WASHINGTON TRUST BANCORP, INC. of Operations The following discussion should be read in conjunction with the Corporation's Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year endedDecember 31, 2020 , and in conjunction with the condensed Unaudited Consolidated Financial Statements and notes thereto included in Item 1 of this report. Operating results for the three and nine months endedSeptember 30, 2021 are not necessarily indicative of the results for the full-year endedDecember 31, 2021 or any future period. Forward-Looking Statements This report contains statements that are "forward-looking statements." We may also make forward-looking statements in other documents we file with theSEC , in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different than the anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Some of the factors that might cause these differences include the following: the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations; changes in consumer behavior due to changing political, business and economic conditions, including concerns about inflation, or legislative or regulatory initiatives; the possibility that future credits losses are higher than currently expected due to changes in economic assumptions or adverse economic developments; volatility in national and international financial markets; reductions in net interest income resulting from interest rate changes or volatility as well as changes in the balance and mix of loans and deposits; reductions in the market value or outflows of wealth management assets under administration; decreases in the value of securities and other assets; reductions in loan demand; changes in loan collectability, increases in defaults and charge-off rates; changes related to the discontinuation and replacement of LIBOR; changes in the size and nature of our competition; changes in legislation or regulation and accounting principles, policies and guidelines; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; reputational risk relating to our participation in the Paycheck Protection Program and other pandemic-related legislative and regulatory initiatives and programs; and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , as updated by our Quarterly Reports on Form 10-Q and other filings submitted to theSEC , may result in these differences. You should carefully review all of these factors and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. Critical Accounting Policies and Estimates Accounting policies involving significant judgments, estimates and assumptions by management, which have, or could have, a material impact on the Corporation's consolidated financial statements are considered critical accounting policies. Management considers the following to be its critical accounting policies: the determination of the allowance for credit losses on loans, the valuation of goodwill and identifiable intangible assets, and accounting for defined benefit pension plans. See our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 for a description of the Corporation's critical accounting policies for the valuation of goodwill and identifiable intangible assets and accounting for defined benefit pension plans. Management updated its critical accounting policy for the allowance for credit losses on loans in the first quarter of 2021 as the result of incorporating additional econometric factors in the determination of the probability of default for each loan portfolio segment. The updated policy is presented below. Allowance for Credit Losses on Loans The allowance for credit losses ("ACL") on loans is management's current estimate of expected credit losses over the expected life of the loans. In accordance with the ACL policy, the methodology is reviewed no less than annually. The ACL on loans is established through a provision for credit losses recognized in the Unaudited Consolidated Statements of Income and by recoveries of amounts previously charged-off. The ACL on loans is reduced by charge-offs on loans. Loan charge- -44- -------------------------------------------------------------------------------- Management's Discussion and Analysis offs are recognized when management believes the collectability of the principal balance outstanding is unlikely. Full or partial charge-offs on collateral dependent individually analyzed loans are generally recognized when the collateral is deemed to be insufficient to support the carrying value of the loan. 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. As discussed further below, adjustments to historical information 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. Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors. The methodology for evaluating quantitative factors consists of two basic components. The first component involves pooling loans into portfolio segments for loans that share similar risk characteristics. Pooled loan portfolio segments include commercial real estate (including commercial construction loans), commercial and industrial (including Paycheck Protection Program ("PPP") loans), residential real estate (including homeowner construction), home equity and other consumer loans. The second component involves identifying individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments. Individually analyzed loans include nonaccrual commercial loans, reasonably expected troubled debt restructurings ("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. For loans that are individually analyzed, the ACL is measured using a discounted cash flow ("DCF") method based upon the loan's contractual effective interest rate, or at the loan's observable market price, or, if the loan is collateral dependent, at the fair value of the collateral. Factors management considers when measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due. For collateral dependent loans for which repayment is to be provided substantially through the sale of the collateral, management adjusts the fair value for estimated costs to sell. For collateral dependent loans for which repayment is to be provided substantially through the operation of the collateral, such as accruing TDRs, estimated costs to sell are not incorporated into the measurement. Management may also adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of circumstances associated with the collateral. For pooled loans, the Corporation utilizes a DCF methodology to estimate credit losses over the expected life of the loan. The life of the loan excludes expected extensions, renewals and modifications, unless the extension or renewal options are included in the original or modified contract terms and not unconditionally cancellable by the Corporation. The methodology incorporates a probability of default and loss given default framework. Default triggers include the loan has become past due by 90 or more days, a charge-off has occurred, the loan has been placed on nonaccrual status, the loan has been modified in a TDR or the loan is risk-rated as special mention or classified. Loss given default is estimated based on historical credit loss experience. Probability of default is estimated utilizing a regression model that incorporates econometric factors. These factors are selected based on the correlation of the factor to historical credit losses for each portfolio segment. The national unemployment rate ("NUR") and gross domestic product ("GDP") econometric factors are utilized for the commercial real estate and other consumer loan portfolio segments; the NUR and national home price index ("HPI") econometric factors are utilized for the residential real estate and home equity portfolio segments; and the NUR econometric factor is utilized for the commercial & industrial loan portfolio segment. To estimate the probability of default, the model utilizes forecasted econometric factors over a one-year reasonable and supportable forecast period. After the forecast period, the model reverts to the historical mean of the respective econometric factor and the associated probability of default on a straight-line basis over a one-year reversion period. The DCF methodology combines the probability of default, the loss given default, prepayment speeds and the remaining life of the loan to estimate a reserve for each loan. The sum of all the loan level reserves are aggregated for each portfolio segment and a loss rate factor is derived. Quantitative loss factors are also supplemented by certain qualitative risk factors reflecting management's view of how losses may vary from those represented by quantitative loss rates. These qualitative risk factors include: (1) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses; (2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments; (3) changes in the nature and volume of the portfolio and in the terms of loans; (4) changes in the experience, -45- -------------------------------------------------------------------------------- Management's Discussion and Analysis ability, and depth of lending management and other relevant staff; (5) changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or rated loans; (6) changes in the quality of the institution's credit review system; (7) changes in the value of underlying collateral for collateral dependent loans; (8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (9) the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio. Qualitative loss factors are applied to each portfolio segment with the amounts determined by historical loan charge-offs of a peer group of similar-sized regional banks. Because the methodology is based upon historical experience and trends, current economic data, reasonable and supportable forecasts, as well as management's judgment, factors may arise that result in different estimations. Deteriorating conditions or assumptions could lead to future increases in the ACL on loans. In addition, various regulatory agencies periodically review the ACL on loans. Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination. The ACL on loans is an estimate, and ultimate losses may vary from management's estimate. Recently Issued Accounting Pronouncements See Note 2 to the Unaudited Consolidated Financial Statements for details of recently issued accounting pronouncements and their expected impact on the Corporation's financial statements.
Overview
The Corporation offers a comprehensive product line of banking and financial services to individuals and businesses, including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices inRhode Island , easternMassachusetts andConnecticut ; its ATMs; telephone banking; mobile banking and its internet website (www.washtrust.com). Our largest source of operating income is net interest income, which is the difference between interest earned on loans and securities and interest paid on deposits and borrowings. In addition, we generate noninterest income from a number of sources, including wealth management services, mortgage banking activities and deposit services. Our principal noninterest expenses include salaries and employee benefit costs, outsourced services provided by third party vendors, occupancy and facility-related costs and other administrative expenses. We continue to leverage our strong regional brand to build market share and remain steadfast in our commitment to provide superior service. We believe the key to future growth is providing customers with convenient in-person service and digital banking solutions. In 2022, we plan to open a new full-service branch inCumberland, Rhode Island . COVID-19 Pandemic Related OnMarch 11, 2021 , the American Rescue Plan Act ("ARP") was signed into law providing an additional$1.9 trillion in COVID-19 economic relief. The ARP included provisions on aid to state and local governments, hard-hit industries and communities, additional direct stimulus payments to qualifying individuals, additional funding for theSmall Business Administration's ("SBA's") PPP and other provisions. PPP loans are 100% guaranteed by the SBA. OnMay 4, 2021 , the SBA announced that PPP funding was exhausted and that it stopped accepting new loan applications from most lenders. In the nine months endedSeptember 30, 2021 , we originated 1,157 PPP loans with principal balances totaling$101 million and we processed SBA forgiveness on 2,228 PPP loans with principal balances totaling$224 million . As ofSeptember 30, 2021 , the carrying value of PPP loans amounted to$77.4 million and included net unamortized loan origination fee balances of$2.6 million . As ofOctober 31, 2021 , the carrying value of PPP loans declined to$59.7 million and included net unamortized loan origination fee balances of$2.0 million . Management expects that a significant portion of remaining PPP loans will be ultimately forgiven by the SBA in accordance with the terms of the program. See additional disclosure regarding PPP loans under the heading "Commercial & Industrial Loans" in the Financial Condition section. Risk Management The Corporation has a comprehensive enterprise risk management ("ERM") program through which the Corporation identifies, measures, monitors and controls current and emerging material risks. -46- -------------------------------------------------------------------------------- Management's Discussion and Analysis The Board of Directors is responsible for oversight of the ERM program. The ERM program enables the aggregation of risk across the Corporation and ensures the Corporation has the tools, programs and processes in place to support informed decision making, to anticipate risks before they materialize and to maintain the Corporation's risk profile consistent with its risk strategy. The Board of Directors has approved an enterprise risk management policy that addresses each category of risk. The risk categories include: credit risk, interest rate risk, liquidity risk, price and market risk, compliance risk, strategic and reputation risk, and operational risk. A description of each risk category is provided below. Credit risk represents the possibility that borrowers or other counterparties may not repay loans or other contractual obligations according to their terms due to changes in the financial capacity, ability and willingness of such borrowers or counterparties to meet their obligations. In some cases, the collateral securing payment of the loans may be sufficient to assure repayment, but in other cases the Corporation may experience significant credit losses which could have an adverse effect on its operating results. The Corporation makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of the real estate and other assets serving as collateral for the repayment of loans. Credit risk also exists with respect to investment securities. For further discussion regarding the credit risk and the credit quality of the Corporation's loan portfolio, see Note 5 and Note 6 to the Unaudited Consolidated Financial Statements. For further discussion regarding credit risk associated with unfunded commitments, see Note 18 to the Unaudited Consolidated Financial Statements. For further discussion regarding the Corporation's securities portfolio, see Note 4 to the Unaudited Consolidated Financial Statements. Interest rate risk is the risk of loss to future earnings due to changes in interest rates. It exists because the repricing frequency and magnitude of interest-earning assets and interest-bearing liabilities are not identical. Liquidity risk is the risk that the Corporation will not have the ability to generate adequate amounts of cash for it to meet its maturing liability obligations and customer loan demand. For detailed disclosure regarding liquidity management, asset/liability management and interest rate risk, see "Liquidity and Capital Resources" and "Asset/Liability Management and Interest Rate Risk" sections below. Price and market risk refers to the risk of loss arising from adverse changes in interest rates and other relevant market rates and prices, such as equity prices. Interest rate risk, discussed above, is the most significant market risk to which the Corporation is exposed. The Corporation is also exposed to financial market risk and housing market risk. Compliance risk represents the risk of regulatory sanctions or financial loss resulting from the failure to comply with laws, rules and regulations and standards of good banking practice. Activities which may expose the Corporation to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, adherence to all applicable laws and regulations, and employment and tax matters. Strategic and reputation risk represent the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess existing and new opportunities and threats in business, markets, and products.
Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, natural disasters and security risks.
