Published: 2022-05-05 00:00:00 ET

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The Bancorp is a publicly-owned registered bank holding company that has elected to be a financial holding company.  The Bancorp’s subsidiaries include the Bank, a Rhode Island chartered financial institution founded in 1800, and Weston Securities Corporation.  Through its subsidiaries, the Bancorp offers a complete product line of financial services, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices in Rhode Island, eastern Massachusetts and Connecticut.

The Unaudited Consolidated Financial Statements include the accounts of the Bancorp and its subsidiaries.  All intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.

The accounting and reporting policies of the Corporation conform to GAAP and to general practices of the banking industry.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period.  Actual results could differ from those estimates. Management considers the ACL on loans to be a material estimate that is particularly susceptible to change.

The Unaudited Consolidated Financial Statements of the Corporation presented herein have been prepared pursuant to the rules of the SEC for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying Unaudited Consolidated Financial Statements have been included. Interim results are not necessarily indicative of the results of the entire year. The accompanying Unaudited Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Accounting Standards Pending Adoption

Business Combinations - ASC 805

ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), was issued in October 2021 to clarify the accounting for contract cost assets and contract liabilities acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination at fair value on the acquisition date. The provisions of ASU 2021-08 clarify that contract cost assets and contract liabilities acquired in a business combination should be accounted for in accordance with ASC 606 as if the acquirer had originated the contracts. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The provisions under ASU 2021-08 are required to be applied prospectively. The adoption of ASU 2021-08 is not expected to have a material impact on the Corporation’s consolidated financial statements.

Financial Instruments - Credit Losses - ASC 326

ASU No. 2022-02, “Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), was issued in March 2022 to provide updates on the accounting treatment for TDRs and related disclosures requirements, as well as modifying the disclosure requirement associated with the existing credit quality indicators “vintage” disclosure. With respect to TDRs, ASU 2022-02 eliminates the recognition and measurement guidance for TDRs under current GAAP and instead requires that the Corporation evaluate whether the modification represents a new loan or a continuation of existing loan, consistent with the current GAAP treatment for other loan modifications. In addition, ASU 2022-02 eliminates existing disclosure requirements on TDRs and replaces with enhanced disclosure requirements related to loan modifications made to borrowers, including those experiencing financial difficulty. ASU 2022-02 also provides an update to the existing tabular vintage disclosure of credit quality indicators by requiring current period gross write-offs to be disclosed by year of origination for each loan segment. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The provisions under ASU 2022-02 should be applied on a prospective basis. However, the Corporation has the option to use a modified retrospective transition method related to the change in accounting treatment for TDRs with a cumulative effect of the the change in accounting principle recognized in the opening balance of retained earnings as of the adoption date. The Corporation is currently evaluating this ASU and has not yet determined the impact that the adoption of ASU 2022-02 will have on its consolidated financial statements.

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Available for Sale Debt Securities

The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses, ACL on securities and fair value of securities by major security type and class of security:

(Dollars in thousands)
March 31, 2022			Amortized Cost						Unrealized Gains						Unrealized Losses						ACL						Fair Value
Available for Sale Debt Securities:
Obligations of U.S. government-sponsored enterprises			$201,206						$—						($15,774)						$—						$185,432
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			858,461						920						(57,811)						—						801,570
Individual name issuer trust preferred debt securities			9,377						—						(358)						—						9,019
Corporate bonds			13,159						—						(996)						—						12,163
Total available for sale debt securities			$1,082,203						$920						($74,939)						$—						$1,008,184

(Dollars in thousands)
December 31, 2021			Amortized Cost						Unrealized Gains						Unrealized Losses						ACL						Fair Value
Available for Sale Debt Securities:
Obligations of U.S. government-sponsored enterprises			$200,953						$12						($4,511)						$—						$196,454
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			828,319						6,850						(10,207)						—						824,962
Individual name issuer trust preferred debt securities			9,373						—						(235)						—						9,138
Corporate bonds			13,155						—						(850)						—						12,305
Total available for sale debt securities			$1,051,800						$6,862						($15,803)						$—						$1,042,859

The Corporation excludes accrued interest from the amortized cost basis of debt securities and reports accrued interest in other assets in the Unaudited Consolidated Balance Sheets. Accrued interest receivable on available for sale debt securities totaled $2.2 million and $2.3 million, respectively, as of March 31, 2022 and December 31, 2021.

As of March 31, 2022 and December 31, 2021, securities with a fair value of $301.8 million and $332.0 million, respectively, were pledged as collateral for FHLB borrowings, potential borrowings with the FRBB, certain public deposits and for other purposes. See Note 7 for additional disclosure on FHLB borrowings.

The schedule of maturities of available for sale debt securities is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments.  All other debt securities are included based on contractual maturities.  Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)
March 31, 2022			Amortized Cost			Fair Value
Due in one year or less			$139,387			$130,147
Due after one year to five years			371,924			347,322
Due after five years to ten years			420,816			390,659
Due after ten years			150,076			140,056
Total debt securities			$1,082,203			$1,008,184

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Included in the above table are debt securities with an amortized cost balance of $223.0 million and a fair value of $205.9 million at March 31, 2022 that are callable at the discretion of the issuers.  Final maturities of the callable securities range from 2 years to 15 years, with call features ranging from 1 month to 2 year.

Assessment of Available for Sale Debt Securities for Impairment

Management assesses the decline in fair value of investment securities on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer.  Management evaluates both qualitative and quantitative factors to assess whether an impairment exists.

A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a debt security placed on nonaccrual is reversed against interest income. There were no debt securities on nonaccrual status at March 31, 2022 and 2021 and, therefore there was no accrued interest related to debt securities reversed against interest income for the three months ended March 31, 2022 and 2021.

The following tables summarize available for sale debt securities in an unrealized loss position, for which an ACL on securities has not been recorded, segregated by length of time that the securities have been in a continuous unrealized loss position:

(Dollars in thousands)			Less than 12 Months															12 Months or Longer															Total
March 31, 2022			#						Fair Value			Unrealized Losses						#						Fair Value			Unrealized Losses						#						Fair Value			Unrealized Losses
Obligations of U.S. government-sponsored enterprises			10						$89,928			($6,378)						10						$95,504			($9,396)						20						$185,432			($15,774)
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			80						485,574			(33,595)						32						233,593			(24,216)						112						719,167			(57,811)
Individual name issuer trust preferred debt securities			—						—			—						3						9,019			(358)						3						9,019			(358)
Corporate bonds			—						—			—						4						12,163			(996)						4						12,163			(996)
Total			90						$575,502			($39,973)						49						$350,279			($34,966)						139						$925,781			($74,939)

(Dollars in thousands)			Less than 12 Months															12 Months or Longer															Total
December 31, 2021			#						Fair Value			Unrealized Losses						#						Fair Value			Unrealized Losses						#						Fair Value			Unrealized Losses
Obligations of U.S. government-sponsored enterprises			12						$152,733			($3,313)						6						$43,202			($1,198)						18						$195,935			($4,511)
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			41						514,419			(7,270)						21						108,983			(2,937)						62						623,402			(10,207)
Individual name issuer trust preferred debt securities			—						—			—						3						9,138			(235)						3						9,138			(235)
Corporate bonds			—						—			—						4						12,305			(850)						4						12,305			(850)
Total			53						$667,152			($10,583)						34						$173,628			($5,220)						87						$840,780			($15,803)

Deterioration in credit quality of the underlying issuers of the securities, deterioration in the condition of the financial services industry, worsening of the current economic environment, or declines in real estate values, among other things, may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as credit losses, and the Corporation may incur write-downs.

