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 ended December 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 ended September 30, 2021 are not necessarily indicative of the
results for the full-year ended December 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 the SEC, 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 ended
December 31, 2020, as updated by our Quarterly Reports on Form 10-Q and other
filings submitted to the SEC, 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 ended December 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-
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                      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-
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                      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 in Rhode Island, eastern Massachusetts and
Connecticut; 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 in Cumberland, Rhode Island.

COVID-19 Pandemic Related
On March 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 the Small Business Administration's ("SBA's") PPP and
other provisions. PPP loans are 100% guaranteed by the SBA. On May 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 ended September 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 of September 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 of October 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-
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                      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 failing internal systems and controls, and external influences such as market conditions, fraudulent activity, 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 impact Washington 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 ended
December 31, 2020, as updated by our Quarterly Reports on Form 10-Q and other
filings submitted to the SEC.

                                      -47-
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                      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 provides a summary of the 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 to 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.


                                      -48-
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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




                                      -49-
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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 analysis presents net interest income on an FTE basis by adjusting income and returns on loans and tax-exempt securities to be comparable to loans and taxable 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."


                                      -52-
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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 ended September 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 ended September 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 the additional discussion under “Asset Quality” for more information on the Lending ACL.

Noninterest Income
Noninterest income is an important source of revenue for Washington 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 ended September 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 ended September 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 Analysis

The following table shows the evolution of asset management AUAs: (in thousands of dollars)

                                                                  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 ended September 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 ended September 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 ended September 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 ended September 30,
2020 was a $229 thousand non-taxable gain due to the receipt of life insurance
proceeds. Excluding this non-

                                      -55-
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                      Management's Discussion and Analysis

taxable gain, BOLI’s income increased year on year, due to a $ 7.0 million takeover of BOLI in the second quarter of 2021.

Other income for the nine months ended September 30, 2021 increased by $ 920,000 of the same period in 2020 due to $ 1.0 million income related to a dispute settlement which was recognized in the first quarter of 2021.

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
September 30, 2021 decreased by $ 485,000 and $ 691,000, respectively, compared to the same periods in 2020, reflecting lower legal fees.

Debt prepayment penalty charge for the completed nine-month period September 30, 2021
totaled $ 4.2 million, and results from the prepayment of $ 32.1 million higher yielding FHLB advances in the first half of 2021. There were no prepayments of debt during the comparable period in 2020.

Other expenses for the three and nine months ended September 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-
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                      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 ended September 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 ended
September 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 ended September 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 ended
September 30, 2021, the increase was also attributable to growth in average loan
balances.

For the three months ended September 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 ended
September 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-
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                      Management's Discussion and Analysis

Noninterest income derived from the Commercial Banking segment for the three and
nine months ended September 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 ended
September 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)              

$ 45 38%

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               

$ 4,207 122%



For the three and nine months ended September 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 ended September 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.

Business

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.

                                      -58-
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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 $ 6.0 billion To September 30, 2021, up to $ 289.5 million, or 5%, from the end of 2020. This included an increase of $ 102.9 million, or 53%, in the cash balance and receivables from banks.

The securities portfolio increased by $ 151.3 million, or 17%, reflecting purchases, partially offset by repayments, called securities, and a temporary decrease in fair value.

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 $ 679.8 million, or 16%, with increases in both market deposits and wholesale term deposits. FHLB advances decreased by $ 371.3 million, or 63%, of December 31, 2020.

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

                                      -59-
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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 use level 2 data, representing quoted prices for similar assets or liabilities in active markets, quoted prices for the same or similar assets or liabilities in inactive markets, and valuations. derived from models in which all important input assumptions are observable in markets.

See notes 4 and 11 to the unaudited consolidated financial statements for additional information regarding the determination of the fair value of marketable securities.

Securities portfolio The book values ​​of the securities held are as follows: (in thousands of dollars)

                                                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 we government agencies and we government sponsored companies

                              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 Analysis

FHLB pro rata to the volume of funding received and considers purchases as a long term investment necessary for balance sheet liquidity purposes and not return on investment.

The Bank’s investment in FHLB shares amounts to $ 15.1 million To September 30, 2021, compared to $ 30.3 million To December 31, 2020.

Loans

Total loans amounted to $4.3 billion at September 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        58
Residential 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. At September 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 of September 30, 2021.

Commercial Loans
The commercial loan portfolio represented 55% of total loans at September 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, at September 30, 2021 and December 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-
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                      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 the U.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 at September 30, 2021, up by $28.8 million, or
2%, from the balance at December 31, 2020. Included in CRE loans were
construction and development loans of $125.4 million and $111.2 million,
respectively, as of September 30, 2021 and December 31, 2020. For the nine
months ended September 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 postponements as a percentage of the outstanding amount of the CRE portfolio on the dates indicated.

CRE loans with active postponements remaining at September 30, 2021 are capital carryforwards only and continue to pay interest. These postponements relate to segments of the healthcare, hospitality and retail industry, which are management segments previously identified as “at risk” of a significant impact from the COVID-19 pandemic.

Commercial and industrial loans (“C&I”) C&I loans amounted to $ 682.8 million To September 30, 2021, through $ 134.6 million, or 16%, from the balance to December 31, 2020. This included a net reduction in PPP loans of $ 122.4 million. Excluding PPP loans, C&I loans decreased by around $ 12.2 million, with refunds and refunds of approximately $ 87 million partially offset by new loan arrangements.

Shared national credit balances outstanding included in the C&I loan portfolio
totaled $43.4 million at September 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 at September 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



TO September 30, 2021, we had no active deferral on C&I loans.

                                      -63-
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                      Management's Discussion and Analysis

PPP loans are included in the C&I portfolio. The following table provides 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 at
September 30, 2021.