ERM is an overarching program that includes all areas of the Corporation. A framework approach is utilized to assign responsibility and to ensure that the various business units and activities involved in the risk management life-cycle are effectively integrated. The Corporation has adopted the "three lines of defense" strategy that is an industry best practice for ERM. Business units are the first line of defense in managing risk. They are responsible for identifying, measuring, monitoring, and controlling current and emerging risks. They must report on and escalate their concerns. Corporate functions such as Credit Risk Management,Financial Administration , Information Assurance and Compliance, comprise the second line of defense. They are responsible for policy setting and for reviewing and challenging the risk management activities of the business units. They collaborate closely with business units on planning and resource allocation with respect to risk management. Internal Audit is the third line of defense. They provide independent assurance to the Board of Directors of the effectiveness of the first and second lines in fulfilling their risk management responsibilities. For additional factors that could adversely impactWashington Trust's future results of operations and financial condition, see the section labeled "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , as updated by our Quarterly Reports on Form 10-Q and other filings submitted to theSEC . -47- -------------------------------------------------------------------------------- Management's Discussion and Analysis Results of Operations The following table presents a summarized consolidated statement of operations: (Dollars in thousands) Three Months Nine Months Change Change Periods ended September 30, 2021 2020 $ % 2021 2020 $ % Net interest income$36,070 $31,654 $4,416 14 %$103,695 $95,201 $8,494 9 % Noninterest income 20,520 25,468 (4,948) (19) 67,087 71,715 (4,628) (6) Total revenues 56,590 57,122 (532) (1) 170,782 166,916 3,866 2 Provision for credit losses - 1,325 (1,325) (100) (2,000) 10,561 (12,561) (119) Noninterest expense 32,520 32,344 176 1 100,245 91,275 8,970 10 Income before income taxes 24,070 23,453 617 3 72,537 65,080 7,457 11 Income tax expense 5,319 5,131 188 4 15,855 13,817 2,038 15 Net income$18,751 $18,322 $429 2 %$56,682 $51,263 $5,419 11 %
The following table presents a summary of performance metrics and ratios:
Three Months Nine Months
Periods ended September 30, 2021 2020 2021 2020
Diluted earnings per common share $1.07 $1.06 $3.24 $2.95 Return on average assets (net income divided by average assets)
1.26 % 1.24 % 1.30 % 1.20 %
Return on average equity (net income available for common shareholders divided by average equity)
13.37 % 13.99 % 13.93 % 13.36 %
Net interest income as a percentage of total revenues 64 % 55 % 61 % 57 %
Noninterest income as a percentage of total revenues 36 % 45 % 39 % 43 %
Net income totaled $18.8 million and $56.7 million , respectively, for the three
and nine months ended September 30, 2021 , compared to $18.3 million and $51.3
million , respectively, for the same periods in 2020.
In 2021, net interest income largely benefited from lower funding costs and a
reduction in wholesale funding balances, as well as accelerated amortization of
net deferred fee balances on PPP loans that were forgiven by the SBA.
Noninterest income changes reflected lower mortgage banking revenues and higher
wealth management revenues. The reduction in credit loss provisioning reflected
improvement in forecasted economic conditions and continued stable asset quality
metrics. Noninterest expenses in 2021 included debt prepayment penalty expense
associated with paying off higher yielding FHLB advances, as well as an increase
in salaries and benefits expense.
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Management's Discussion and Analysis
Average Balances / Net Interest Margin - Fully Taxable Equivalent (FTE) Basis
The following table presents average balance and interest rate
information. Tax-exempt income is converted to a fully taxable equivalent
("FTE") basis using the statutory federal income tax rate adjusted for
applicable state income taxes net of the related federal tax benefit. Unrealized
gains (losses) on available for sale securities and changes in fair value on
mortgage loans held for sale are excluded from the average balance and yield
calculations. Nonaccrual loans, as well as interest recognized on these loans,
are included in amounts presented for loans.
Three months ended September 30, 2021 2020 Change
(Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate
Assets:
Cash, federal funds sold and short-term
investments $179,574 $56 0.12 $168,106 $39 0.09 $11,468 $17 0.03
Mortgage loans held for sale 41,261 298 2.87 61,043 468 3.05 (19,782) (170) (0.18)
Taxable debt securities 1,045,997 3,683 1.40 906,977 4,870 2.14 139,020 (1,187) (0.74)
FHLB stock 18,909 95 1.99 43,839 532 4.83 (24,930) (437) (2.84)
Commercial real estate 1,648,972 12,209 2.94 1,652,136 11,649 2.81 (3,164) 560 0.13
Commercial & industrial 736,073 7,886 4.25 849,452 6,920 3.24 (113,379) 966 1.01
Total commercial 2,385,045 20,095 3.34 2,501,588 18,569 2.95 (116,543) 1,526 0.39
Residential real estate 1,623,913 13,511 3.30 1,510,621 14,047 3.70 113,292 (536) (0.40)
Home equity 252,938 2,043 3.20 276,221 2,320 3.34 (23,283) (277) (0.14)
Other 19,822 247 4.94 18,706 237 5.04 1,116 10 (0.10)
Total consumer 272,760 2,290 3.33 294,927 2,557 3.45 (22,167) (267) (0.12)
Total loans 4,281,718 35,896 3.33 4,307,136 35,173 3.25 (25,418) 723 0.08
Total interest-earning assets 5,567,459 40,028 2.85 5,487,101 41,082 2.98 80,358 (1,054) (0.13)
Noninterest-earning assets 351,678 377,348 (25,670)
Total assets $5,919,137 $5,864,449 $54,688
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits $206,237 $51 0.10 $157,986 $83 0.21 $48,251 ($32 ) (0.11)
NOW accounts 782,963 129 0.07 631,148 99 0.06 151,815 30 0.01
Money market accounts 1,014,204 586 0.23 839,032 977 0.46 175,172 (391) (0.23)
Savings accounts 530,956 70 0.05 428,781 67 0.06 102,175 3 (0.01)
Time deposits (in-market) 672,012 1,695 1.00 730,464 3,015 1.64 (58,452) (1,320) (0.64)
Total interest-bearing in-market deposits 3,206,372 2,531 0.31 2,787,411 4,241 0.61 418,961 (1,710) (0.30)
Wholesale brokered time deposits 722,233 258 0.14 463,756 1,291 1.11 258,477 (1,033) (0.97)
Total interest-bearing deposits 3,928,605 2,789 0.28 3,251,167 5,532 0.68 677,438 (2,743) (0.40)
FHLB advances 317,766 872 1.09 860,758 3,354 1.55 (542,992) (2,482) (0.46)
Junior subordinated debentures 22,681 92 1.61 22,681 135 2.37 - (43) (0.76)
PPPLF borrowings - - - 180,128 159 0.35 (180,128) (159) (0.35)
Total interest-bearing liabilities 4,269,052 3,753 0.35 4,314,734 9,180 0.85 (45,682) (5,427) (0.50)
Noninterest-bearing demand deposits 952,676 842,949 109,727
Other liabilities 142,562 186,981 (44,419)
Shareholders' equity 554,847 519,785 35,062
Total liabilities and shareholders' equity $5,919,137 $5,864,449 $54,688
Net interest income (FTE) $36,275 $31,902 $4,373
Interest rate spread 2.50 2.13 0.37
Net interest margin 2.58 2.31 0.27
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Management's Discussion and Analysis
Interest income amounts presented in the preceding table include the following
adjustments for taxable equivalency:
(Dollars in thousands)
Three months ended September 30, 2021 2020 Change
Commercial loans $205 $248 ($43 )
Nine months ended September 30, 2021 2020 Change
(Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate
Assets:
Cash, federal funds sold and short-term investments$160,350 $121 0.10$156,296 $424 0.36$4,054 ($303 ) (0.26) Mortgage loans held for sale 53,307 1,144 2.87 48,570 1,193 3.28 4,737 (49) (0.41) Taxable debt securities 997,741 10,366 1.39 905,692 16,181 2.39 92,049 (5,815) (1.00) FHLB stock 24,265 338 1.86 49,236 1,826 4.95 (24,971) (1,488) (3.09) Commercial real estate 1,638,200 35,269 2.88 1,623,612 40,326 3.32 14,588 (5,057) (0.44) Commercial & industrial 794,091 23,865 4.02 749,905 20,214 3.60 44,186 3,651 0.42 Total commercial 2,432,291 59,134 3.25 2,373,517 60,540 3.41 58,774 (1,406) (0.16) Residential real estate 1,531,529 39,248 3.43 1,492,589 42,660 3.82 38,940 (3,412) (0.39) Home equity 255,959 6,220 3.25 281,488 7,802 3.70 (25,529) (1,582) (0.45) Other 20,301 742 4.89 19,171 716 4.99 1,130 26 (0.10) Total consumer 276,260 6,962 3.37 300,659 8,518 3.78 (24,399) (1,556) (0.41) Total loans 4,240,080 105,344 3.32 4,166,765 111,718 3.58 73,315 (6,374) (0.26) Total interest-earning assets 5,475,743 117,313 2.86 5,326,559 131,342 3.29 149,184 (14,029) (0.43) Noninterest-earning assets 346,514 357,133 (10,619) Total assets$5,822,257 $5,683,692 $138,565 Liabilities and Shareholders' Equity: Interest-bearing demand deposits$190,979 $196 0.14$158,594 $725 0.61$32,385 ($529 ) (0.47) NOW accounts 747,385 350 0.06 569,283 253 0.06 178,102 97 - Money market accounts 958,812 1,852 0.26 818,530 4,439 0.72 140,282 (2,587) (0.46) Savings accounts 513,110 211 0.05 402,243 195 0.06 110,867 16 (0.01) Time deposits (in-market) 687,278 5,822 1.13 752,443 10,571 1.88 (65,165) (4,749) (0.75) Total interest-bearing in-market deposits 3,097,564 8,431 0.36 2,701,093 16,183 0.80 396,471 (7,752) (0.44) Wholesale brokered time deposits 655,165 982 0.20 471,771 4,997 1.41 183,394 (4,015) (1.21) Total interest-bearing deposits 3,752,729 9,413 0.34 3,172,864 21,180 0.89 579,865 (11,767) (0.55) FHLB advances 438,213 3,253 0.99 1,016,943 13,501 1.77 (578,730) (10,248) (0.78) Junior subordinated debentures 22,681 278 1.64 22,681 519 3.06 - (241) (1.42) PPPLF borrowings - - - 61,333 161 0.35 (61,333) (161) (0.35) Total interest-bearing liabilities 4,213,623 12,944 0.41 4,273,821 35,361 1.11 (60,198) (22,417) (0.70) Noninterest-bearing demand deposits 918,760 733,359 185,401 Other liabilities 147,244 164,928 (17,684) Shareholders' equity 542,630 511,584 31,046 Total liabilities and shareholders' equity$5,822,257 $5,683,692 $138,565 Net interest income (FTE)$104,369 $95,981 $8,388 Interest rate spread 2.45 2.18 0.27 Net interest margin 2.55 2.41 0.14 -50-
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Management's Discussion and Analysis
Interest income amounts presented in the preceding table include the following
adjustments for taxable equivalency:
(Dollars in thousands)
Nine months ended September 30, 2021 2020 Change
Commercial loans $674 $780 ($106 )
Net Interest Income
Net interest income continues to be the primary source of our operating
income. Net interest income for the three and nine months ended September 30,
2021 totaled $36.1 million and $103.7 million , respectively, compared to $31.7
million and $95.2 million , respectively, for the same periods in 2020. Net
interest income is affected by the level of and changes in interest rates, and
changes in the amount and composition of interest-earning assets and
interest-bearing liabilities. Prepayment penalty income associated with loan
payoffs is included in net interest income.
The following discussion presents net interest income on an FTE basis by adjusting income and yields on tax-exempt loans and securities to be comparable to taxable loans and securities.