Obligations of U.S. Government Agency and U.S. Government-Sponsored Enterprise Securities, including Mortgage-Backed Securities

The gross unrealized losses on U.S. government agency and U.S. government-sponsored debt securities, including mortgage-

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backed securities, were primarily attributable to relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due at March 31, 2022. Management believes that the unrealized losses on these debt securities are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, no allowance for credits losses on securities was recorded at March 31, 2022.

Individual Name Issuer Trust Preferred Debt Securities

Included in debt securities in an unrealized loss position at March 31, 2022 were three trust preferred securities issued by three individual companies in the banking sector. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date, as well as credit rating changes between the reporting period date and the filing date of this report, and other information.  As of March 31, 2022, there was one individual name issuer trust preferred debt security with an amortized cost of $2.0 million and unrealized losses of $77 thousand that was rated below investment grade by S&P. We noted no additional downgrades to below investment grade between March 31, 2022 and the filing date of this report.  Based on the information available through the filing date of this report, all individual name issuer trust preferred debt securities held in our portfolio continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers. Management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates and not changes in the credit quality of the issuers of the debt securities.  Management expects to recover the entire amortized cost basis of these securities.  Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity.  Therefore, no ACL on securities was recorded at March 31, 2022.

Corporate Bonds

At March 31, 2022, the Corporation had four corporate bond holdings with unrealized losses totaling $996 thousand. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings, including ratings in effect as of the reporting period date, as well as credit rating changes between the reporting period date and the filing date of this report, and other information.  As of March 31, 2022, there was one corporate bond debt security with an amortized cost of $2.0 million and unrealized losses of $50 thousand that was rated below investment grade by S&P. We noted no additional downgrades to below investment grade between March 31, 2022 and the filing date of this report. Based on the information available through the filing date of this report, all corporate bond debt securities held in our portfolio continue to accrue interest and make payments as expected with no payment deferrals or defaults on the part of the issuers. Management believes the unrealized losses on these debt securities are primarily attributable to changes in the investment spreads and interest rates and not changes in the credit quality of the issuers of the debt securities. Management expects to recover the entire amortized cost basis of these securities. Furthermore, the Corporation does not intend to sell these securities and it is likely that the Corporation will not be required to sell these securities before recovery of their cost basis, which may be maturity.  Therefore, no ACL was recorded at March 31, 2022.

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The following table presents a summary of loans:

(Dollars in thousands)			March 31, 2022			December 31, 2021
Commercial:
Commercial real estate (1)			$1,628,620			$1,639,062
Commercial & industrial (2)			614,892			641,555
Total commercial			2,243,512			2,280,617
Residential Real Estate:
Residential real estate (3)			1,777,974			1,726,975
Consumer:
Home equity			246,097			247,697
Other (4)			16,269			17,636
Total consumer			262,366			265,333
Total loans (5)			$4,283,852			$4,272,925

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

(2)C&I consists of loans to businesses and individuals, a portion of which are fully or partially collateralized by real estate. C&I also includes $12.5 million and $38.0 million, respectively, of PPP loans as of March 31, 2022 and December 31, 2021.

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

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

(5)Includes net unamortized loan origination costs of $8.3 million and $6.7 million, respectively, at March 31, 2022 and December 31, 2021 and net unamortized premiums on purchased loans of $389 thousand and $414 thousand, respectively, at March 31, 2022 and December 31, 2021.

Loan balances exclude accrued interest receivable of $10.6 million and $10.3 million, respectively, as of March 31, 2022 and December 31, 2021.

As of both March 31, 2022 and December 31, 2021, loans amounting to $2.2 billion were pledged as collateral to the FHLB under a blanket pledge agreement and to the FRBB for the discount window. See Note 7 for additional disclosure regarding borrowings.

The Corporation elected to account for eligible loan modifications under Section 4013 of the CARES Act, as amended by the CRRSA Act. Eligible loan modifications from March 1, 2020 through January 1, 2022 made in response to the COVID-19 pandemic were not required to be classified as TDRs. During this period of time, we processed loan payment deferral modifications, or “deferments”, on 654 loans totaling $727.7 million. The vast majority of the deferments qualified as eligible loan modifications and were not classified as TDRs. As of March 31, 2022, all of these loans have exited their payment deferral period.

Concentrations of Credit Risk

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

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Past Due Loans

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

(Dollars in thousands)			Days Past Due
March 31, 2022			30-59						60-89						Over 90						Total Past Due						Current						Total Loans
Commercial:
Commercial real estate			$—						$—						$—						$—						$1,628,620						$1,628,620
Commercial & industrial			108						—						—						108						614,784						614,892
Total commercial			108						—						—						108						2,243,404						2,243,512
Residential Real Estate:
Residential real estate			1,299						—						5,168						6,467						1,771,507						1,777,974
Consumer:
Home equity			112						141						178						431						245,666						246,097
Other			30						—						—						30						16,239						16,269
Total consumer			142						141						178						461						261,905						262,366
Total loans			$1,549						$141						$5,346						$7,036						$4,276,816						$4,283,852

(Dollars in thousands)			Days Past Due
December 31, 2021			30-59						60-89						Over 90						Total Past Due						Current						Total Loans
Commercial:
Commercial real estate			$—						$—						$—						$—						$1,639,062						$1,639,062
Commercial & industrial			3						—						—						3						641,552						641,555
Total commercial			3						—						—						3						2,280,614						2,280,617
Residential Real Estate:
Residential real estate			1,784						3,176						4,662						9,622						1,717,353						1,726,975
Consumer:
Home equity			580						77						108						765						246,932						247,697
Other			21						—						—						21						17,615						17,636
Total consumer			601						77						108						786						264,547						265,333
Total loans			$2,388						$3,253						$4,770						$10,411						$4,262,514						$4,272,925

Included in past due loans as of March 31, 2022 and December 31, 2021, were nonaccrual loans of $5.7 million and $9.4 million, respectively. In addition, all loans 90 days or more past due at March 31, 2022 and December 31, 2021 were classified as nonaccrual.

Nonaccrual Loans

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

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

(Dollars in thousands)			Mar 31, 2022			Dec 31, 2021
Commercial:
Commercial real estate			$—			$—
Commercial & industrial			—			—
Total commercial			—			—
Residential Real Estate:
Residential real estate			11,916			13,576
Consumer:
Home equity			673			627
Other			—			—
Total consumer			673			627
Total nonaccrual loans			$12,589			$14,203
Accruing loans 90 days or more past due			$—			$—

No ACL was deemed necessary on nonaccrual loans with carrying values of $4.2 million as of both March 31, 2022 and December 31, 2021.

Nonaccrual loans of $6.9 million and $4.8 million, respectively, at March 31, 2022 and December 31, 2021 were current as to the payment of principal and interest.

