WASHINGTON TRUST BANCORP INCWASH
WASHINGTON TRUST BANCORP INC Income Taxes Disclosure
Income Taxes
The following table presents income (loss) before income tax expense (benefit):
| (Dollars in thousands) | |||||||||||
| Years ended December 31, | 2025 | 2024 | 2023 | ||||||||
| Income (Loss) Before Income Tax Expense (Benefit): | |||||||||||
| U.S. | $67,413 | ($38,818) | $56,481 | ||||||||
| Total income (loss) before income tax expense (benefit) | $67,413 | ($38,818) | $56,481 | ||||||||
The following table presents the components of income tax expense (benefit):
| (Dollars in thousands) | |||||||||||
| Years ended December 31, | 2025 | 2024 | 2023 | ||||||||
| Current Tax Expense: | |||||||||||
| U.S. Federal | $2,246 | $5,166 | $10,494 | ||||||||
| U.S. State | 312 | 812 | 1,501 | ||||||||
Total current tax expense | 2,558 | 5,978 | 11,995 | ||||||||
| Deferred Tax Expense (Benefit): | |||||||||||
| U.S. Federal | 10,392 | (14,618) | 412 | ||||||||
| U.S. State | 2,219 | (2,119) | (4,102) | ||||||||
Total deferred tax expense (benefit) (1) | 12,611 | (16,737) | (3,690) | ||||||||
| Total income tax expense (benefit) | $15,169 | ($10,759) | $8,305 | ||||||||
(1) The deferred income tax benefit recognized in 2024 was largely associated with loans that were reclassified to held for sale and written down to fair value in December 2024. The sale of these loans was completed on January 24, 2025.
Total income tax expense varies from the amount determined by applying the Federal income tax rate to income before income taxes. The following table presents the reasons for the differences:
| Years ended December 31, | 2025 | 2024 | 2023 | |||||||||||||||||||||||
| (Dollars in thousands) | Amount | Rate | Amount | Rate | Amount | Rate | ||||||||||||||||||||
| U.S. federal statutory income tax | $ | 21.0 | % | 21.0 | % | $ | 21.0 | % | ||||||||||||||||||
State and local income tax expense (benefit), net of federal tax effect (1) | 2,212 | 3.3 | (1,037) | 2.7 | (2,145) | (3.7) | ||||||||||||||||||||
| Foreign tax effects | — | — | — | — | — | — | ||||||||||||||||||||
| Effect of changes in tax laws or rates enacted in the current period | — | — | — | — | — | — | ||||||||||||||||||||
| Effect of cross-border tax laws | — | — | — | — | — | — | ||||||||||||||||||||
| Tax credits: | ||||||||||||||||||||||||||
| Investments in low-income housing limited partnerships | (1,976) | (2.9) | (1,905) | 4.9 | (1,812) | (3.2) | ||||||||||||||||||||
| Changes in valuation allowance | — | — | — | — | — | — | ||||||||||||||||||||
| Nontaxable or nondeductible items: | ||||||||||||||||||||||||||
BOLI | (703) | (1.0) | (639) | 1.6 | (732) | (1.3) | ||||||||||||||||||||
| Investments in low-income housing limited partnerships proportional amortization and other benefits | 1,594 | 2.3 | 1,485 | (3.8) | 1,455 | 2.6 | ||||||||||||||||||||
| Tax-exempt income | (1,145) | (1.7) | (1,115) | 2.9 | (1,077) | (1.9) | ||||||||||||||||||||
| Nondeductible interest expense | 592 | 0.9 | 655 | (1.7) | 534 | 0.9 | ||||||||||||||||||||
| Other | 438 | 0.6 | (51) | 0.1 | 221 | 0.3 | ||||||||||||||||||||
| Changes in unrecognized tax benefits | — | — | — | — | — | — | ||||||||||||||||||||
| Total income tax expense (benefit) | $15,169 | 22.5 | % | ($10,759) | 27.7 | % | $8,305 | 14.7 | % | |||||||||||||||||
(1) Massachusetts taxes represent the majority (greater than 50%) of state and local tax expense (benefit). Also, 2023 includes the impact of a revaluation of deferred tax assets and liabilities due to a Commonwealth of Massachusetts tax bill enacted into law.
Income tax expense in 2024 was impacted by the execution of balance sheet repositioning transactions, including the sale of lower-yielding loans and securities. See additional disclosure in Note 14 regarding use of proceeds from the public offering of common stock by the Bancorp.