The analysis of net interest income, net interest margin ("NIM") and the yield
on loans may be impacted by the periodic recognition of prepayment penalty fee
income associated with loan payoffs. There was no prepayment penalty fee income
associated with loan payoffs for the three months ended September 30, 2021 ,
while there was $934 thousand of such income (or 2 basis points of benefit to
NIM) for the nine months ended September 30, 2021 . Prepayment penalty fee income
associated with loan payoffs amounted to $33 thousand (or 0 basis points benefit
to NIM) and $180 thousand (or 1 basis point benefit to the NIM), respectively,
for the three and nine months ended September 30, 2020 .
The analysis of net interest income, NIM and the yield on loans is also impacted
by changes in the level of net amortization of premiums and discounts on
securities and loans, which is included in interest income. As PPP loans are
forgiven by the SBA, related unamortized net fee balances are accelerated and
amortized into net interest income. As market interest rates decline, payments
on mortgage-backed securities and loan prepayments generally increase. This
results in accelerated levels of amortization reducing net interest income and
may also result in the proceeds having to be reinvested at a lower rate than the
mortgage-backed security or loan being prepaid. As noted in the Unaudited
Consolidated Statements of Cash Flows, net amortization of premiums and
discounts on securities and loans (a net reduction to interest income) amounted
to $2.7 million for the nine months ended September 30, 2021 . This compares to
net amortization, or a net reduction to interest income, of $4.1 million for the
same period in 2020. The decline in net amortization reflected accelerated
amortization of net deferred fee balances on PPP loans, partially offset by an
increase in amortization of net premiums on securities.
Accelerated amortization of net deferred fee balances on PPP loans forgiven by
the SBA amounted to $2.0 million and $4.3 million , respectively, for the three
and nine months ended September 30, 2021 . This added 13 basis points and
11 basis points, respectively, to NIM for the three and nine months ended
September 30, 2021 . There were no PPP loans forgiven in the corresponding
periods in 2020.
FTE net interest income for the three and nine months ended September 30, 2021
amounted to $36.3 million and $104.4 million , respectively, up by $4.4 million
and $8.4 million , respectively, from the same periods in 2020. Declines in
average interest-bearing liability balances and growth in average
interest-earnings assets contributed approximately $1.4 million and
$7.4 million , respectively, of net interest income for the three and nine months
ended September 30, 2021 . Declines in funding costs out-paced lower asset yields
and contributed $3.0 million and $1.0 million , respectively, of net interest
income for the three and nine months ended September 30, 2021 .
The NIM was 2.58% and 2.55%, respectively, for the three and nine months ended
September 30, 2021 , compared to 2.31% and 2.41%, respectively, for the same
periods a year ago. NIM benefited from lower funding costs and a reduction in
average wholesale funding balances. It also benefited from accelerated
amortization of net deferred fee balances on PPP loans that were forgiven by the
SBA and loan prepayment fees. Excluding the impact of both accelerated net
deferred fee amortization on PPP loans and commercial loan prepayment fee
income, the NIM amounted to 2.45% and 2.42%, respectively, for the three and
nine months ended September 30, 2021 , compared to 2.31% and 2.40%, respectively,
for the same periods in 2020.
Total average securities for the three and nine months ended September 30, 2021
increased by $139.0 million and $92.0 million , respectively, from the average
balances for the same periods a year earlier. The FTE rate of return on the
-51-
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Management's Discussion and Analysis
securities portfolio for the three and nine months ended September 30, 2021 was
1.40% and 1.39%, respectively, compared to 2.14% and 2.39%, respectively, for
the same periods in 2020, reflecting purchases of relatively lower yielding debt
securities and the impact of lower market interest rates.
Total average loan balances for the three months ended September 30, 2021
decreased by $25.4 million from the average loan balances for the comparable
2020 period. Total average loan balances for the nine months ended September 30,
2021 increased by $73.3 million from the average loan balances for the same
period in 2020. The year-to-date increase reflected growth in average commercial
loan balances concentrated in PPP loans, as well as growth in average
residential real estate loan balances. The yield on total loans for the three
and nine months ended September 30, 2021 was 3.33% and 3.32%, respectively,
compared to 3.25% and 3.58%, respectively, for the same periods in 2020. The
yield on loans benefited from accelerated amortization of net deferred fee
balances on PPP loans that were forgiven by the SBA and loan prepayment fees.
Excluding the impact of accelerated net deferred fee amortization on PPP loans
and commercial loan prepayment fee income, the yield on total loans for the
three and nine months ended September 30, 2021 was 3.14% and 3.16%,
respectively, compared to 3.25% and 3.58%, respectively, for the same periods in
2020. Yields on LIBOR-based and prime-based loans reflected lower market
interest rates.
The average balance of FHLB advances for the three and nine months ended
September 30, 2021 decreased by $543.0 million and $578.7 million , respectively,
compared to the average balances for the same periods in 2020. The average rate
paid on such advances for the three and nine months ended September 30, 2021 was
1.09% and 0.99%, respectively, down from 1.55% and 1.77%, respectively, for the
same periods in 2020, reflecting maturities and payoffs of higher-yielding FHLB
advances and lower market interest rates.
Included in total average interest-bearing deposits were of out-of-market
wholesale brokered time deposits, which increased by $258.5 million and $183.4
million , respectively, from the same periods in 2020. The average rate paid on
wholesale brokered time deposits for the three and nine months ended
September 30, 2021 was 0.14% and 0.20%, respectively, compared to 1.11% and
1.41%, respectively, for the same periods in 2020, reflecting lower market
interest rates.
Average in-market interest-bearing deposits, which excludes wholesale brokered
time deposits, for the three and nine months ended September 30, 2021 increased
by $419.0 million and $396.5 million , respectively, from the average balances
for the same periods in 2020. The increases largely reflected growth in
lower-cost deposit categories, partially offset by maturities of higher-cost
promotional time deposits. The average rate paid on in-market interest-bearing
deposits for the three and nine months ended September 30, 2021 decreased by 30
basis points and 44 basis points, respectively, from the same periods in 2020,
reflecting downward repricing of interest-bearing in-market deposits due to
lower market interest rates.
The average balance of noninterest-bearing demand deposits for the three and
nine months ended September 30, 2021 increased by $109.7 million and $185.4
million , respectively, from the average balance for the same periods in 2020.
See additional disclosure under the caption "Sources of Funds."
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Management's Discussion and Analysis
Volume / Rate Analysis - Interest Income and Expense (FTE Basis)
The following table presents certain information on a FTE basis regarding
changes in our interest income and interest expense for the period
indicated. The net change attributable to both volume and rate has been
allocated proportionately.
(Dollars in thousands) Three Months Ended September 30, 2021 vs. 2020 Nine Months Ended September 30, 2021 vs. 2020
Change Due to Change Due to
Volume Rate Net Change Volume Rate Net Change
Interest on Interest-Earning Assets:
Cash, federal funds sold and other
short-term investments $3 $14 $17 $11 ($314 ) ($303 )
Mortgage loans held for sale (145) (25) (170) 110 (159) (49)
Taxable debt securities 669 (1,856) (1,187) 1,516 (7,331) (5,815)
FHLB stock (215) (222) (437) (667) (821) (1,488)
Commercial real estate (22) 582 560 360 (5,417) (5,057)
Commercial & industrial (1,010) 1,976 966 1,232 2,419 3,651
Total commercial (1,032) 2,558 1,526 1,592 (2,998) (1,406)
Residential real estate 1,010 (1,546) (536) 1,087 (4,499) (3,412)
Home equity (189) (88) (277) (673) (909) (1,582)
Other 14 (4) 10 41 (15) 26
Total consumer (175) (92) (267) (632) (924) (1,556)
Total loans (197) 920 723 2,047 (8,421) (6,374)
Total interest income 115 (1,169) (1,054) 3,017 (17,046) (14,029)
Interest on Interest-Bearing Liabilities:
Interest-bearing demand deposits 20 (52) (32) 123 (652) (529)
NOW accounts 18 12 30 97 - 97
Money market accounts 170 (561) (391) 646 (3,233) (2,587)
Savings accounts 14 (11) 3 48 (32) 16
Time deposits (in-market) (225) (1,095) (1,320) (846) (3,903) (4,749)
Total interest-bearing in-market deposits (3) (1,707) (1,710) 68 (7,820) (7,752)
Wholesale brokered time deposits 478 (1,511) (1,033) 1,413 (5,428)
(4,015)
Total interest-bearing deposits 475 (3,218) (2,743) 1,481 (13,248) (11,767) FHLB advances (1,691) (791) (2,482) (5,773) (4,475) (10,248) Junior subordinated debentures - (43) (43) - (241) (241) PPPLF borrowings (80) (79) (159) (81) (80) (161) Total interest expense (1,296) (4,131) (5,427) (4,373) (18,044) (22,417) Net interest income (FTE)$1,411 $2,962 $4,373 $7,390 $998 $8,388 Provision for Credit Losses The provision for credit losses results from management's review of the adequacy of the ACL. The ACL is management's estimate of expected lifetime credit losses as of the reporting date and includes consideration of current forecasted economic conditions. Estimating an appropriate level of ACL necessarily involves a high degree of judgment. For the three months endedSeptember 30, 2021 there was no provision for credit losses recognized in earnings, compared to a positive provision for credit losses (or a charge) of$1.3 million for the same period in 2020. For the nine months endedSeptember 30, 2021 , a negative provision for credit losses (or a benefit) of$2.0 million was recognized in earnings, compared to a positive provision for credit losses (or a charge) of$10.6 million for the same period in 2020. The reduction in credit loss provisioning in 2021 reflected relative improvement in forecasted economic conditions and continued stable asset quality metrics. -53-
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Management's Discussion and Analysis
Total net charge-offs were $168 thousand and $444 thousand , respectively, for
the three and nine months ended September 30, 2021 , compared to $96 thousand and
$1.0 million , respectively, for the same periods in 2020.
The ACL on loans was $41.7 million , or 0.97% of total loans, at September 30,
2021 , compared to an ACL on loans of $44.1 million , or 1.05% of total loans, at
December 31, 2020 .
See additional discussion under the caption "Asset Quality" for further information on the ACL on loans.
Noninterest Income Noninterest income is an important source of revenue forWashington Trust . The principal categories of noninterest income are shown in the following table: (Dollars in thousands) Three Months Nine Months Change Change Periods ended September 30, 2021 2020 $ % 2021 2020 $ % Noninterest income: Wealth management revenues$10,455 $8,954 $1,501 17 %$30,778 $26,248 $4,530 17 % Mortgage banking revenues 6,373 12,353 (5,980) (48) 24,294 33,300 (9,006) (27) Card interchange fees 1,265 1,161 104 9 3,714 3,139 575 18 Service charges on deposit accounts 673 598 75 13 1,917 1,975 (58) (3) Loan related derivative income 728 1,264 (536) (42) 2,370 3,818 (1,448) (38) Income from bank-owned life insurance 618 567 51 9 1,781 1,922 (141) (7) Other income 408 571 (163) (29) 2,233 1,313 920 70 Total noninterest income$20,520 $25,468 ($4,948 ) (19 %)$67,087 $71,715 ($4,628 ) (6 %) Noninterest Income Analysis Revenue from wealth management services represented 46% of total noninterest income for the nine months endedSeptember 30, 2021 , compared to 37% for the same period in 2020. A substantial portion of wealth management revenues is dependent on the value of wealth management assets under administration ("AUA") and is closely tied to the performance of the financial markets. This portion of wealth management revenues is referred to as "asset-based" and includes trust and investment management fees. Wealth management revenues also include "transaction-based" revenues, such as commissions and other service fees that are not primarily derived from the value of assets. The categories of wealth management revenues are shown in the following table: (Dollars in thousands) Three Months Nine Months Change Change Periods ended September 30, 2021 2020 $ % 2021 2020 $ % Wealth management revenues: Asset-based revenues$10,224 $8,786 $1,438 16 %$29,798 $25,297 $4,501 18 % Transaction-based revenues 231 168 63 38 980 951 29 3 Total wealth management revenues$10,455 $8,954 $1,501 17 %$30,778 $26,248 $4,530 17 % Wealth management revenues for the three and nine months endedSeptember 30, 2021 increased by$1.5 million and$4.5 million , respectively, from the comparable periods in 2020, reflecting growth in asset-based revenues. The increase in asset-based revenues correlated with the increase in the average AUA balances. -54-
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Management's Discussion and AnalysisThe following table presents the changes in wealth management AUA: (Dollars in thousands)
Three Months Nine Months
Periods ended September 30, 2021 2020 2021 2020
Wealth management assets under administration:
Balance at the beginning of period $7,441,519 $6,138,845 $6,866,737 $6,235,801
Net investment appreciation (depreciation) &
income (4,830) 335,209 572,506 234,076
Net client asset inflows (outflows) 6,707 (78,402) 4,153 (74,225)
Balance at the end of period $7,443,396 $6,395,652 $7,443,396 $6,395,652
Wealth management AUA amounted to $7.4 billion at September 30, 2021 , up by
$1.0 billion from the balance at September 30, 2020 , primarily due to net
investment appreciation. The average balance of AUA for both the three and nine
months ended September 30, 2021 increased by approximately 19%, respectively,
from the average balance for the same periods in 2020.