As of March 31, 2022 and December 31, 2021, nonaccrual loans secured by one- to four-family residential property amounting to $1.7 million and $1.5 million, respectively, were in process of foreclosure.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2022.

The following table presents interest income recognized on nonaccrual loans:

(Dollars in thousands)
Three months ended March 31,			2022			2021
Commercial:
Commercial real estate			$—			$—
Commercial & industrial			—			1
Total commercial			—			1
Residential Real Estate:
Residential real estate			101			65
Consumer:
Home equity			7			24
Other			—			—
Total consumer			7			24
Total			$108			$90

Troubled Debt Restructurings

A loan that has been modified or renewed is considered to be a TDR when two conditions are met: (1) the borrower is experiencing financial difficulty and (2) concessions are made for the borrower’s benefit that would not otherwise be considered for a borrower or a transaction with similar credit risk characteristics. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance,

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reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring of a loan in lieu of aggressively enforcing the collection of the loan may benefit the Corporation by increasing the ultimate probability of collection.

The Corporation's ACL reflects the effects of a TDR when management reasonably expects at the reporting date that a TDR will be executed with an individual borrower. A TDR is considered reasonably expected no later than the point when management concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession to avoid a default. Reasonably expected TDRs and executed TDRs are evaluated individually to determine the required ACL. TDRs that did not involve a below-market rate concession and perform in accordance with their modified contractual terms for a reasonable period of time may be included in the Corporation’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.

TDRs are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan.  Loans that are already on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers such loans for return to accruing status.  Accruing restructured loans are placed into nonaccrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term and full collection of principal and interest is in doubt.

TDRs are reported as such for at least one year from the date of the restructuring.  In years after the restructuring, TDRs are removed from this classification if the restructuring did not involve a below-market rate concession and the loan is performing in accordance with their modified contractual terms for a reasonable period of time.

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

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

(Dollars in thousands)			Mar 31, 2022			Dec 31, 2021
Accruing TDRs			$16,540			$16,564
Nonaccrual TDRs			2,789			2,819
Total TDRs			$19,329			$19,383
Specific reserves on TDRs included in the ACL on loans			$146			$148
Additional commitments to lend to borrowers with TDRs			$—			$—

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During the three months ended March 31, 2022 and 2021, there were no loans modified in a TDR.

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

(Dollars in thousands)			# of Loans												Recorded Investment
Three months ended March 31,			2022						2021						2022						2021
TDRs with a Payment Default:
Residential real estate			—						1						$—						$396
Home equity			—						—						—						—
Totals			—						1						$—						$396

Individually Analyzed Loans

Individually analyzed loans include nonaccrual commercial loans, reasonably expected TDRs and executed TDRs, as well as certain other loans based on the underlying risk characteristics and the discretion of management to individually analyze such loans.

As of March 31, 2022, the carrying value of individually analyzed loans amounted to $21.0 million, of which $14.4 million were considered collateral dependent. As of December 31, 2021, the carrying value of individually analyzed loans amounted to $21.1 million, of which $14.4 million were considered collateral dependent.

For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. See Note 10 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

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

(Dollars in thousands)			March 31, 2022									December 31, 2021
			Carrying Value			Related Allowance						Carrying Value			Related Allowance
Commercial:
Commercial real estate (1)			$10,593			$—						$10,603			$—
Commercial & industrial (2)			—			—						—			—
Total commercial			10,593			—						10,603			—
Residential Real Estate:
Residential real estate (3)			3,776			531						3,803			534
Consumer:
Home equity (3)			—			—						—			—
Other			—			—						—			—
Total consumer			—			—						—			—
Total			$14,369			$531						$14,406			$534

(1)    Secured by income-producing property.

(2)    Secured by business assets.

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

Credit Quality Indicators

Commercial

The Corporation utilizes an internal rating system to assign a risk to each of its commercial loans. Loans are rated on a scale of 1 to 10. This scale can be assigned to three broad categories including “pass” for ratings 1 through 6, “special mention” for 7-rated loans, and “classified” for loans rated 8, 9 or 10. The loan risk rating system takes into consideration parameters

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including the borrower’s financial condition, the borrower’s performance with respect to loan terms, the adequacy of collateral, the adequacy of guarantees and other credit quality characteristics. The Corporation takes the risk rating into consideration along with other credit attributes in the establishment of an appropriate allowance for loan losses. See Note 5 for additional information.

A description of the commercial loan categories is as follows:

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

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

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

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

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

Residential and Consumer

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

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

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

(Dollars in thousands)			Term Loans Amortized Cost by Origination Year
			2022			2021			2020			2019			2018			Prior			Revolving Loans Amortized Cost			Revolving Loans Converted to Term Loans			Total
Commercial:
CRE:
Pass			$138,105			$390,948			$209,963			$230,338			$208,730			$384,605			$8,206			$1,617			$1,572,512
Special Mention			—			9,047			291			13,295			9,720			12,885			277			—			45,515
Classified			—			—			949			—			2,685			6,959			—			—			10,593
Total CRE			138,105			399,995			211,203			243,633			221,135			404,449			8,483			1,617			1,628,620
C&I:
Pass			9,593			85,132			78,438			102,252			94,577			126,646			91,555			887			589,080
Special Mention			530			—			—			569			4,556			18,211			1,186			—			25,052
Classified			—			—			—			63			—			1			696			—			760
Total C&I			10,123			85,132			78,438			102,884			99,133			144,858			93,437			887			614,892
Residential Real Estate:
Residential real estate:
Current			152,448			729,453			312,951			145,184			80,870			350,601			—			—			1,771,507
Past Due			—			—			1,400			270			2,373			2,424			—			—			6,467
Total residential real estate			152,448			729,453			314,351			145,454			83,243			353,025			—			—			1,777,974
Consumer:
Home equity:
Current			2,561			9,149			4,703			3,107			2,412			4,040			211,618			8,076			245,666
Past Due			—			—			—			—			—			184			75			172			431
Total home equity			2,561			9,149			4,703			3,107			2,412			4,224			211,693			8,248			246,097
Other:
Current			466			5,249			2,811			1,079			316			6,064			254			—			16,239
Past Due			14			5			9			—			—			2			—			—			30
Total other			480			5,254			2,820			1,079			316			6,066			254			—			16,269
Total Loans			$303,717			$1,228,983			$611,515			$496,157			$406,239			$912,622			$313,867			$10,752			$4,283,852

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

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

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

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The ACL on loans is management’s estimate, at the reporting date, of expected credit losses over the expected life of the loans. The level of the ACL on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the calculation of loss given default and the estimation of expected credit losses. Qualitative adjustments are made for differences in specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, that may not be reflected in historical loss rates.

