Commercial & industrial 208 37 36 Total commercial 2,169 410 36 Residential real estate: Residential real estate — — — Consumer: Home equity — — — Other 244 167 148 Total consumer 244 167 148 Total charge-offs 2,413 577 184 Recoveries: Commercial: Commercial real estate — — 445 Commercial & industrial 22 12 29 Total commercial 22 12 474 Residential real estate: Residential real estate 160 3 21 Consumer: Home equity 197 10 12 Other 37 32 45 Total consumer 234 42 57 Total recoveries 416 57 552 Net charge-offs (recoveries) 1,997 520 (368) Provision charged to earnings 2,900 3,550 (1,429) Balance at end of period $41,960 $41,057 $38,027 Net charge-offs (recoveries) to average loans 0.04 % 0.01 % (0.01 %) 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.
Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. For detailed disclosure regarding liquidity management, see the “Liquidity and Capital Resources” section 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.
For detailed disclosure regarding liquidity management, see the “Liquidity and Capital Resources” section 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.
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 $1.4 million in 2023, compared to $2.9 million in 2022.
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 $1.3 million in 2024, compared to $1.4 million in 2023. FTE net interest income in 2024 amounted to $129.4 million, down by $8.7 million, or 6%, from 2023.
Average in-market interest-bearing deposits, which excludes wholesale brokered deposits, increased by $210.2 million, or 6%, from the average balance in 2022, with increases in time deposits and interest-bearing demand deposits. The average rate paid on in-market interest-bearing deposits in 2023 was 2.34%, up by 175 basis points from 0.59% in 2022.
Average in-market interest-bearing deposits, which excludes wholesale brokered deposits, increased by $132.9 million, or 3%, from the average balance in 2023, with increases in time deposits and interest-bearing demand deposits. The average rate paid on in-market -38- Management's Discussion and Analysis interest-bearing deposits in 2024 was 2.96%, up by 62 basis points from 2.34% in 2023.
As of December 31, 2023, the balance of nonaccrual residential mortgage loans was predominately secured by properties in Massachusetts, Connecticut and Rhode Island. Included in total nonaccrual residential real estate loans at -52- Management's Discussion and Analysis December 31, 2023 were four loans purchased for portfolio and serviced by others amounting to $1.2 million.
As of December 31, 2024, the balance of nonaccrual residential mortgage loans was predominately secured by properties in Massachusetts, Connecticut and Rhode Island. Included in total nonaccrual residential real estate loans at December 31, 2024 were two loans purchased for portfolio and serviced by others totaling $535 thousand.
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.
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.
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 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.
Prepayment speeds generally decrease as market interest rates rise and increase as market interest rates decline. Changes in prepayment speeds could increase or decrease the level of net amortization of premiums and discounts, thereby affecting interest income. Additionally, as PPP loans were forgiven by the SBA, related unamortized net fee balances were accelerated and amortized, increasing net interest income.
Prepayment speeds generally decrease as market interest rates rise and increase as market interest rates decline. Changes in prepayment speeds could increase or decrease the level of net amortization of premiums and discounts, thereby affecting interest income.
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, 2023 2022 $ % Mortgage banking revenues: Realized gains on loan sales, net (1) $4,282 $7,954 ($3,672) (46 %) Changes in fair value, net (2) 232 (1,224) 1,456 119 Loan servicing fee income, net (3) 2,146 2,003 143 7 Total mortgage banking revenues $6,660 $8,733 ($2,073) (24 %) Loans sold to the secondary market (4) $249,972 $339,748 ($89,776) (26 %) (1) Includes gains on loan sales, commission income on loans originated for others, servicing right gains, and gains (losses) on forward loan commitments.
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, 2024 2023 $ % Mortgage banking revenues: Realized gains on loan sales, net (1) $8,776 $4,282 $4,494 105 % Changes in fair value, net (2) (1) 232 (233) (100) Loan servicing fee income, net (3) 2,206 2,146 60 3 Total mortgage banking revenues $10,981 $6,660 $4,321 65 % Loans sold to the secondary market (4) $416,141 $249,972 $166,169 66 % (1) Includes gains on loan sales, commission income on loans originated for others, servicing right gains, and gains (losses) on forward loan commitments.
Loan related derivative income from interest rate swap contracts with commercial borrowers decreased by $1.4 million, or 50%, in 2023, reflecting a decline in volume. Income from BOLI was up by $897 thousand, or 35%, from 2022, reflecting the recognition of $658 thousand in non-taxable income in 2023 associated with the receipt of life insurance proceeds.
Loan related derivative income from interest rate swap contracts with commercial borrowers decreased by $923 thousand, or 66%, in 2024, reflecting a decline in volume. -41- Management's Discussion and Analysis Income from BOLI was down by $447 thousand, or 13%, from 2023, reflecting the recognition of $658 thousand in non-taxable income in 2023 associated with the receipt of life insurance proceeds.