Mortgage banking revenues represented 36% of total noninterest income for the
nine months ended September 30, 2021 , compared to 46% for the same period in
2020. The composition of mortgage banking revenues and the volume of loans sold
to the secondary market are shown in the following table:
(Dollars in thousands) Three Months Nine Months
Change Change
Periods ended September 30, 2021 2020 $ % 2021 2020 $ %
Mortgage banking revenues: Realized gains on loan sales, net (1)$5,750 $14,280 ($8,530 ) (60 %)$28,057 $28,614 ($557 ) (2 %) Changes in fair value, net (2) 467 (1,555) 2,022 130 (3,964) 5,185 (9,149) (176) Loan servicing fee income, net (3) 156 (372) 528 142 201 (499) 700 140 Total mortgage banking revenues$6,373 $12,353 ($5,980 ) (48 %)$24,294 $33,300 ($9,006 ) (27 %) Loans sold to the secondary market (4)$173,861 $354,170 ($180,309 ) (51 %)$756,438 $821,585 ($65,147 ) (8 %) (1)Includes gains on loan sales, commission income on loans originated for others, servicing right gains, and gains (losses) on forward loan commitments. (2)Represents fair value changes on mortgage loans held for sale and forward loan commitments. (3)Represents loan servicing fee income, net of servicing right amortization and valuation adjustments. (4)Includes brokered loans (loans originated for others). For the three and nine months endedSeptember 30, 2021 , mortgage banking revenues were down by$6.0 million and$9.0 million , respectively, compared to the same periods in 2020. These revenues are dependent on mortgage origination volume and are sensitive to interest rates and the condition of housing markets. Included in mortgage banking revenues are changes in the fair value of mortgage loans held for sale and forward loan commitments, which are primarily based on current market prices in the secondary market and correlate to changes in the mortgage pipeline. The year-over-year decrease in third quarter mortgage banking revenues largely reflected both a decline in the quarterly volume of loans sold, as well as a relative decline from the previously elevated sales yield levels in the secondary market. The year-to-date decline in mortgage banking revenues was mainly attributable to a decline in current market pricing and lower sales volume. As noted in the above table, mortgage banking revenues also includes net loan servicing fee income associated with loans sold with servicing retained. There was a higher level of servicing right amortization in 2020 driven by higher prepayment speeds on our serviced mortgage portfolio. For the three and nine months endedSeptember 30, 2021 , loan related derivative income decreased by$536 thousand and$1.4 million , respectively, from the comparable periods in 2020, reflecting a lower volume of commercial borrower interest rate swaps transactions. Income from BOLI for the three and nine months endedSeptember 30, 2021 was up by$51 thousand and down by$141 thousand , respectively, from the same periods in 2020. Included in income from BOLI for the nine months endedSeptember 30, 2020 was a$229 thousand non-taxable gain due to the receipt of life insurance proceeds. Excluding this non- -55- -------------------------------------------------------------------------------- Management's Discussion and Analysis
taxable gain, income from BOLI was up year-over-year, resulting from a
Other income for the nine months ended
Noninterest Expense
The following table presents noninterest expense comparisons:
(Dollars in thousands) Three Months Nine Months
Change Change
Periods ended September 30, 2021 2020 $ % 2021 2020 $ %
Noninterest expense:
Salaries and employee
benefits $22,162 $21,892 $270 1 % $65,771 $60,824 $4,947 8 %
Outsourced services 3,294 3,160 134 4 9,711 8,944 767 9
Net occupancy 2,134 2,012 122 6 6,304 5,940 364 6
Equipment 977 934 43 5 2,946 2,806 140 5
Legal, audit and
professional fees 767 1,252 (485) (39) 2,042 2,733 (691) (25)
FDIC deposit insurance
costs 482 392 90 23 1,201 1,488 (287) (19)
Advertising and promotion 559 384 175 46 1,341 829 512 62
Amortization of intangibles 223 228 (5) (2) 674 688 (14) (2)
Debt prepayment penalties - - - - 4,230 - 4,230 100
Other 1,922 2,090 (168) (8) 6,025 7,023 (998) (14)
Total noninterest expense $32,520 $32,344 $176 1 % $100,245 $91,275 $8,970 10 %
Noninterest Expense Analysis
Salaries and employee benefits expense for the three and nine months ended
September 30, 2021 increased by $270 thousand and $4.9 million , respectively,
compared to the same periods in 2020. This largely reflected annual merit
increases, increased staffing levels and increases in performance-based
compensation accruals. These increases were partially offset by net declines in
variable mortgage banking compensation expense, which included higher deferred
labor costs (a contra expense) associated with residential real estate loan
originations for portfolio.
Outsourced services expense for the three and nine months ended September 30,
2021 increased by $134 thousand and $767 thousand , respectively, compared to the
same periods in 2020, reflecting increases in third party services and
processing costs.
Legal, audit and professional fees for the three and nine months ended
Debt prepayment penalty expense for the nine months ended
Other expenses for the three and nine months endedSeptember 30, 2021 decreased by$168 thousand and$998 thousand , respectively, from the same periods in 2020. Included in other expenses in the first quarter of 2020 was a charge for$800 thousand representing the establishment of contingency loss reserve associated with counterfeit checks drawn on a commercial customer's account. This contingency matter was resolved in the second quarter of 2020 and resulted in a partial reversal, or a benefit, of$170 thousand being recognized as a reduction to other expenses in the second quarter of 2020. -56- -------------------------------------------------------------------------------- Management's Discussion and Analysis Income Taxes The following table presents the Corporation's income tax provision and applicable tax rates for the periods indicated: (Dollars in thousands) Three Months Nine Months Periods ended September 30, 2021 2020 2021 2020 Income tax expense$5,319 $5,131 $15,855 $13,817 Effective income tax rate 22.1 % 21.9 % 21.9 % 21.2 % The effective income tax rates for the three and nine months endedSeptember 30, 2021 and 2020 differed from the federal rate of 21%, primarily due to state income tax expense, partially offset by the benefits of tax-exempt income, income from BOLI, federal tax credits and the recognition of excess tax expense or benefits associated with the settlement of share-based awards. The increase in the effective tax rate for the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020 largely reflected higher state income tax expense and a decrease in the proportion of tax-exempt income to pre-tax income. Segment Reporting The Corporation manages its operations through two operating segments, Commercial Banking and Wealth Management Services. The Corporate unit includes activity not allocated to the operating segments, such as activity related to the wholesale investment securities portfolio and wholesale funding matters. The Corporate unit also includes income from BOLI, as well as administrative and executive expenses not allocated to the operating segments and the residual impact of methodology allocations such as FTP offsets. Methodologies used to allocate income and expenses to business lines are periodically reviewed and revised. See Note 15 to the Unaudited Consolidated Financial Statements for additional disclosure related to business segments. Commercial Banking The following table presents a summarized statement of operations for the Commercial Banking business segment: (Dollars in thousands) Three Months Nine Months Change Change Periods ended September 30, 2021 2020 $ % 2021 2020 $ % Net interest income$35,732 $33,103 $2,629 8 %$105,579 $94,692 $10,887 11 % Provision for credit losses - 1,325 (1,325) (100) (2,000) 10,561 (12,561) (119) Net interest income after provision for credit losses 35,732 31,778 3,954 12 107,579 84,131 23,448 28 Noninterest income 9,440 15,940 (6,500) (41) 33,510 43,515 (10,005) (23) Noninterest expense 20,826 20,874 (48) - 62,133 58,403 3,730 6 Income before income taxes 24,346 26,844 (2,498) (9) 78,956 69,243 9,713 14 Income tax expense 5,394 5,828 (434) (7) 17,275 14,769 2,506 17 Net income$18,952 $21,016 ($2,064 ) (10 %)$61,681 $54,474 $7,207 13 % Net interest income for the Commercial Banking segment for the three and nine months endedSeptember 30, 2021 , increased by$2.6 million and$10.9 million , respectively, from the same periods in 2020. Net interest income largely benefited from accelerated amortization of net deferred fee balances on PPP loans that were forgiven by the SBA and lower cost of funds, and was also negatively impacted by lower yields on loans. For the nine months endedSeptember 30, 2021 , the increase was also attributable to growth in average loan balances. For the three months endedSeptember 30, 2021 there was no provision for credit losses, compared to a positive provision for credit losses (or a charge) of$1.3 million for the same period in 2020. For the nine months endedSeptember 30, 2021 , a negative provision for credit losses (or a benefit) of$2.0 million was recognized in earnings, compared to a positive provision for credit losses (or a charge) of$10.6 million , for the same period in 2020. The year-over-year reduction in credit loss provisioning reflected relative improvement in forecasted economic conditions and continued stable asset quality metrics. -57- -------------------------------------------------------------------------------- Management's Discussion and Analysis Noninterest income derived from the Commercial Banking segment for the three and nine months endedSeptember 30, 2021 was down by$6.5 million and$10.0 million , respectively, from the comparable periods in 2020, largely due to lower mortgage banking revenues and loan related derivative income. See additional discussion regarding mortgage banking revenues and loan related derivative income under the caption "Noninterest Income" above. Commercial Banking noninterest expenses for the three and nine months endedSeptember 30, 2021 were down by$48 thousand and up by$3.7 million , respectively, from the same periods in 2020. The year-to-date increase largely reflected increases in salaries and employee benefits expense and outsourced services. See additional discussion under the caption "Noninterest Expense" above. Wealth Management Services The following table presents a summarized statement of operations for the Wealth Management Services business segment: (Dollars in thousands) Three Months Nine Months Change Change Periods ended September 30, 2021 2020 $ % 2021 2020 $ % Net interest expense ($25 ) ($24 ) ($1 ) 4 % ($72 ) ($117 )
Noninterest income 10,455 8,954 1,501 17 31,778 26,248 5,530 21 Noninterest expense 7,531 7,528 3 - 21,638 21,466 172 1 Income before income taxes 2,899 1,402 1,497 107 10,068 4,665 5,403 116 Income tax expense 710 403 307 76 2,412 1,216 1,196 98 Net income$2,189 $999 $1,190 119 %$7,656 $3,449
For the three and nine months endedSeptember 30, 2021 , noninterest income derived from the Wealth Management Services segment increased by$1.5 million and$5.5 million , respectively, compared to the same periods in 2020, reflecting growth in asset-based revenues and income of$1.0 million associated with a settlement recognized in the first quarter of 2021. See further discussion under the caption "Noninterest Income" above. For the three and nine months endedSeptember 30, 2021 , noninterest expenses for the Wealth Management Services segment increased by$3 thousand and$172 thousand , respectively, from the same periods in 2020, largely reflecting an increase in salaries and employee benefits expense and declines in legal and other expenses. See further discussion under the caption "Noninterest Expense" above.