The following table presents the activity in the ACL on loans for the three months ended March 31, 2022:

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$18,933			$10,832			$29,765			$7,860			$1,069			$394			$1,463			$39,088
Charge-offs			—			(5)			(5)			—			—			(31)			(31)			(36)
Recoveries			145			6			151			21			2			10			12			184
Provision			(618)			389			(229)			185			27			17			44			—
Ending Balance			$18,460			$11,222			$29,682			$8,066			$1,098			$390			$1,488			$39,236

The following table presents the activity in the ACL on loans for the three months ended March 31, 2021:

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$22,065			$12,228			$34,293			$8,042			$1,300			$471			$1,771			$44,106
Charge-offs			—			(3)			(3)			(50)			—			(11)			(11)			(64)
Recoveries			—			2			2			33			2			9			11			46
Provision			(768)			162			(606)			(1,556)			129			82			211			(1,951)
Ending Balance			$21,297			$12,389			$33,686			$6,469			$1,431			$551			$1,982			$42,137

The following table presents a summary of deposits:

(Dollars in thousands)			Mar 31, 2022						Dec 31, 2021
Noninterest-bearing demand deposits			$911,990						$945,229
Interest-bearing demand deposits			248,914						251,032
NOW accounts			893,603						867,138
Money market accounts			1,295,339						1,072,864
Savings accounts			566,461						555,177
Time deposits (1)			1,211,643						1,288,611
Total deposits			$5,127,950						$4,980,051

(1)Includes wholesale brokered time deposit balances of $401,785 and $515,228, respectively, as of March 31, 2022 and December 31, 2021.

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Advances payable to the FHLB amounted to $55.0 million and $145.0 million, respectively, at March 31, 2022 and December 31, 2021.

As of March 31, 2022 and December 31, 2021, the Bank had access to a $40.0 million unused line of credit with the FHLB. Additionally, the Bank had a $102.0 million standby letter of credit with the FHLB at March 31, 2022. The Bank had remaining available borrowing capacity of $1.6 billion with the FHLB at both March 31, 2022 and December 31, 2021. The Bank pledges certain qualified investment securities and loans as collateral to the FHLB.

The following table presents maturities and weighted average interest rates on FHLB advances outstanding as of March 31, 2022:

(Dollars in thousands)			Scheduled Maturity						Weighted Average Rate
April 1, 2022 to December 31, 2022			$20,000						0.65		%
2023			35,000						0.45
2024			—						—
2025			—						—
2026			—						—
2027 and thereafter			—						—
Balance at March 31, 2022			$55,000						0.52		%

Stock Repurchase Program

The 2021 Repurchase Program authorizes the repurchase of up to 850,000 shares, or approximately 5%, of the Corporation’s outstanding common stock. This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The 2021 Repurchase Program expires on December 31, 2022 and may be modified, suspended, or discontinued at any time. As of March 31, 2022, no shares have been repurchased under the 2021 Repurchase Program.

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Regulatory Capital Requirements

Capital levels at March 31, 2022 exceeded the regulatory minimum levels to be considered “well capitalized.”

The following table presents the Corporation’s and the Bank’s actual capital amounts and ratios, as well as the corresponding minimum and well capitalized regulatory amounts and ratios that were in effect during the respective periods:

(Dollars in thousands)			Actual												For Capital Adequacy Purposes												To Be “Well Capitalized” Under Prompt Corrective Action Provisions
			Amount						Ratio						Amount						Ratio						Amount						Ratio
March 31, 2022
Total Capital (to Risk-Weighted Assets):
Corporation			$586,872						14.15		%				$331,834						8.00		%				N/A						N/A
Bank			574,138						13.85						331,722						8.00						$414,652						10.00		%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation			552,481						13.32						248,875						6.00						N/A						N/A
Bank			539,747						13.02						248,791						6.00						331,722						8.00
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
Corporation			530,482						12.79						186,656						4.50						N/A						N/A
Bank			539,747						13.02						186,593						4.50						269,524						6.50
Tier 1 Capital (to Average Assets): (1)
Corporation			552,481						9.46						233,500						4.00						N/A						N/A
Bank			539,747						9.25						233,387						4.00						291,734						5.00
December 31, 2021
Total Capital (to Risk-Weighted Assets):
Corporation			578,137						14.01						330,105						8.00						N/A						N/A
Bank			565,087						13.70						330,025						8.00						412,532						10.00
Tier 1 Capital (to Risk-Weighted Assets):
Corporation			546,362						13.24						247,578						6.00						N/A						N/A
Bank			533,312						12.93						247,519						6.00						330,025						8.00
Common Equity Tier 1 Capital (to Risk-Weighted Assets):
Corporation			524,363						12.71						185,684						4.50						N/A						N/A
Bank			533,312						12.93						185,639						4.50						268,146						6.50
Tier 1 Capital (to Average Assets): (1)
Corporation			546,362						9.36						233,534						4.00						N/A						N/A
Bank			533,312						9.14						233,434						4.00						291,793						5.00

(1)    Leverage ratio.

In addition to the minimum regulatory capital required for capital adequacy purposes outlined in the table above, the Corporation is required to maintain a minimum capital conservation buffer, in the form of common equity, of 2.50% in order to avoid restrictions on capital distributions and discretionary bonuses. The Corporation’s capital levels exceeded the minimum regulatory capital requirements plus the capital conservation buffer at March 31, 2022 and December 31, 2021.

The Bancorp owns the common stock of two capital trusts, which have issued trust preferred securities. In accordance with GAAP, the capital trusts are treated as unconsolidated subsidiaries. At both March 31, 2022 and December 31, 2021, $22.0 million in trust preferred securities were included in the Tier 1 capital of the Corporation for regulatory capital reporting purposes pursuant to the capital adequacy guidelines of the Board of Governors of the Federal Reserve System.

In accordance with regulatory capital rules, the Corporation elected the option to delay the estimated impact of ASC 326 on its regulatory capital over a two-year deferral and subsequent three-year transition period ending December 31, 2024. As a result, capital ratios exclude the full impact of the increased ACL on loans and unfunded loan commitments attributed to the adoption of ASC 326, adjusted for an approximation of the after-tax provision for credit losses attributable to ASC 326

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The Corporation’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments principally to manage the Corporation’s interest rate risk. Additionally, the Corporation enters into interest rate derivatives to accommodate the business requirements of its customers. All derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation.

Interest Rate Risk Management Agreements

Interest rate risk management agreements, such as caps, swaps and floors, are used from time to time as part of the Corporation’s interest rate risk management strategy. Interest rate swaps are agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments) computed on a notional principal amount. Interest rate caps and floors represent options purchased by the Corporation to manage the interest rate paid throughout the term of the option contract. The credit risk associated with these transactions is the risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the potential loss exposure.

Cash Flow Hedging Instruments

As of March 31, 2022 and December 31, 2021, the Corporation had an interest rate swap contract with a total notional amount of $20.0 million that was designated as a cash flow hedge to hedge the interest rate risk associated with short-term variable rate FHLB advances. The interest rate swap on borrowings matures in December 2023.

As of March 31, 2022 and December 31, 2021, the Corporation had an interest rate swap contract with a total notional amount of $300.0 million that was designated as a cash flow hedge to hedge the interest rate risk associated with a pool of variable rate commercial loans. The interest rate swap on loans matures in May 2026.

The changes in fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) and subsequently reclassified to earnings when gains or losses are realized.