The following table presents information regarding income taxes paid, net of refunds:
| Years ended December 31, | 2025 | 2024 | 2023 | |||||||||||
| U.S. federal tax | $— | $5,700 | $8,500 | |||||||||||
U.S. state tax (1): | Massachusetts | — | 1,300 | 1,225 | ||||||||||
| Connecticut | (170) | — | — | |||||||||||
| New York | 21 | 150 | 130 | |||||||||||
| All other | 7 | 86 | 71 | |||||||||||
| Income taxes paid, net of refunds | ($142) | $7,236 | $9,926 | |||||||||||
(1)Amounts separately stated for jurisdictions exceeding 5% of total income tax paid (net of refunds).
The following table presents the approximate tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities:
| (Dollars in thousands) | ||||||||
| December 31, | 2025 | 2024 | ||||||
| Deferred Tax Assets: | ||||||||
| Net unrealized losses on available for sale debt securities | $23,716 | $33,646 | ||||||
Operating lease liabilities | 9,681 | 7,469 | ||||||
| Allowance for credit losses on loans | 9,309 | 10,595 | ||||||
| Deferred compensation liabilities | 5,548 | 5,439 | ||||||
| State net operating loss carryforwards | 3,559 | 2,840 | ||||||
Defined benefit pension obligations | 3,255 | 1,246 | ||||||
Share-based compensation | 1,907 | 1,779 | ||||||
Deferred loan origination fees | 1,673 | 1,857 | ||||||
| Federal tax credit carryforwards | 1,535 | — | ||||||
| Cash flow hedges | 965 | 2,595 | ||||||
| Capital loss carryforward | 368 | 1,550 | ||||||
| Loss on portfolio loans reclassified to held for sale | — | 15,093 | ||||||
Other | 1,822 | 2,068 | ||||||
Deferred tax assets | 63,338 | 86,177 | ||||||
| Valuation allowance | (4,396) | (3,780) | ||||||
| Deferred tax assets, net of valuation allowance | 58,942 | 82,397 | ||||||
| Deferred Tax Liabilities: | ||||||||
Operating lease ROU assets | (8,976) | (6,803) | ||||||
Deferred loan origination costs | (5,772) | (6,784) | ||||||
| Non-elective employer 401(k) contributions | (2,403) | — | ||||||
Loan servicing rights | (1,639) | (1,936) | ||||||
| Depreciation of premises and equipment | (1,257) | (1,956) | ||||||
| Deferred compensation assets | (786) | (577) | ||||||
Amortization of intangibles | (546) | (729) | ||||||
Other | (711) | (590) | ||||||
Deferred tax liabilities | (22,090) | (19,375) | ||||||
| Net deferred tax asset | $36,852 | $63,022 | ||||||
The Corporation’s net deferred tax asset is included in other assets in the Consolidated Balance Sheets. Net deferred tax assets decreased by $26.2 million during 2025. This decrease included the realization of a deferred tax asset established in December 2024 associated with the loans that were reclassified to held for sale and written down to fair value as part of the balance sheet repositioning transactions. This deferred tax asset was realized in January 2025 when the loan sale was completed. Excluding that item, the decrease largely reflected reductions in deferred tax assets associated with increases in fair value of securities available for sale.
Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets are realized primarily through future reversals of existing taxable temporary differences or by offsetting projected future taxable income.
The valuation allowance amounted to $4.4 million and $3.8 million, respectively, at December 31, 2025 and 2024 and reflected management’s estimate regarding the realizability of a portion of the Corporation’s state deferred tax assets, largely associated with state net operating loss carryforwards. These operating loss carryforwards have various expirations beginning in 2042, the majority of which are subject to annual usage limitations. Management’s assessment considered the
Corporation’s forecasted future taxable income, existing taxable temporary differences along with tax planning strategies. Management believes deferred tax assets, net of the valuation allowance, are more-likely-than-not to be realized.
The Corporation established a deferred tax asset of $1.5 million related to tax credit carryforwards in 2025. These credits have various expirations beginning in 2041.
The Corporation had no unrecognized tax benefits as of December 31, 2025 and 2024.
The Corporation files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Generally, the Corporation is no longer subject to U.S. federal income and state tax examinations by tax authorities for years before 2022.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.