Corporate
The following table presents a summarized statement of operations for the
Corporate unit:
(Dollars in thousands) Three Months Nine Months
Change Change
Periods ended September 30, 2021 2020 $ % 2021 2020 $ %
Net interest (expense) income $363 ($1,425 ) $1,788 (125 %) ($1,812 ) $626 ($2,438 ) (389 %)
Noninterest income 625 574 51 9 1,799 1,952 (153) (8)
Noninterest expense 4,163 3,942 221 6 16,474 11,406 5,068 44
(Loss) income before income taxes (3,175) (4,793) 1,618 (34) (16,487) (8,828) (7,659) 87
Income tax (benefit) expense (785) (1,100) 315 (29) (3,832) (2,168) (1,664) 77
Net (loss) income ($2,390 ) ($3,693 ) $1,303 (35 %) ($12,655 ) ($6,660 ) ($5,995 ) 90 %
Net interest income for the Corporate unit for the three and nine months ended
September 30, 2021 was up by $1.8 million and down by $2.4 million ,
respectively, compared to the same periods in 2020. The year-over-year increase
in third quarter net interest income reflected lower funding costs and lower
wholesale funding balances, partially offset by lower interest income on
securities resulting from lower yields. On a year-to-date basis, the decline in
net interest income reflected lower interest income on securities resulting from
lower yields, partially offset by lower funding costs and lower wholesale
funding balances.
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Management's Discussion and Analysis
For the three and nine months ended September 30, 2021 , noninterest expenses for
the Corporate unit increased by $221 thousand and $5.1 million , respectively,
from the same periods in 2020. The year-to-date increase was primarily due to
debt prepayment penalty expense recognized in 2021 of $4.2 million . See further
discussion under the caption "Noninterest Expense" above.
Financial Condition
Summary
The following table presents selected financial condition data:
(Dollars in thousands) Change
September 30, December 31,
2021 2020 $ %
Cash and due from banks $297,039 $194,143 $102,896 53 %
Total securities 1,045,833 894,571 151,262 17
Total loans 4,286,404 4,195,990 90,414 2
Allowance for credit losses on loans 41,711 44,106 (2,395) (5)
Total assets 6,002,643 5,713,169 289,474 5
Total deposits 5,058,142 4,378,353 679,789 16
FHLB advances 222,592 593,859 (371,267) (63)
Total shareholders' equity 555,318 534,195 21,123 4
Total assets amounted to
The securities portfolio increased by
Total loans increased by$90.4 million , or 2%, as loan originations and purchases were partially offset by payoffs, pay-downs and PPP loans that were forgiven by the SBA. The ACL on loans decreased by$2.4 million , or 5%, from the end of 2020, reflecting relative improvement in forecasted economic conditions and continued stable asset quality metrics.
Total deposits increased by
Shareholders' equity increased by$21.1 million , or 4%, reflecting earnings net of dividend declarations and a decline in the accumulated other comprehensive income component of shareholders' equity largely due to a temporary decline in the fair value of available for sale debt securities.
Securities
Investment security activity is monitored by the Investment Committee, the
members of which also sit on the Asset/Liability Committee ("ALCO"). Asset and
liability management objectives are the primary influence on the Corporation's
investment activities. However, the Corporation also recognizes that there are
certain specific risks inherent in investment activities. The securities
portfolio is managed in accordance with regulatory guidelines and established
internal corporate investment policies that provide limitations on specific risk
factors such as market risk, credit risk and concentration, liquidity risk and
operational risk to help monitor risks associated with investing in
securities. Reports on the activities conducted by Investment Committee and the
ALCO are presented to the Board of Directors on a regular basis.
The Corporation's securities portfolio is managed to generate interest income,
to implement interest rate risk management strategies, and to provide a readily
available source of liquidity for balance sheet management. Securities are
designated as either available for sale, held to maturity or trading at the time
of purchase. The Corporation does not have securities designated as held to
maturity and does not maintain a portfolio of trading securities. Securities
available for sale may be sold in response to changes in market conditions,
prepayment risk, rate fluctuations, liquidity, or capital requirements. Debt
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Management's Discussion and Analysis
securities available for sale are reported at fair value, with any unrealized
gains and losses excluded from earnings and reported as a separate component of
shareholders' equity, net of tax, until realized.
Determination of Fair Value
The Corporation uses an independent pricing service to obtain quoted prices. The
prices provided by the independent pricing service are generally based on
observable market data in active markets. The determination of whether markets
are active or inactive is based upon the level of trading activity for a
particular security class. Management reviews the independent pricing service's
documentation to gain an understanding of the appropriateness of the pricing
methodologies. Management also reviews the prices provided by the independent
pricing service for reasonableness based upon current trading levels for similar
securities. If the prices appear unusual, they are re-examined and the value is
either confirmed or revised. In addition, management periodically performs
independent price tests of securities to ensure proper valuation and to verify
our understanding of how securities are priced. As of September 30, 2021 and
December 31, 2020 , management did not make any adjustments to the prices
provided by the pricing service.
Our fair value measurements generally utilize Level 2 inputs, representing 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 input assumptions are observable in active markets.
See Notes 4 and 11 to the Unaudited Consolidated Financial Statements for additional information regarding the determination of fair value of investment securities.
Securities Portfolio The carrying amounts of securities held are as follows: (Dollars in thousands)
September 30, 2021 December 31, 2020
Amount % Amount %
Available for Sale Debt Securities :
Obligations of U.S. government-sponsored enterprises $178,605 17 % $131,669 15 %
Mortgage-backed securities issued by
843,702 81 740,305 83
Individual name issuer trust preferred debt securities 11,156 1 12,669 1
Corporate bonds 12,370 1 9,928 1
Total available for sale debt securities $1,045,833 100 % $894,571 100 %
The securities portfolio amounted to $1.0 billion , or 17% of total assets, as of
September 30, 2021 compared to $894.6 million , or 16% of total assets, as of
December 31, 2020 . The largest component of the securities portfolio is
mortgage-backed securities, all of which are issued by U.S. government agencies
or U.S. government-sponsored enterprises.
The securities portfolio increased by $151.3 million , or 17%, from the end of
2020, reflecting purchases of U.S. government agency and U.S.
government-sponsored debt securities, including mortgage-backed securities,
totaling $519.0 million , with a weighted average yield of 1.65%. These purchases
were partially offset by routine pay-downs on mortgage-backed securities and
called securities, as well as a temporary decline in the fair value of available
for sale securities.
As of September 30, 2021 , the carrying amount of available for sale debt
securities included net unrealized losses of $3.2 million , compared to net
unrealized gains of $13.0 million as of December 31, 2020 . The decline in fair
value of available for sale debt securities from the end of 2020 was primarily
concentrated in obligations of U.S. government agencies and U.S.
government-sponsored enterprises, including mortgage-backed securities, and
attributable to relative changes in interest rates since the time of purchase.
See Note 4 to the Unaudited Consolidated Financial Statements for additional
information.
Federal Home Loan Bank Stock
The Bank is a member of the FHLB, which is a cooperative that provides services
to its member banking institutions. The primary reason for the Bank's membership
is to gain access to a reliable source of wholesale funding in order to manage
interest rate risk. The purchase of FHLB stock is a requirement for a member to
gain access to funding. The Bank purchases
-60-
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Management's Discussion and AnalysisFHLB stock in proportion to the volume of funding received and views the purchases as a necessary long-term investment for the purposes of balance sheet liquidity and not for investment return.
The Bank's investment in FHLB stock totaled
Loans
Total loans amounted to$4.3 billion atSeptember 30, 2021 , up by$90.4 million from the end of 2020, reflecting growth in the residential real estate portfolio partially offset by a decline in the commercial loan portfolio. The following is a summary of loans: (Dollars in thousands) September 30, 2021 December 31, 2020 Amount % Amount % Commercial: Commercial real estate (1)$1,661,785 39 %$1,633,024 39 % Commercial & industrial (2) 682,774 16 817,408 19 Total commercial 2,344,559 55 2,450,432 58Residential Real Estate : Residential real estate (3) 1,672,364 39 1,467,312 35 Consumer: Home equity 249,874 6 259,185 6 Other (4) 19,607 - 19,061 1 Total consumer 269,481 6 278,246 7 Total loans$4,286,404 100 %$4,195,990 100 % (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 PPP loans. (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.Washington Trust has processed loan payment deferral modifications, or "deferments", on 654 loans totaling$728 million since the beginning of the second quarter of 2020, in response to the COVID-19 pandemic. The majority of these deferments qualified as eligible loan modifications under Section 4013 of the CARES Act, as amended, and therefore were not required to be classified as TDRs and were not reported as past due. Deferment extensions were prudently underwritten and resulted in loan risk rating downgrades when warranted. Management considers deferments when estimating the ACL on loans. Loss exposure within these industries is mitigated by a number of factors such as collateral values, LTV ratios, and other key indicators; however, some degree of credit loss has been incorporated into the ACL on loans. Management continues to monitor active deferments through its quarterly watched asset list review. AtSeptember 30, 2021 , we had active deferments remaining on 5 loans totaling$38.0 million , or 1% of the outstanding balance of total loans, excluding PPP loan balances as ofSeptember 30, 2021 . Commercial Loans The commercial loan portfolio represented 55% of total loans atSeptember 30, 2021 . In making commercial loans, we may occasionally solicit the participation of other banks. The Bank also participates in commercial loans originated by other banks. In such cases, these loans are individually underwritten by us using standards similar to those employed for our self-originated loans. Our participation in commercial loans originated by other banks amounted to$439.9 million and$408.8 million , respectively, atSeptember 30, 2021 andDecember 31, 2020 . Our participation in commercial loans originated by other banks also includes shared national credits. Shared national credits are defined as participation in loans or loan commitments of at least$100.0 million that are shared by three or more banks. -61- -------------------------------------------------------------------------------- Management's Discussion and Analysis Commercial loans fall into two major categories, commercial real estate and commercial and industrial loans. Commercial real estate loans consist of commercial mortgages secured by real property where the primary source of repayment is derived from rental income associated with the property or the proceeds of the sale, refinancing or permanent financing of the property. Commercial real estate loans also include construction loans made to businesses for land development or the on-site construction of industrial, commercial, or residential buildings. Commercial and industrial loans primarily provide working capital, equipment financing and financing for other business-related purposes. Commercial and industrial loans are frequently collateralized by equipment, inventory, accounts receivable, and/or general business assets. A portion of the Bank's commercial and industrial loans is also collateralized by real estate. Commercial and industrial loans also include PPP loans that are fully guaranteed by theU.S. government, tax-exempt loans made to states and political subdivisions, as well as industrial development or revenue bonds issued through quasi-public corporations for the benefit of a private or non-profit entity where that entity rather than the governmental entity is obligated to pay the debt service. Commercial Real Estate Loans ("CRE") CRE loans totaled$1.7 billion atSeptember 30, 2021 , up by$28.8 million , or 2%, from the balance atDecember 31, 2020 . Included in CRE loans were construction and development loans of$125.4 million and$111.2 million , respectively, as ofSeptember 30, 2021 andDecember 31, 2020 . For the nine months endedSeptember 30, 2021 , CRE loan originations and construction advances were partially offset by payoffs and pay-downs of approximately$204 million . The following table presents a geographic summary of CRE loans by property location: (Dollars in thousands) September 30, 2021 December 31, 2020 Outstanding Balance % of Total Outstanding Balance % of Total Connecticut$632,339 38 %$649,919 40 % Rhode Island 467,182 28 431,133 26 Massachusetts 462,456 28 468,947 29 Subtotal 1,561,977 94 1,549,999 95 All other states 99,808 6 83,025 5 Total$1,661,785 100 %$1,633,024 100 % The following table presents a summary of CRE loans by property type segmentation: (Dollars in thousands) September 30, 2021 December 31, 2020 Count Outstanding Balance % of Total Count Outstanding Balance % of Total CRE Portfolio Segmentation: Multi-family dwelling 130$488,500 29 % 137$524,874 32 % Retail 127 353,103 21 136 339,569 21 Office 62 229,846 14 73 290,756 18 Hospitality 39 199,379 12 40 157,720 10 Industrial and warehouse 37 143,597 9 28 97,055 6 Healthcare 15 136,615 8 15 109,321 7 Commercial mixed use 20 39,293 2 22 42,405 3 Other 36 71,452 5 38 71,324 3 Total CRE loans 466$1,661,785 100 % 489$1,633,024 100 % Average CRE loan size$3,566 $3,340 Largest individual CRE loan outstanding$32,200 $32,200 -62-
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Management's Discussion and Analysis
The following table presents a summary of CRE loan deferments:
(Dollars in thousands) September 30, 2021 December 31, 2020
% of Outstanding % of Outstanding
Count Balance Balance (1) Count Balance Balance (1)
Total CRE deferments 5 $37,955 2 % 38 $176,132 11 %
(1)CRE deferments as a percent of the outstanding CRE portfolio balance as of the dates indicated.