Loan Related Derivative Contracts

Interest Rate Swap Contracts with Customers

The Corporation enters into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk.  The interest rate swap contracts with commercial loan borrowers allow them to convert variable-rate loan payments to fixed-rate loan payments.  When the Corporation enters into an interest rate swap contract with a commercial loan borrower, it simultaneously enters into a “mirror” swap contract with a third party.  The third party exchanges the client’s fixed-rate loan payments for variable-rate loan payments.  The Corporation retains the risk that is associated with the potential failure of counterparties and the risk inherent in originating loans.  

As of March 31, 2022 and December 31, 2021, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $979.4 million and $1.0 billion, respectively, and equal amounts of “mirror” swap contracts with third party financial institutions.  These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.

Risk Participation Agreements

The Corporation has entered into risk participation agreements with other banks in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.

Under a risk participation-out agreement, a derivative asset, the Corporation participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Corporation assumes, or participates in, a portion of the

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credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank.

As of March 31, 2022, the notional amounts of risk participation-out agreements and risk participation-in agreements were $73.8 million and $162.8 million, respectively, compared to $74.2 million and $163.2 million, respectively, as of December 31, 2021.

Mortgage Loan Commitments

Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale.  To mitigate the interest rate risk and pricing risk associated with rate locks and mortgage loans held for sale, the Corporation enters into forward sale commitments. Forward sale commitments are contracts for delayed delivery or net settlement of the underlying instrument, such as a residential real estate mortgage loan, where the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument. Both interest rate lock commitments and forward sale commitments are derivative financial instruments, but do not meet criteria for hedge accounting and therefore, the changes in fair value of these commitments are reflected in earnings.

As of March 31, 2022, the notional amounts of interest rate lock commitments and forward sale commitments were $40.1 million and $67.6 million, respectively, compared to $49.8 million and $103.6 million, respectively, as of December 31, 2021.

The following table presents the fair values of derivative instruments in the Unaudited Consolidated Balance Sheets:

(Dollars in thousands)			Derivative Assets															Derivative Liabilities
						Fair Value															Fair Value
			Balance Sheet Location			Mar 31, 2022						Dec 31, 2021						Balance Sheet Location			Mar 31, 2022						Dec 31, 2021
Derivatives Designated as Cash Flow Hedging Instruments:
Interest rate risk management contracts:
Interest rate swaps			Other assets			$201						$182						Other liabilities			$18,947						$5,301
Derivatives not Designated as Hedging Instruments:
Loan related derivative contracts:
Interest rate swaps with customers			Other assets			7,088						32,361						Other liabilities			21,656						2,015
Mirror swaps with counterparties			Other assets			21,518						2,001						Other liabilities			7,141						32,480
Risk participation agreements			Other assets			—						1						Other liabilities			2						2
Mortgage loan commitments:
Interest rate lock commitments			Other assets			407						1,256						Other liabilities			85						—
Forward sale commitments			Other assets			985						54						Other liabilities			69						905
Gross amounts						30,199						35,855									47,900						40,703
Less: amounts offset (1)						13,961						2,167									13,961						2,167
Derivative balances, net of offset						16,238						33,688									33,939						38,536
Less: collateral pledged (2)						—						—									10,848						34,539
Net amounts						$16,238						$33,688									$23,091						$3,997

(1)Interest rate risk management contracts and loan related derivative contracts with counterparties are subject to master netting arrangements.

(2)Collateral pledged to derivative counterparties is in the form of cash. Washington Trust may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.

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The following table presents the effect of derivative instruments in the Unaudited Consolidated Statements of Changes in Shareholders’ Equity and Unaudited Consolidated Statements of Income:

(Dollars in thousands)			Gain (Loss) Recognized in Other Comprehensive Income (Loss), Net of Tax
Three months ended March 31,			2022						2021
Derivatives Designated as Cash Flow Hedging Instruments:
Interest rate risk management contracts:
Interest rate swaps			($10,335)						$297
Total			($10,335)						$297

For derivatives designated as cash flow hedging instruments, see Note 15 for additional disclosure pertaining to the amounts and location of reclassifications from AOCL into earnings.

(Dollars in thousands)						Amount of Gain (Loss) Recognized in Income on Derivatives
Three months ended March 31,			Statement of Income Location			2022						2021
Derivatives not Designated as Hedging Instruments:
Loan related derivative contracts:
Interest rate swaps with customers			Loan related derivative income			($40,822)						($30,231)
Mirror swaps with counterparties			Loan related derivative income			41,122						30,683
Risk participation agreements			Loan related derivative income			1						15
Mortgage loan commitments:
Interest rate lock commitments			Mortgage banking revenues			(934)						(4,529)
Forward sale commitments			Mortgage banking revenues			2,991						7,285
Total						$2,358						$3,223

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The Corporation uses fair value measurements to record fair value adjustments on certain assets and liabilities and to determine fair value disclosures.  Items recorded at fair value on a recurring basis include securities available for sale, mortgage loans held for sale and derivatives.  Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent individually analyzed loans, property acquired through foreclosure or repossession and mortgage servicing rights.  These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write-downs of individual assets.

Fair value is a market-based measurement, not an entity-specific measurement.  Fair value measurements are determined based on the assumptions the market participants would use in pricing the asset or liability.  In addition, GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information, or “inputs”, are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Corporation’s market assumptions. These two types of inputs have created the following fair value hierarchy:

•Level 1 – Quoted prices for identical assets or liabilities in active markets.

•Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in the markets and which reflect the Corporation’s market assumptions.

Fair Value Option Election

GAAP allows for the irrevocable option to elect fair value accounting for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Corporation has elected the fair value option for mortgage loans held for sale to better match changes in fair value of the loans with changes in the fair value of the forward sale commitment contracts used to economically hedge them.

The following table presents a summary of mortgage loans held for sale accounted for under the fair value option:

(Dollars in thousands)			March 31, 2022			December 31, 2021
Aggregate fair value			$15,612			$40,196
Aggregate principal balance			15,692			39,201
Difference between fair value and principal balance			($80)			$995

Changes in fair value of mortgage loans held for sale accounted for under the fair value option election are included in mortgage banking revenues in the Unaudited Consolidated Statements of Income. Changes in fair value amounted to a decrease to mortgage banking revenues of $1.1 million and $1.5 million, respectively, for the three months ended March 31, 2022 and 2021.

There were no mortgage loans held for sale 90 days or more past due as of March 31, 2022 and December 31, 2021.

Valuation Techniques

Debt Securities

Available for sale debt securities are recorded at fair value on a recurring basis.  When available, the Corporation uses quoted market prices to determine the fair value of debt securities; such items are classified as Level 1. There were no Level 1 debt securities held at March 31, 2022 and December 31, 2021.

Level 2 debt securities are traded less frequently than exchange-traded instruments. The fair value of these securities is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category includes obligations of U.S. government-sponsored enterprises, including mortgage-backed securities, individual name issuer trust preferred debt securities and corporate bonds.

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Debt securities not actively traded whose fair value is determined through the use of cash flows utilizing inputs that are unobservable are classified as Level 3. There were no Level 3 debt securities held at March 31, 2022 and December 31, 2021.

Mortgage Loans Held for Sale

The fair value of mortgage loans held for sale is estimated based on current market prices for similar loans in the secondary market and therefore are classified as Level 2 assets.