Residential real estate loans are issued both for sale in the secondary market and to be held in the Bank’s loan portfolio. We also create residential real estate loans for various investors as a broker, 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 total amount of the construction loan commitment for homeowners. (2) Includes negotiated loans (loans issued for third parties).

                                      -64-
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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 negotiated loans (loans issued on behalf of third parties).

Residential mortgage origination, refinancing and sales activity increased year over year in response to declining 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 of September 30, 2021 and December 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 of September 30, 2021 and December 31, 2020.

Residential real estate loans held in the portfolio amount to $ 1.7 billion To
September 30, 2021, up to $ 205.1 million, or 14%, from the balance to
December 31, 2020, reflecting a higher proportion of loans issued for the portfolio, as well as purchases of $ 39.3 million loans with a weighted average rate of 2.74%. Loans purchased have been individually valued according to our underwriting standards and are primarily secured by properties located in
Massachusetts.

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 and managed by other financial institutions totaling $ 89.5 million and $ 131.8 million, respectively, from September 30, 2021 and December 31, 2020.

TO September 30, 2021, we had no active deferral on residential real estate loans.

Consumer loans Consumer loans include home equity loans, lines of credit and personal installment loans.

The consumer loan portfolio totaled $269.5 million at September 30, 2021, down
by $8.8 million from December 31, 2020. Home equity lines of credit and home
equity loans represented 93% of the total consumer portfolio at September 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 other Washington 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 at September 30, 2021
and December 31, 2020.

TO September 30, 2021, we had no active carry-over on consumer loans.

                                      -65-
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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     

$ 13,197

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 ended September 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 unfunded credits: (in thousands of dollars)

                                             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




                                      -66-
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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 unrecorded loans out of total outstanding loans in the respective category.

There was no significant commitment to lend additional funds to borrowers whose loans were in non-accrual status. September 30, 2021.

Like both September 30, 2021 and December 31, 2020, the composition of unaccounted for loans was 100% residential and consumer.

Nonaccrual residential real estate mortgage loans amounted to $10.3 million at
September 30, 2021, down by $1.7 million from the end of 2020. As of
September 30, 2021, the balance of nonaccrual residential mortgage loans was
predominately secured by properties in Massachusetts, Connecticut and Rhode
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.

ToRs are declared as such for at least one year from the date of restructuring. In the years following the restructuring, a TOR is removed from this classification if the restructuring did not involve a concession at a below market rate and the loan is executed in accordance with its amended contractual terms for a reasonable period.

From September 30, 2021, there were no significant commitments to lend additional funds to borrowers whose loans had been restructured under TOR.

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.


                                      -67-
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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 reservations for RDTs of $ 195,000 To September 30, 2021, compared to $ 159,000 To December 31, 2020.

                                      -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 overdue loans in relation to total outstanding loans in the respective category.

As of September 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, at December 31, 2020. Total past due loans decreased
by $2.8 million from the end of 2020.

Total overdue loans included $ 6.9 million unaccounted for loans at
September 30, 2021, compared to $ 8.5 million from December 31, 2020. All loans that are 90 days or more past due at September 30, 2021 and December 31, 2020 were classified as unaccounted for.

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 at September 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
at September 30, 2021. There were no potential problem loans identified at
December 31, 2020. As of September 30, 2021, the balance of potential problem
loans consisted of three loans associated with two commercial real estate
relationships that management considers adequately secured. At October 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-
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                      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 consumer loans dependent on real estate guarantees which are in the process of collection, the valuations are obtained from independent appraisal firms whose values ​​are determined “as is”.

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.


                                      -70-
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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 September 30, 2021, compared to 1.05% at
December 31, 2020. ACL on loans is an estimate and terminal losses may differ from management’s estimate.

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 the respective category in relation to the 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 Company offers a wide variety of deposit products to consumers and businesses. Deposits are an important source of funding for the Bank as well as a continuous stream of commission income.

The Bank is a participant in the Demand 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 of FDIC insurance. As a program participant, we
receive reciprocal amounts of deposits from other participating banks. We
consider these reciprocal deposit balances to be in-market deposits as
distinguished from traditional out-of-market wholesale brokered deposits.


                                      -71-
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                      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 at September 30, 2021, up by $679.8
million, or 16%, from December 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 at December 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 at
Washington Trust.

Loans

Borrowings mainly 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 at September 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 more information on FHLB’s 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 ended September 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-
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                      Management's Discussion and Analysis

FHLB exceeding levels used in the ordinary course of business. The borrowing capacity is influenced 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                 2020

Additional financing capacity:

      Federal Home Loan Bank of Boston (1)     $1,492,659              

$ 969,735

      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
$ 40.0 million unused line of credit with the FHLB.

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 ended September 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 ended September 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 ended September 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 ended September 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 at September 30, 2021, up
by $21.1 million from December 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 Company declared a quarterly dividend of 52 cents per share for the three months ended September 30, 2021, compared to 51 cents per share declared for the same period in 2020. Since the beginning of the year, declarations of dividends total $ 1.56 per share in 2021, compared to $ 1.53 per share in 2020.

The ratio of total equity to total assets was 9.25% at September 30, 2021, against a ratio of 9.35% at December 31, 2020. Book value per share at
September 30, 2021 and December 31, 2020 was $ 32.06 and $ 30.94, respectively.

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% at September 30, 2021, compared to 13.51% at December 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-
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                      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 of September 30, 2021 and December 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 of September 30, 2021 and December 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-
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                      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 from December 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 at September 30, 2021 as compared to December 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 Company’s expectations 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

                                      -75-
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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 we government agencies and we
government sponsored companies

                                                  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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