CRE loans with active deferrals remaining as of
Commercial and Industrial Loans ("C&I")
C&I loans amounted to
Shared national credit balances outstanding included in the C&I loan portfolio totaled$43.4 million atSeptember 30, 2021 . All of these loans were included in the pass-rated category of commercial loan credit quality and were current with respect to contractual payment terms atSeptember 30, 2021 . The following table presents a summary of C&I loan by industry segmentation: (Dollars in thousands) September 30, 2021 December 31, 2020 Count Outstanding Balance % of Total Count Outstanding Balance % of Total C&I Portfolio Segmentation: Healthcare and social assistance 138$184,906 27 % 253$200,217 24 % Owner occupied and other real estate 193 76,104 11 268 74,309 9 Manufacturing 78 64,447 9 146 88,802 11 Accommodation and food services 162 57,513 8 271 47,020 6 Retail 92 49,741 7 192 63,895 8 Educational services 33 49,566 7 53 64,969 8 Entertainment and recreation 54 33,756 5 91 29,415 4 Finance and insurance 65 33,129 5 106 26,244 3 Information 18 25,536 4 32 28,394 3 Transportation and warehousing 32 20,637 3 42 24,061
3
Professional, scientific and technical 93 12,073 2 265 39,295 5 Public administration 19 6,308 1 26 23,319 3 Other 394 69,058 11 772 107,468 13 Total C&I loans 1,371$682,774 100 % 2,517$817,408 100 % Average C&I loan size$498 $325 Largest individual C&I loan outstanding$18,916 $19,500
At
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Management's Discussion and AnalysisPPP loans are included in the C&I portfolio. The following table presents a summary of PPP loans by industry segmentation:
September 30, 2021 December 31, 2020
Count Outstanding Balance % of Total Count Outstanding Balance % of Total
PPP Loans By Industry:
Accommodation and food services 111 $24,560 32 % 209 $23,678 12 %
Healthcare and social assistance 71 15,684 20 173 47,354 24
Professional, scientific and technical 61 6,078 8 220 20,031 10 Manufacturing 25 5,662 7 89 23,321 12 Entertainment and recreation 27 2,597 3 61 3,386 2 Educational services 15 2,512 3 32 9,681 5 Retail 37 2,222 3 134 12,107 6 Information 8 2,130 3 20 2,478 1 Owner occupied and other real estate 33 1,412 2 115 9,241 5 Public administration 3 417 1 4 483 - Finance and insurance 11 405 1 55 2,000 1 Transportation and warehousing 10 360 - 21 2,059 1 Other 218 13,344 17 573 43,961 21 Total PPP loans (included in the C&I loan portfolio) 630$77,383 100 % 1,706$199,780 100 % Average PPP loan size$123 $117 Net unamortized fees on PPP loans$2,618 $3,893 Residential Real Estate Loans The residential real estate loan portfolio represented 39% of total loans atSeptember 30, 2021 .
Residential real estate loans are originated both for sale to the secondary market as well as for retention in the Bank's loan portfolio. We also originate residential real estate loans for various investors in a broker capacity, including conventional mortgages and reverse mortgages.
The table below presents residential real estate loan origination activity:
(Dollars in thousands) Three Months Nine Months
Periods ended September 30, 2021 2020 2021 2020
Amount % of Total Amount % of Total Amount % of Total Amount % of Total
Originations for retention in
portfolio (1) $205,293 52 % $132,726 26 % $581,905 44 % $368,118 30 %
Originations for sale to the
secondary market (2) 190,702 48 377,137 74 744,589 56 859,680 70
Total $395,995 100 % $509,863 100 % $1,326,494 100 % $1,227,798 100 %
(1)Includes the full commitment amount of homeowner construction loans. (2)Includes brokered loans (loans originated for others).
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Management's Discussion and Analysis
The table below presents residential real estate loan sales activity:
(Dollars in thousands)
Three Months Nine Months
Periods ended September 30, 2021 2020 2021 2020
Amount % of Total Amount % of Total Amount % of Total Amount % of Total
Loans sold with servicing rights
retained $108,445 62 % $317,920 90 % $570,370 75 % $609,363 74 %
Loans sold with servicing rights
released (1) 65,416 38 36,250 10 186,068 25 212,222 26
Total $173,861 100 % $354,170 100 % $756,438 100 % $821,585 100 %
(1)Includes brokered loans (loans originated for others).
Residential real estate loan origination, refinancing and sales activity increased year-over-year in response to declines in market interest rates.
Loans are sold with servicing retained or released. Loans sold with servicing rights retained result in the capitalization of servicing rights. Loan servicing rights are included in other assets and are subsequently amortized as an offset to mortgage banking revenues over the estimated period of servicing. The net balance of capitalized servicing rights amounted to$10.7 million and$7.4 million , respectively, as ofSeptember 30, 2021 andDecember 31, 2020 . The balance of residential mortgage loans serviced for others, which are not included in the Unaudited Consolidated Balance Sheets, amounted to$1.6 billion and$1.2 billion , respectively, as ofSeptember 30, 2021 andDecember 31, 2020 .
Residential real estate loans held in portfolio amounted to
The following is a geographic summary of residential real estate mortgages by
property location:
(Dollars in thousands) September 30, 2021 December 31, 2020
Amount % of Total Amount % of Total
Massachusetts $1,161,977 69 % $994,800 68 %
Rhode Island 357,445 21 331,713 23
Connecticut 131,832 8 122,102 8
Subtotal 1,651,254 99 1,448,615 99
All other states 21,110 1 18,697 1
Total (1) $1,672,364 100 % $1,467,312 100 %
(1)Includes residential mortgage loans purchased from and serviced by other
financial institutions totaling
At
Consumer Loans Consumer loans include home equity loans and lines of credit and personal installment loans.
The consumer loan portfolio totaled$269.5 million atSeptember 30, 2021 , down by$8.8 million fromDecember 31, 2020 . Home equity lines of credit and home equity loans represented 93% of the total consumer portfolio atSeptember 30, 2021 . The Bank estimates that approximately 60% of the combined home equity lines of credit and home equity loan balances are first lien positions or subordinate to otherWashington Trust mortgages. Purchased consumer loans, consisting of loans to individuals secured by general aviation aircraft, amounted to$9.4 million and$10.0 million , respectively atSeptember 30, 2021 andDecember 31, 2020 .
At
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Management's Discussion and Analysis
Asset Quality
Nonperforming Assets
Nonperforming assets include nonaccrual loans and property acquired through
foreclosure or repossession.
The following table presents nonperforming assets and additional asset quality
data:
(Dollars in thousands) Sep 30, Dec 31,
2021 2020
Commercial:
Commercial real estate $- $-
Commercial & industrial - -
Total commercial - -
Residential Real Estate :
Residential real estate 10,321 11,981
Consumer:
Home equity 655 1,128
Other - 88
Total consumer 655 1,216
Total nonaccrual loans 10,976 13,197
Property acquired through foreclosure or repossession, net - -
Total nonperforming assets$10,976
Nonperforming assets to total assets 0.18 % 0.23 % Nonperforming loans to total loans 0.26 % 0.31 % Total past due loans to total loans 0.22 % 0.30 % Accruing loans 90 days or more past due $- $- Nonaccrual Loans During the nine months endedSeptember 30, 2021 , the Corporation made no changes in its practices or policies concerning the placement of loans into nonaccrual status.
The following table presents the activity in nonaccrual loans: (Dollars in thousands)
Three Months Nine Months
For the periods ended September 30, 2021 2020 2021 2020
Balance at beginning of period $10,481 $16,017 $13,197 $17,408
Additions to nonaccrual status 2,583 971 3,854 2,937
Loans returned to accruing status - (1,623) (877) (2,170)
Loans charged-off (249) (111) (630) (1,071)
Loans transferred to other real estate owned - - - (28)
Payments, payoffs and other changes (1,839) (514) (4,568) (2,336)
Balance at end of period $10,976 $14,740 $10,976 $14,740
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Management's Discussion and Analysis
The following table presents additional detail on nonaccrual loans:
(Dollars in thousands) September 30, 2021 December 31, 2020
Days Past Due Days Past Due
Over 90 Under 90 Total % (1) Over 90 Under 90 Total % (1)
Commercial:
Commercial real estate $- $- $- - % $- $- $- - %
Commercial & industrial - - - - - - - -
Total commercial - - - - - - - -
Residential Real Estate :
Residential real estate 2,927 7,394 10,321 0.62 5,172 6,809 11,981 0.82
Consumer:
Home equity 103 552 655 0.26 644 484 1,128 0.44
Other - - - - 88 - 88 0.46
Total consumer 103 552 655 0.24 732 484 1,216 0.44
Total nonaccrual loans $3,030 $7,946 $10,976 0.26 % $5,904 $7,293 $13,197 0.31 %
(1) Percentage of nonaccrual loans to the total loans outstanding within the respective category.
There were no significant commitments to lend additional funds to borrowers
whose loans were on nonaccrual status at
As of both
Nonaccrual residential real estate mortgage loans amounted to$10.3 million atSeptember 30, 2021 , down by$1.7 million from the end of 2020. As ofSeptember 30, 2021 , the balance of nonaccrual residential mortgage loans was predominately secured by properties inMassachusetts ,Connecticut andRhode Island . 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 include modifications of the terms of the debt such as reduction of the stated interest rate other than normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest. The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the Corporation by increasing the ultimate probability of collection. 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, a TDR is removed from this classification if the restructuring did not involve a below-market rate concession and the loan is performing in accordance with its modified contractual terms for a reasonable period of time.
As of
See Note 5 for disclosure regarding the Corporation's election to account for
eligible loan modifications under Section 4013 of the CARES Act, as amended.
Loan modifications that did not qualify for the TDR accounting relief provided
under the CARES Act were classified as TDRs.
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Management's Discussion and Analysis
The following table sets forth information on TDRs as of the dates indicated.
The amounts below consist of unpaid principal balance, net of charge-offs and
unamortized deferred loan origination fees and costs. Accrued interest is not
included in the carrying amounts set forth below.