Collateral Dependent Individually Analyzed Loans

The fair value of collateral dependent individually analyzed loans is determined based upon the appraised fair value of the underlying collateral. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. For collateral dependent loans that are expected to be repaid substantially through the sale of the collateral, management adjusts the fair value for estimated costs to sell. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the collateral. Internal valuations may be utilized to determine the fair value of other business assets. Collateral dependent individually analyzed loans are categorized as Level 3.

Derivatives

Interest rate swaps are traded in over-the-counter markets where quoted market prices are not readily available.  Fair value measurements are determined using independent valuation software, which utilizes the present value of future cash flows discounted using market observable inputs such as forward rate assumptions. The Corporation evaluates the credit risk of its counterparties, as well as that of the Corporation.  Accordingly, factors such as the likelihood of default by the Corporation and its counterparties, its net exposures and remaining contractual life are considered in determining if any fair value adjustments related to credit risk are required.  Counterparty exposure is evaluated by netting positions that are subject to master netting agreements, as well as considering the amount of collateral securing the position, if any. The Corporation has determined that the majority of the inputs used to value its derivative positions fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments utilize Level 3 inputs. As of March 31, 2022 and December 31, 2021, the Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Corporation has classified its derivative valuations in their entirety as Level 2.

Fair value measurements of forward loan commitments (interest rate lock commitments and forward sale commitments) are primarily based on current market prices for similar assets in the secondary market for mortgage loans and therefore are classified as Level 2 assets. The fair value of interest rate lock commitments is also dependent on the ultimate closing of the loans. Pull-through rates are based on the Corporation’s historical data and reflect the Corporation’s best estimate of the likelihood that a commitment will result in a closed loan. Although the pull-through rates are Level 3 inputs, the Corporation has assessed the significance of the impact of pull-through rates on the overall valuation of its interest rate lock commitments and has determined that they are not significant to the overall valuation. As a result, the Corporation has classified its interest rate lock commitments as Level 2.

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Items Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets and liabilities reported at fair value on a recurring basis:

(Dollars in thousands)			Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
March 31, 2022
Assets:
Available for sale debt securities:
Obligations of U.S. government-sponsored enterprises			$185,432			$—			$185,432			$—
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			801,570			—			801,570			—
Individual name issuer trust preferred debt securities			9,019			—			9,019			—
Corporate bonds			12,163			—			12,163			—
Mortgage loans held for sale			15,612			—			15,612			—
Derivative assets			16,238			—			16,238			—
Total assets at fair value on a recurring basis			$1,040,034			$—			$1,040,034			$—
Liabilities:
Derivative liabilities			$33,939			$—			$33,939			$—
Total liabilities at fair value on a recurring basis			$33,939			$—			$33,939			$—

(Dollars in thousands)			Total			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
December 31, 2021
Assets:
Available for sale debt securities:
Obligations of U.S. government-sponsored enterprises			$196,454			$—			$196,454			$—
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises			824,962			—			824,962			—
Individual name issuer trust preferred debt securities			9,138			—			9,138			—
Corporate bonds			12,305			—			12,305			—
Mortgage loans held for sale			40,196			—			40,196			—
Derivative assets			33,688			—			33,688			—
Total assets at fair value on a recurring basis			$1,116,743			$—			$1,116,743			$—
Liabilities:
Derivative liabilities			$38,536			$—			$38,536			$—
Total liabilities at fair value on a recurring basis			$38,536			$—			$38,536			$—

Items Recorded at Fair Value on a Nonrecurring Basis

There were no assets written down to fair value during the three months ended March 31, 2022.

During 2021, two collateral dependent individually analyzed loans were written down to fair value. One loan with a carrying value of $3.1 million was paid in full in the fourth quarter of 2021. The second loan with a carrying value of $533 thousand was fully reserved for as of December 31, 2021.

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The following table presents valuation techniques and unobservable inputs for assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value:

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Inputs Utilized (Weighted Average)

December 31, 2021

Collateral dependent individually analyzed loans

$—

Appraisals of collateral

Discount for costs to sell

14%

Appraisal adjustments

100%

Valuation of Financial Instruments

The estimated fair values and related carrying amounts for financial instruments for which fair value is only disclosed are presented below as of the periods indicated. The tables exclude financial instruments for which the carrying value approximates fair value such as cash and cash equivalents, FHLB stock, accrued interest receivable, bank-owned life insurance, non-maturity deposits and accrued interest payable. The Corporation considers cash and cash equivalents, accrued interest receivable and accrued interest payable as level 1 measurements within the fair value hierarchy. The Corporation considers FHLB stock, bank-owned life insurance and non-maturity deposits as level 2 measurements.

(Dollars in thousands)
March 31, 2022			Carrying Amount			Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Loans, net of allowance for credit losses on loans			$4,244,616			$4,184,223			$—			$—			$4,184,223
Financial Liabilities:
Time deposits			$1,211,643			$1,215,055			$—			$1,215,055			$—
FHLB advances			55,000			54,425			—			54,425			—
Junior subordinated debentures			22,681			18,665			—			18,665			—

(Dollars in thousands)
December 31, 2021			Carrying Amount			Total Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Financial Assets:
Loans, net of allowance for credit losses on loans			$4,233,837			$4,145,516			$—			$—			$4,145,516
Financial Liabilities:
Time deposits			$1,288,611			$1,294,053			$—			$1,294,053			$—
FHLB advances			145,000			144,862			—			144,862			—
Junior subordinated debentures			22,681			20,181			—			20,181			—

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The following tables summarize total revenues as presented in the Unaudited Consolidated Statements of Income and the related amounts that are from contracts with customers within the scope of ASC 606. As shown below, a substantial portion of our revenues are specifically excluded from the scope of ASC 606.

For the three months ended March 31,			2022									2021
(Dollars in thousands)			Revenue (1)			ASC 606 Revenue (2)						Revenue (1)			ASC 606 Revenue (2)
Net interest income			$35,091			$—						$32,871			$—
Noninterest income:
Asset-based wealth management revenues			10,211			10,211						9,583			9,583
Transaction-based wealth management revenues			320			320						312			312
Total wealth management revenues			10,531			10,531						9,895			9,895
Mortgage banking revenues			3,501			—						11,927			—
Card interchange fees			1,164			1,164						1,133			1,133
Service charges on deposit accounts			668			668						609			609
Loan related derivative income			301			—						467			—
Income from bank-owned life insurance			601			—						556			—
Other income			393			286						1,387			1,245
Total noninterest income			17,159			12,649						25,974			12,882
Total revenues			$52,250			$12,649						$58,845			$12,882

(1)As reported in the Unaudited Consolidated Statements of Income.

(2)Revenue from contracts with customers in scope of ASC 606.

The Corporation recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

The Corporation recognizes revenue over a period of time, generally monthly, as services are performed and performance obligations are satisfied. Such revenue includes wealth management revenues and service charges on deposit accounts. Wealth management revenues are categorized as either asset-based revenues or transaction-based revenues. Asset-based revenues include trust and investment management fees that are earned based upon a percentage of asset values under administration. Transaction-based revenues include tax preparation fees, commissions and other service fees. Fee revenue from service charges on deposit accounts represent service charges assessed to customers who hold deposit accounts at the Bank.