The following table presents a summary of the Bank’s uninsured deposits: (Dollars in thousands) December 31, 2023 December 31, 2022 Balance % of Total Deposits Balance % of Total Deposits Uninsured Deposits: Uninsured deposits (1) $1,260,672 24 % $1,514,900 30 % Less: affiliate deposits (2) 92,645 2 210,444 4 Uninsured deposits, excluding affiliate deposits 1,168,027 22 1,304,456 26 Less: fully-collateralized preferred deposits (3) 204,327 4 329,868 7 Uninsured deposits, after exclusions $963,700 18 % $974,588 19 % (1) Determined in accordance with regulatory reporting requirements, which includes affiliate deposits and fully-collateralized preferred deposits.
The following table presents a summary of the Bank’s uninsured deposits: (Dollars in thousands) December 31, 2024 December 31, 2023 Balance % of Total Deposits Balance % of Total Deposits Uninsured Deposits: Uninsured deposits (1) $1,363,689 27 % $1,260,672 24 % Less: affiliate deposits (2) 94,740 2 92,645 2 Uninsured deposits, excluding affiliate deposits 1,268,949 25 1,168,027 22 Less: fully-collateralized preferred deposits (3) 197,638 4 204,327 4 Uninsured deposits, after exclusions $1,071,311 21 % $963,700 18 % (1) Determined in accordance with regulatory reporting requirements, which includes affiliate deposits and fully-collateralized preferred deposits.
Past Due Loans The following table presents past due loans by class: (Dollars in thousands) December 31, 2023 2022 Amount % (1) Amount % (1) Commercial: Commercial real estate $— — % $1,187 0.06 % Commercial & industrial 10 — 265 0.04 Total commercial 10 — 1,452 0.06 Residential Real Estate: Residential real estate 8,116 0.31 8,875 0.38 Consumer: Home equity 3,196 1.02 1,235 0.43 Other 23 0.12 16 0.10 Total consumer 3,219 0.97 1,251 0.42 Total past due loans $11,345 0.20 % $11,578 0.23 % (1) Percentage of past due loans to the total loans outstanding within the respective class.
Past Due Loans The following table presents past due loans by class: (Dollars in thousands) December 31, 2024 2023 Amount % (1) Amount % (1) Commercial: Commercial real estate $— — % $— — % Commercial & industrial 900 0.17 10 — Total commercial 900 0.03 10 — Residential Real Estate: Residential real estate 7,741 0.36 8,116 0.31 Consumer: Home equity 2,947 0.99 3,196 1.02 Other 394 2.24 23 0.12 Total consumer 3,341 1.06 3,219 0.97 Total past due loans $11,982 0.23 % $11,345 0.20 % (1) Percentage of past due loans to the total loans outstanding within the respective class.
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. 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.
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.
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 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.
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.
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.
The balance of residential mortgage loans serviced for others, which are not included in the Consolidated Balance Sheets, amounted to $1.5 billion at both December 31, 2023 and 2022. Consumer Loans The consumer loan portfolio represented 6% of total loans at both December 31, 2023 and 2022.
The balance of residential mortgage loans -51- Management's Discussion and Analysis serviced for others, which are not included in the Consolidated Balance Sheets, amounted to $1.4 billion at December 31, 2024, compared to $1.5 billion at December 31, 2023.
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.
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.
Growth in average interest-earning assets, net of increased average interest-bearing liability balances, contributed $544 thousand of net interest income in 2023. Increases in funding costs outpaced increases in asset yields, reducing net interest income by $19.7 million.
Increases in average interest-bearing liability balances, net of increases in average interest-earning assets, reduced net interest income by $4.4 million in 2024. Increases in funding costs outpaced increases in asset yields, reducing net interest income by $4.3 million.
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.
The second component involves individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments.
The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.73% at December 31, 2023, compared to 0.74% at December 31, 2022. -54- Management's Discussion and Analysis A positive provision for credit losses (or a charge) of $3.2 million was recognized in earnings in 2023.
The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.82% at December 31, 2024, compared to 0.73% at December 31, 2023. The Corporation recorded a provision for credit losses on loans of $2.9 million in 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. Quantitative and Qualitative Disclosures About Market Risk. Information regarding quantitative and qualitative disclosures about market risk appears under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the caption “Asset/Liability Management and Interest Rate Risk.” -64-
Biggest changeITEM 7A. Quantitative and Qualitative Disclosures About Market Risk. Information regarding quantitative and qualitative disclosures about market risk appears under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the caption “Asset/Liability Management and Interest Rate Risk.” -66-

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