(Dollars in thousands) Sep 30, Dec 31,
2021 2020
Accruing TDRs
Commercial:
Commercial real estate $958 $1,792
Commercial & industrial 2,791 6,814
Total commercial 3,749 8,606
Residential Real Estate :
Residential real estate 3,656 3,932
Consumer:
Home equity 563 788
Other 11 14
Total consumer 574 802
Accruing TDRs 7,979 13,340
Nonaccrual TDRs
Commercial:
Commercial real estate - -
Commercial & industrial - -
Total commercial - -
Residential Real Estate :
Residential real estate 1,660 2,273
Consumer:
Home equity 72 72
Other - -
Total consumer 72 72
Nonaccrual TDRs 1,732 2,345
Total TDRs $9,711 $15,685
TDRs amounted to $9.7 million at September 30, 2021 , down by $6.0 million from
the end of 2020, reflecting payoffs. As of September 30, 2021 , the composition
of TDRs was 39% commercial and 61% residential and consumer, compared to 55% and
45%, respectively, as of December 31, 2020 .
The ACL included specific reserves for TDRs of
-68-
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Management's Discussion and Analysis
Past Due Loans
The following table presents past due loans by category:
(Dollars in thousands) September 30, 2021 December 31, 2020
Amount % (1) Amount % (1)
Commercial:
Commercial real estate $- - % $265 0.02 %
Commercial & industrial 2 - 3 -
Total commercial 2 - 268 0.01
Residential Real Estate :
Residential real estate 8,698 0.52 10,339 0.70
Consumer:
Home equity 824 0.33 1,667 0.64
Other 24 0.12 118 0.62
Total consumer 848 0.31 1,785 0.64
Total past due loans $9,548 0.22 % $12,392 0.30 %
(1)Percentage of past due loans to the total loans outstanding within the respective category.
As ofSeptember 30, 2021 , the composition of past due loans (loans past due 30 days or more) was 100% residential and consumer and 0% commercial, compared to 98% and 2%, respectively, atDecember 31, 2020 . Total past due loans decreased by$2.8 million from the end of 2020.
Total past due loans included
Potential Problem Loans The Corporation classifies certain loans as "substandard," "doubtful," or "loss" based on criteria consistent with guidelines provided by banking regulators. Potential problem loans include classified accruing commercial loans that were less than 90 days past due atSeptember 30, 2021 and other loans for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future. Potential problem loans are not included in the amounts of nonaccrual or TDRs presented above. They are assessed for loss exposure using the methods described in Note 5 to the Unaudited Consolidated Financial Statements under the caption "Credit Quality Indicators." Management cannot predict the extent to which economic conditions or other factors may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become restructured, or require an increased allowance coverage and provision for credit losses on loans. Management has identified approximately$12.7 million in potential problem loans atSeptember 30, 2021 . There were no potential problem loans identified atDecember 31, 2020 . As ofSeptember 30, 2021 , the balance of potential problem loans consisted of three loans associated with two commercial real estate relationships that management considers adequately secured. AtOctober 31, 2021 , two of the underlying loans in these relationships were past due by 38 and 42 days, respectively. In addition, management continues to monitor active loan deferments resulting from the COVID-19 pandemic through its quarterly watched asset list review. See additional disclosure under the caption " Commercial Loans" within the Financial Condition section. Allowance for Credit Losses on Loans The ACL on loans is management's current estimate of expected credit losses over the expected life of the loans. The ACL on loans is established through a provision charged to earnings. The ACL on loans is reduced by charge-offs on loans and is increased by recoveries of amounts previously charged off. -69- -------------------------------------------------------------------------------- Management's Discussion and Analysis The Corporation's general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that the collection of loan principal is unlikely. Full or partial charge-offs on collateral dependent individually analyzed loans are recognized when the collateral is deemed to be insufficient to support the carrying value of the loan. The Corporation does not recognize a recovery when new appraisals indicate a subsequent increase in value. Appraisals are generally obtained with values determined on an "as is" basis from independent appraisal firms for real estate collateral dependent commercial loans in the process of collection or when warranted by other deterioration in the borrower's credit status. New appraisals are generally obtained for TDRs or nonaccrual loans or when management believes it is warranted. The Corporation has continued to maintain appropriate professional standards regarding the professional qualifications of appraisers and has an internal review process to monitor the quality of appraisals.
For residential real estate loans and real estate collateral dependent consumer loans that are in the process of collection, valuations are obtained from independent appraisal firms with values determined on an "as is" basis.
The following table presents additional detail on the Corporation's loan
portfolio and associated allowance:
(Dollars in thousands) September 30, 2021 December 31, 2020
Loans Related Allowance Allowance / Loans Loans Related Allowance Allowance / Loans
Individually analyzed loans $15,529 $1,055 6.79 % $18,252 $379 2.08 %
Pooled (collectively evaluated) loans 4,270,875 40,656 0.95 4,177,738 43,727 1.05
Total $4,286,404 $41,711 0.97 % $4,195,990 $44,106 1.05 %
Management employs a process and methodology to estimate the ACL on loans that
evaluates both quantitative and qualitative factors. The methodology for
evaluating quantitative factors consists of two basic components. The first
component involves pooling loans into portfolio segments for loans that share
similar risk characteristics. The second component involves individually
analyzed loans that do not share similar risk characteristics with loans that
are pooled into portfolio segments.
The ACL for individually analyzed loans is measured using a DCF method based
upon the loan's contractual effective interest rate, or at the loan's observable
market price, or, if the loan was collateral dependent, at the fair value of the
collateral.
The ACL for pooled loans is measured utilizing a DCF methodology to estimate
credit losses for each pooled portfolio segment. The methodology incorporates a
probability of default and loss given default framework. Loss given default is
estimated based on historical credit loss experience. Probability of default is
estimated using a regression model that incorporates econometric factors.
Management utilizes forecasted econometric factors with a one-year reasonable
and supportable forecast period and one-year straight-line reversion period in
order to estimate the probability of default for each loan portfolio segment.
The DCF methodology combines the probability of default, the loss given default,
prepayment speeds and remaining life of the loan to estimate a reserve for each
loan. The sum of all the loan level reserves are aggregated for each portfolio
segment and a loss rate factor is derived. Quantitative loss factors for pooled
loans are also supplemented by certain qualitative risk factors reflecting
management's view of how losses may vary from those represented by quantitative
loss rates.
The ACL on loans amounted to $41.7 million at September 30, 2021 , down by $2.4
million from the balance at December 31, 2020 . There was no provision for credit
losses for the three months ended September 30, 2021 and a negative provision
for credit losses (or a benefit) of $2.0 million for the nine months ended
September 30, 2021 . Credit loss provisioning and the ACL reflect management's
estimate of forecasted economic conditions and continued stable asset quality
metrics. Net charge-offs amounted to $168 thousand and $444 thousand ,
respectively, for the three and nine months ended September 30, 2021 .
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Management's Discussion and Analysis
The ACL on loans as a percentage of total loans, also known as the reserve
coverage ratio, was 0.97% at
The following table presents the allocation of the ACL on loans by portfolio
segment. The total ACL on loans is available to absorb losses from any segment
of the loan portfolio.
(Dollars in thousands) September 30, 2021 December 31, 2020
Loans to Total Loans to Total
Allocated ACL ACL to Loans Portfolio (1) Allocated ACL ACL to Loans Portfolio (1)
Commercial:
Commercial real estate $20,837 1.25 % 39 % $22,065 1.35 % 39 %
Commercial & industrial 11,327 1.66 16 12,228 1.50 19
Total commercial 32,164 1.37 55 34,293 1.40 58
Residential Real Estate :
Residential real estate 7,956 0.48 39 8,042 0.55 35
Consumer:
Home equity 1,118 0.45 6 1,300 0.50 6
Other 473 2.41 - 471 2.47 1
Total consumer 1,591 0.59 6 1,771 0.64 7
Total allowance for credit losses on
loans at end of period $41,711 0.97 % 100 % $44,106 1.05 % 100 %
(1)Percentage of loans outstanding in respective category to total loans outstanding.
Sources of Funds Our sources of funds include deposits, brokered time deposits, FHLB advances, other borrowings and proceeds from the sales, maturities and payments of loans and investment securities. The Corporation uses funds to originate and purchase loans, purchase investment securities, conduct operations, expand the branch network and pay dividends to shareholders.
Deposits
The Corporation offers a wide variety of deposit products to consumer and business customers. Deposits provide an important source of funding for the Bank as well as an ongoing stream of fee revenue.
The Bank is a participant in theDemand Deposit Marketplace program, Insured Cash Sweep program and the Certificate of Deposit Account Registry Service program. The Bank uses these deposit sweep services to place customer and client funds into interest-bearing demand accounts, money market accounts, and/or time deposits issued by other participating banks. Customer and client funds are placed at one or more participating banks to ensure that each deposit customer is eligible for the full amount ofFDIC insurance. As a program participant, we receive reciprocal amounts of deposits from other participating banks. We consider these reciprocal deposit balances to be in-market deposits as distinguished from traditional out-of-market wholesale brokered deposits. -71- -------------------------------------------------------------------------------- Management's Discussion and Analysis The following table presents a summary of deposits: (Dollars in thousands) Change September 30, December 31, 2021 2020 $ % Noninterest-bearing demand deposits$950,974 $832,287 $118,687 14
%
Interest-bearing demand deposits 238,317 174,290 64,027 37 NOW accounts 817,937 698,706 119,231 17 Money market accounts 1,046,324 910,167 136,157 15 Savings accounts 540,306 466,507 73,799 16 Time deposits (in-market) 709,288 704,855 4,433 1 Total in-market deposits 4,303,146 3,786,812 516,334 14 Wholesale brokered time deposits 754,996 591,541 163,455 28 Total deposits$5,058,142 $4,378,353 $679,789 16 % Total deposits amounted to$5.1 billion atSeptember 30, 2021 , up by$679.8 million , or 16%, fromDecember 31, 2020 . This included an increase of$163.5 million , or 28%, in out-of-market brokered time deposits. Excluding out-of-market brokered time deposits, in-market deposits were up by$516.3 million , or 14%, from the balance atDecember 31, 2020 . In-market deposit growth from the end of 2020 reflected a continuation of customer behavior fostering excess liquidity across the banking industry, as well as temporary increases associated with PPP loan origination funds deposited to customer accounts atWashington Trust .
Borrowings
Borrowings primarily consist of FHLB advances, which are used as a source of funding for liquidity and interest rate risk management purposes.
FHLB advances totaled$222.6 million atSeptember 30, 2021 , down by$371.3 million , or 63%, from the balance at the end of 2020, as lower levels of wholesale funding were needed given the in-market deposits increase. See additional disclosure regarding the prepayment of certain FHLB advances and the recognition of debt prepayment penalties under the caption "Noninterest Expense" within the Results of Operations section.
For additional information regarding FHLB advances see Note 8 to the Unaudited Consolidated Financial Statements.