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The following table presents revenue from contracts with customers based on the timing of revenue recognition:

(Dollars in thousands)
Three months ended March 31,			2022			2021
Revenue recognized at a point in time:
Card interchange fees			$1,164			$1,133
Service charges on deposit accounts			549			481
Other income			229			1,203
Revenue recognized over time:
Wealth management revenues			10,531			9,895
Service charges on deposit accounts			119			128
Other income			57			42
Total revenues from contracts in scope of Topic 606			$12,649			$12,882

Receivables for revenue from contracts with customers primarily consist of amounts due for wealth management services performed for which the Corporation’s performance obligations have been fully satisfied. Receivables amounted to $4.9 million and $6.6 million, respectively, at March 31, 2022 and December 31, 2021 and were included in other assets in the Unaudited Consolidated Balance Sheets.

Deferred revenues, which are considered contract liabilities under ASC 606, represent advance consideration received from customers for which the Corporation has a remaining performance obligation to fulfill. Contract liabilities are recognized as revenue over the life of the contract as the performance obligations are satisfied. The balances of contract liabilities were insignificant at both March 31, 2022 and December 31, 2021 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.

For commissions and incentives that are in scope of ASC 606, such as those paid to employees in our wealth management services and commercial banking segments in order to obtain customer contracts, contract cost assets are established. The contract cost assets are capitalized and amortized over the estimated useful life that the asset is expected to generate benefits. The carrying value of contract cost assets amounted to $2.0 million at March 31, 2022, compared to $1.9 million at December 31, 2021 and were included in other assets in the Unaudited Consolidated Balance Sheets. The amortization of contract cost assets is recorded within salaries and employee benefits expense in the Unaudited Consolidated Statements of Income.

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Washington Trust maintains a qualified pension plan for the benefit of certain eligible employees who were hired prior to October 1, 2007. Washington Trust also has non-qualified retirement plans to provide supplemental retirement benefits to certain employees, as defined in the plans. The defined benefit pension plans were previously amended to freeze benefit accruals after a 10-year transition period ending in December 2023.

The following table presents components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss), on a pre-tax basis:

(Dollars in thousands)			Qualified Pension Plan									Non-Qualified Retirement Plans
Three months ended March 31,			2022			2021															2022			2021
Net Periodic Benefit Cost:
Service cost (1)			$516			$592															$54			$52
Interest cost (2)			592			645															106			84
Expected return on plan assets (2)			(1,159)			(1,204)															—			—
Recognized net actuarial loss (2)			255			387															173			158
Net periodic benefit cost			$204			$420															$333			$294

(1)Included in salaries and employee benefits expense in the Unaudited Consolidated Statements of Income.

(2)Included in other expenses in the Unaudited Consolidated Statements of Income.

The following table presents the measurement date and weighted-average assumptions used to determine net periodic benefit cost:

			Qualified Pension Plan												Non-Qualified Retirement Plans
For the three months ended March 31,			2022						2021						2022						2021
Measurement date			Dec 31, 2021						Dec 31, 2020						Dec 31, 2021						Dec 31, 2020
Equivalent single discount rate for benefit obligations			3.00%						2.71%						2.89%						2.51%
Equivalent single discount rate for service cost			3.11						2.86						3.16						2.94
Equivalent single discount rate for interest cost			2.67						2.16						2.48						1.97
Expected long-term return on plan assets			5.25						5.75						N/A						N/A
Rate of compensation increase			3.75						3.75						3.75						3.75

During the three months ended March 31, 2022, the Corporation granted performance share unit and restricted stock unit awards.

Performance share units were granted to certain key employees providing them the opportunity to earn shares of common stock over a 3-year performance period. The weighted average fair value of the performance share units was $59.31. The number of shares to be vested will be contingent upon the Corporation’s attainment of certain performance measures as detailed in the performance share unit award agreements. Based on the most recent performance assumption available, it is estimated that 42,728 shares will be earned.

In addition, the Corporation granted to certain key employees 3,157 restricted stock units with 3-year cliff vesting. The weighted average grant date fair value of the restricted stock units was $59.31.

The Corporation manages its operations through two reportable business segments, consisting of Commercial Banking and Wealth Management Services.

Management uses an allocation methodology to allocate income and expenses to the business lines. Direct activities are assigned to the appropriate business segment to which the activity relates. Indirect activities, such as corporate, technology and other support functions, are allocated to business segments primarily based upon full-time equivalent employee computations.

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Commercial Banking

The Commercial Banking segment includes commercial, residential and consumer lending activities; mortgage banking activities; deposit generation; cash management activities; banking activities, including customer support and the operation of ATMs, telephone banking, internet banking and mobile banking services; as well as investment portfolio and wholesale funding activities.

Wealth Management Services

The Wealth Management Services segment includes investment management; holistic financial planning services; personal trust and estate services, including services as trustee, personal representative, custodian and guardian; settlement of decedents’ estates; and institutional trust services, including custody and fiduciary services.

The following table presents the statement of operations and total assets for Washington Trust’s reportable segments:

(Dollars in thousands)			Commercial Banking									Wealth Management Services									Consolidated Total
Three months ended March 31,			2022			2021						2022			2021						2022			2021
Net interest income (expense)			$35,108			$32,885						($17)			($14)						$35,091			$32,871
Provision for credit losses			100			(2,000)						—			—						100			(2,000)
Net interest income (expense) after provision for credit losses			35,008			34,885						(17)			(14)						34,991			34,871
Noninterest income			6,512			14,990						10,647			10,984						17,159			25,974
Noninterest expenses:
Depreciation and amortization expense			711			677						344			377						1,055			1,054
Other noninterest expenses			22,611			26,564						7,553			7,095						30,164			33,659
Total noninterest expenses			23,322			27,241						7,897			7,472						31,219			34,713
Income before income taxes			18,198			22,634						2,733			3,498						20,931			26,132
Income tax expense			3,797			4,835						651			826						4,448			5,661
Net income			$14,401			$17,799						$2,082			$2,672						$16,483			$20,471
Total assets at period end			$5,773,796			$5,646,209						$74,203			$73,180						$5,847,999			$5,719,389
Expenditures for long-lived assets			730			835						104			76						834			911

The following tables present the activity in other comprehensive income (loss):

Three months ended March 31,			2022												2021
(Dollars in thousands)			Pre-tax Amounts			Income Taxes			Net of Tax						Pre-tax Amounts			Income Taxes			Net of Tax
Securities available for sale:
Changes in fair value of available for sale debt securities			($65,078)			($15,618)			($49,460)						($17,525)			($4,206)			($13,319)
Cash flow hedges:
Change in fair value of cash flow hedges			(13,201)			(3,168)			(10,033)						109			26			83
Net cash flow hedge (gains) losses reclassified into earnings (1)			(399)			(97)			(302)						281			67			214
Net change in fair value of cash flow hedges			(13,600)			(3,265)			(10,335)						390			93			297
Defined benefit plan obligations:
Amortization of net actuarial losses (2)			428			103			325						545			138			407
Total other comprehensive loss			($78,250)			($18,780)			($59,470)						($16,590)			($3,975)			($12,615)

(1)The pre-tax amounts for the three months ended March 31, 2022 are included in interest expense on FHLB advances and interest and fees on loans in the Unaudited Consolidated Statements of Income.