Liquidity and Capital Resources Liquidity Management Liquidity is the ability of a financial institution to meet maturing liability obligations and customer loan demand. The Corporation's primary source of liquidity is in-market deposits, which funded approximately 69% of total average assets in the nine months endedSeptember 30, 2021 . While the generally preferred funding strategy is to attract and retain low-cost deposits, the ability to do so is affected by competitive interest rates and terms in the marketplace. Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and brokered time deposits), cash flows from the Corporation's securities portfolios and loan repayments. Securities designated as available for sale may also be sold in response to short-term or long-term liquidity needs, although management has no intention to do so at this time. The Corporation has a detailed liquidity funding policy and a contingency funding plan that provide for the prompt and comprehensive response to unexpected demands for liquidity. Management employs stress testing methodology to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of "business as usual" cash flows. In management's estimation, risks are concentrated in two major categories: (1) runoff of in-market deposit balances; and (2) unexpected drawdown of loan commitments. Of the two categories, potential runoff of deposit balances would have the most significant impact on contingent liquidity. Our stress test scenarios, therefore, emphasize attempts to quantify deposits at risk over selected time horizons. In addition to these unexpected outflow risks, several other "business as usual" factors enter into the calculation of the adequacy of contingent liquidity including: (1) payment proceeds from loans and investment securities; (2) maturing debt obligations; and (3) maturing time deposits. The Corporation has established collateralized borrowing capacity with the FRB and also maintains additional collateralized borrowing capacity with the -72- -------------------------------------------------------------------------------- Management's Discussion and Analysis
FHLB in excess of levels used in the ordinary course of business. Borrowing capacity is impacted by the amount and type of assets available to be pledged.
The table below presents unused funding capacity by source as of the dates
indicated:
September 30, December 31,
(Dollars in thousands) 2021 2020Additional Funding Capacity:
Federal Home Loan Bank of Boston (1)$1,492,659
Federal Reserve Bank of Boston (2) 18,906
20,678
Unencumbered investment securities 693,641 594,998
Total $2,205,206 $1,585,411
(1)As of September 30, 2021 and December 31, 2020 , loans with a carrying value
of $2.2 billion and $2.1 billion , respectively, and securities available for
sale with carrying values of $118.7 million and $128.6 million , respectively,
were pledged to the FHLB resulting in this additional borrowing capacity.
(2)As of September 30, 2021 and December 31, 2020 , loans with a carrying value
of $8.4 million and $12.6 million , respectively, and securities available for
sale with a carrying value of $15.6 million and $14.9 million , respectively,
were pledged to the FRB for the discount window resulting in this additional
unused borrowing capacity.
In addition to the amounts presented above, the Bank also had access to a
The ALCO establishes and monitors internal liquidity measures to manage liquidity exposure. Liquidity remained within target ranges established by the ALCO during the nine months endedSeptember 30, 2021 . Based on its assessment of the liquidity considerations described above, management believes the Corporation's sources of funding meet anticipated funding needs. Net cash provided by operating activities amounted to$106.9 million for the nine months endedSeptember 30, 2021 and largely included net income of$56.7 million and mortgage banking related adjustments to reconcile net income to net cash provided by operating activities. Net cash used in investing activities totaled$289.8 million for the nine months endedSeptember 30, 2021 , reflecting outflows to fund purchases of debt securities, as well as the net increase in and purchases of loans. These outflows were partially offset by net inflows from maturities, calls and principal payments of debt securities. For the nine months endedSeptember 30, 2021 , net cash provided by financing activities amounted to$281.0 million , with increases in deposits, partially offset by a net decrease in FHLB advances and the payment of dividends to shareholders. See the Unaudited Consolidated Statements of Cash Flows for further information about sources and uses of cash. Capital Resources Total shareholders' equity amounted to$555.3 million atSeptember 30, 2021 , up by$21.1 million fromDecember 31, 2020 . The increase included net income of$56.7 million , partially offset by$27.4 million in dividend declarations and a decrease of$10.7 million in the accumulated other comprehensive income component of shareholders' equity that was largely attributable to a temporary decline in the fair value of available for sale debt securities.
The Corporation declared a quarterly dividend of
The ratio of total equity to total assets was 9.25% at
The Bancorp and the Bank are subject to various regulatory capital requirements and are considered "well capitalized" with a total risk-based capital ratio of 13.83% atSeptember 30, 2021 , compared to 13.51% atDecember 31, 2020 . See Note 9 to the Unaudited Consolidated Financial Statements for additional discussion of regulatory capital requirements and the election of the ASC 326 phase-in option provided by regulatory guidance, which delays the estimated impact of ASC 326 on regulatory capital and phases it in over a three-year period beginning in 2022. Off-Balance Sheet Arrangements In the normal course of business, the Corporation engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. Such -73- -------------------------------------------------------------------------------- Management's Discussion and Analysis transactions are used to meet the financing needs of its customers and to manage the exposure to fluctuations in interest rates. These financial transactions include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. The Corporation's credit policies with respect to interest rate swap agreements with commercial borrowers, commitments to extend credit, and standby letters of credit are similar to those used for loans. Interest rate risk management contracts with other counterparties are generally subject to bilateral collateralization terms. For additional information on derivative financial instruments and financial instruments with off-balance sheet risk see Notes 10 and 18 to the Unaudited Consolidated Financial Statements. Asset/Liability Management and Interest Rate Risk Interest rate risk is the risk of loss to future earnings due to changes in interest rates. The ALCO is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. Periodically, the ALCO reports on the status of liquidity and interest rate risk matters to the Bank's Board of Directors. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Corporation's liquidity, capital adequacy, growth, risk and profitability goals. The Corporation utilizes the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, off-balance sheet interest rate contracts and the pricing and structure of loans and deposits, to manage interest rate risk. The off-balance sheet interest rate contracts may include interest rate swaps, caps and floors. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to terms of the contract. The notional amount of the interest rate contracts is the amount upon which interest and other payments are based. The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk. See Notes 10 and 18 to the Unaudited Consolidated Financial Statements for additional information. The ALCO uses income simulation to measure interest rate risk inherent in the Corporation's on-balance sheet and off-balance sheet financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 12-month horizon, a 13- to 24-month horizon and a 60-month horizon. The simulations assume that the size and general composition of the Corporation's balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from low-cost core savings to higher-cost time deposits in selected interest rate scenarios. Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios. The characteristics of financial instrument classes are reviewed periodically by the ALCO to ensure their accuracy and consistency. The ALCO reviews simulation results to determine whether the Corporation's exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. As ofSeptember 30, 2021 andDecember 31, 2020 , net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation. All changes are measured in comparison to the projected net interest income that would result from an "unchanged" rate scenario where both interest rates and the composition of the Corporation's balance sheet remain stable for a 60-month period. In addition to measuring the change in net interest income as compared to an unchanged rate scenario, the ALCO also measures the trend of both net interest income and NIM over a 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios. The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve of up to 500 basis points, as well as parallel changes in interest rates of up to 400 basis points. Because income simulations assume that the Corporation's balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts. The following table sets forth the estimated change in net interest income from an unchanged rate scenario over the periods indicated for parallel changes in market interest rates using the Corporation's on- and off-balance sheet financial instruments as ofSeptember 30, 2021 andDecember 31, 2020 . Interest rates are assumed to shift by a parallel 100, 200 or 300 basis points upward or 100 basis points downward over a 12-month period, except for core savings deposits, which are assumed to -74- -------------------------------------------------------------------------------- Management's Discussion and Analysis shift by lesser amounts due to their relative historical insensitivity to market interest rate movements. Further, deposits are assumed to have certain minimum rate levels below which they will not fall. It should be noted that the rate scenarios shown do not necessarily reflect the ALCO's view of the "most likely" change in interest rates over the periods indicated. September 30, 2021 December 31, 2020 Months 1 - 12 Months 13 - 24 Months 1 - 12 Months 13 - 24 100 basis point rate decrease (1.14) % (4.62) % (2.05) % (4.73) % 100 basis point rate increase 3.00 3.09 5.56 7.89 200 basis point rate increase 6.70 6.75 11.00 15.05 300 basis point rate increase 10.32 9.55 16.47 21.15 The ALCO estimates that the negative exposure of net interest income to falling rates as compared to an unchanged rate scenario results from a more rapid decline in earning asset yields compared to rates paid on deposits. If market interest rates were to fall and remain lower for a sustained period, certain core savings and time deposit rates could decline more slowly and by a lesser amount than other market interest rates. Asset yields would likely decline more rapidly than deposit costs as current asset holdings mature or reprice, since cash flow from mortgage-related prepayments and redemption of callable securities would increase as market interest rates fall. The overall positive exposure of net interest income to rising rates as compared to an unchanged rate scenario results from a more rapid projected relative rate of increase in asset yields than funding costs over the near term. For simulation purposes, deposit rate changes are anticipated to lag behind other market interest rates in both timing and magnitude. The ALCO's estimate of interest rate risk exposure to rising rate environments, including those involving changes to the shape of the yield curve, incorporates certain assumptions regarding the shift in deposit balances from low-cost core savings categories to higher-cost deposit categories, which has characterized a shift in funding mix during the past rising interest rate cycles. The relative change in interest rate sensitivity fromDecember 31, 2020 as shown in the above table was largely attributable to an interest rate swap designated as a cash flow hedge that was executed in the second quarter of 2021 to hedge the interest rate risk associated with a pool of variable rate commercial loans. The receive-fixed, pay-floating interest rate swap reduced the positive exposure to rising rates, while it will enhance earnings in the current rate environment and mitigate risk in declining rate scenarios. The interest rate swap effectively fixes a portion of variable rate loan assets. A higher level of longer-term fixed rate assets atSeptember 30, 2021 as compared toDecember 31, 2020 has also contributed to the reduction in the positive exposure to rising rates as they would not reprice upward in a rising rate environment. While the ALCO reviews and updates simulation assumptions and also periodically back-tests the simulation results to ensure that the assumptions are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future NIM. Over time, the repricing, maturity and prepayment characteristics of financial instruments and the composition of the Corporation's balance sheet may change to a different degree than estimated. Simulation modeling assumes a static balance sheet, with the exception of certain modeled deposit mix shifts from low-cost core savings deposits to higher-cost time deposits in rising rate scenarios as noted above. As market interest rates have declined, the banking industry has attracted low-cost core savings deposits. The ALCO recognizes that a portion of these increased levels of low-cost balances could shift into higher yielding alternatives in the future, particularly if interest rates rise and as confidence in financial markets strengthens, and has modeled deposit shifts out of these low-cost categories into higher-cost alternatives in the rising rate simulation scenarios presented above. Deposit balances may also be subject to possible outflow to non-bank alternatives in a rising rate environment, which may cause interest rate sensitivity to differ from the results as presented. Another significant simulation assumption is the sensitivity of core savings deposits to fluctuations in interest rates. Income simulation results assume that changes in both core savings deposit rates and balances are related to changes in short-term interest rates. The relationship between short-term interest rate changes and core deposit rate and balance changes may differ from the ALCO's estimates used in income simulation.
It should also be noted that the static balance sheet assumption does not necessarily reflect the Corporation's expectation for future balance sheet growth, which is a function of the business environment and customer behavior.
Mortgage-backed securities and residential real estate loans involve a level of
risk that unforeseen changes in prepayment speeds may cause related cash flows
to vary significantly in differing rate environments. Such changes could affect
the level
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Management's Discussion and Analysis
of reinvestment risk associated with cash flow from these instruments, as well
as their market value. Changes in prepayment speeds could also increase or
decrease the amortization of premium or accretion of discounts related to such
instruments, thereby affecting interest income.
The Corporation also monitors the potential change in market value of its
available for sale debt securities in changing interest rate environments. The
purpose is to determine market value exposure that may not be captured by income
simulation, but which might result in changes to the Corporation's capital
position. Results are calculated using industry-standard analytical techniques
and securities data.
The following table summarizes the potential change in market value of the
Corporation's available for sale debt securities as of September 30, 2021 and
December 31, 2020 resulting from immediate parallel rate shifts:
(Dollars in thousands)
Security Type Down 100 Basis Points Up 200 Basis Points
U.S. government-sponsored enterprise securities (callable) $3,803 ($20,534 )
Mortgage-backed securities issued by
11,630 (92,673)
Trust preferred debt and other corporate debt securities 1,489 (66)
Total change in market value as of September 30, 2021 $16,922 ($113,273 )
Total change in market value as of December 31, 2020 $13,481 ($69,538 )
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