(2)The pre-tax amounts are included in other expenses in the Unaudited Consolidated Statements of Income.

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The following tables present the changes in accumulated other comprehensive income (loss) by component, net of tax:

(Dollars in thousands)			Net Unrealized Losses on Available For Sale Debt Securities												Net Unrealized Losses on Cash Flow Hedges						Net Unrealized Losses on Defined Benefit Plan Obligations						Total
For the three months ended March 31, 2022
Balance at December 31, 2021			($6,795)												($4,013)						($9,173)						($19,981)
Other comprehensive loss before reclassifications			(49,460)												(10,033)						—						(59,493)
Amounts reclassified from accumulated other comprehensive loss			—												(302)						325						23
Net other comprehensive (loss) income			(49,460)												(10,335)						325						(59,470)
Balance at March 31, 2022			($56,255)												($14,348)						($8,848)						($79,451)

(Dollars in thousands)			Net Unrealized Gains (Losses) on Available For Sale Debt Securities												Net Unrealized Losses on Cash Flow Hedges						Net Unrealized Losses on Defined Benefit Plan Obligations						Total
For the three months ended March 31, 2021
Balance at December 31, 2020			$9,881												($1,447)						($15,825)						($7,391)
Other comprehensive (loss) income before reclassifications			(13,319)												83						—						(13,236)
Amounts reclassified from accumulated other comprehensive loss			—												214						407						621
Net other comprehensive (loss) income			(13,319)												297						407						(12,615)
Balance at March 31, 2021			($3,438)												($1,150)						($15,418)						($20,006)

The following table presents the calculation of earnings per common share:

(Dollars and shares in thousands, except per share amounts)
Three months ended March 31,			2022						2021
Earnings for basic and diluted earnings per common share:
Net income			$16,483						$20,471
Less: dividends and undistributed earnings allocated to participating securities			(54)						(56)
Net income available to common shareholders			$16,429						$20,415
Shares:
Weighted average common shares			17,331						17,275
Dilutive effect of common stock equivalents			151						156
Weighted average diluted common shares			17,482						17,431
Earnings per common share:
Basic earnings per common share			$0.95						$1.18
Diluted earnings per common share			$0.94						$1.17

Weighted average common stock equivalents, not included in common stock equivalents above because they were anti-dilutive, totaled 94,175 and 149,575, respectively, for the three months ended March 31, 2022 and 2021.

Financial Instruments with Off-Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage the Corporation’s exposure to fluctuations in interest rates.  These financial

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instruments include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts.  These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Unaudited Consolidated Balance Sheets.  The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

Financial Instruments Whose Contract Amounts Represent Credit Risk (Unfunded Commitments)

Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since some of the commitments are expected to expire without being drawn upon, total commitment amounts do not necessarily represent future cash requirements.  Each borrower’s creditworthiness is evaluated on a case-by-case basis.  The amount of collateral obtained is based on management’s credit evaluation of the borrower.

Standby Letters of Credit

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support the financing needs of the Bank’s commercial customers. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The collateral supporting those commitments is essentially the same as for other commitments. Most standby letters of credit extend for one year. The maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $11.8 million as of March 31, 2022 and December 31, 2021, respectively. At March 31, 2022 and December 31, 2021, there were no liabilities to beneficiaries resulting from standby letters of credit.  Fee income on standby letters of credit was insignificant for the three months ended March 31, 2022 and 2021.

A substantial portion of the standby letters of credit were supported by pledged collateral. The collateral obtained is determined based on management’s credit evaluation of the customer. Should the Corporation be required to make payments to the beneficiary, repayment from the customer to the Corporation is required.

Financial Instruments Whose Notional Amounts Exceed the Amount of Credit Risk

Mortgage Loan Commitments

Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale. To mitigate the interest rate risk and pricing risk associated with these rate locks and mortgage loans held for sale, the Corporation enters into forward sale commitments.  Both interest rate lock commitments and forward sale commitments are derivative financial instruments.

Loan Related Derivative Contracts

The Corporation’s credit policies with respect to interest rate swap agreements with commercial borrowers are similar to those used for loans.  The interest rate swaps with other counterparties are generally subject to bilateral collateralization terms.

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The following table presents the contractual and notional amounts of financial instruments with off-balance sheet risk:

(Dollars in thousands)			Mar 31, 2022						Dec 31, 2021
Financial instruments whose contract amounts represent credit risk (unfunded commitments):
Commitments to extend credit:
Commercial loans			$579,639						$516,344
Home equity lines			381,332						367,784
Other loans			147,954						122,492
Standby letters of credit			11,812						11,844
Financial instruments whose notional amounts exceed the amounts of credit risk:
Mortgage loan commitments:
Interest rate lock commitments			40,103						49,800
Forward sale commitments			67,614						103,626
Loan related derivative contracts:
Interest rate swaps with customers			989,501						1,022,388
Mirror swaps with counterparties			989,501						1,022,388
Risk participation-in agreements			162,821						163,207
Interest rate risk management contracts:
Interest rate swaps			320,000						320,000

See Note 9 for additional disclosure pertaining to derivative financial instruments.

ACL on Unfunded Commitments

The ACL on unfunded commitments is management’s estimate of expected credit losses over the expected contractual term (or life) in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. Unfunded commitments for home equity lines of credit and commercial demand loans are considered unconditionally cancellable for regulatory capital purposes and, therefore, are excluded from the calculation to estimate the ACL on unfunded commitments. For each portfolio, estimated loss rates and funding factors are applied to the corresponding balance of unfunded commitments. For each portfolio, the estimated loss rates applied to unfunded commitments are the same quantitative and qualitative loss rates applied to the corresponding on-balance sheet amounts in determining the ACL on loans. The estimated funding factor applied to unfunded commitments represents the likelihood that the funding will occur and is based upon the Corporation’s average historical utilization rate for each portfolio.

The ACL on unfunded commitments is included in other liabilities in the Unaudited Consolidated Balance Sheets. The ACL on unfunded commitments is adjusted through a provision for credit losses recognized in the Unaudited Consolidated Statements of Income.

The activity in the ACL on unfunded commitments for the three months ended March 31, 2022 is presented below:

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$1,267			$816			$2,083			$62			$—			$16			$16			$2,161
Provision			68			21			89			10			—			1			1			100
Ending Balance			$1,335			$837			$2,172			$72			$—			$17			$17			$2,261

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The activity in the ACL on unfunded commitments for the three months ended March 31, 2021 is presented below:

(Dollars in thousands)			Commercial												Consumer
			CRE			C&I			Total Commercial			Residential Real Estate			Home Equity			Other			Total Consumer			Total
Beginning Balance			$907			$1,402			$2,309			$54			$—			$19			$19			$2,382
Provision			46			(88)			(42)			(8)			—			1			1			(49)
Ending Balance			$953			$1,314			$2,267			$46			$—			$20			$20			$2,333

Other Contingencies

Litigation

The Corporation is involved in various claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such matters will not materially affect the consolidated balance sheets or statements of income of the Corporation.

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