W T B Financial : Annual Report

Audited Financial Statements 2022

Report of Independent Auditors

The Board of Directors

W.T.B. Financial Corporation and Subsidiary (Washington Trust Bank)

Report on the Audit of the Financial Statements

Opinion

We have audited the consolidated financial statements of W.T.B. Financial Corporation and Subsidiary, which comprise the consolidated statements of financial condition as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of W.T.B. Financial Corporation and Subsidiary as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2022, in accordance with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with auditing standards generally accepted in the United States of America, Washington Trust Bank's internal control over financial reporting as of December 31, 2022, based on criteria established in the Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) relevant to internal reporting objectives for the express purpose of meeting the regulatory requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) and our report dated March 17, 2023, expressed an unmodified opinion.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of W.T.B. Financial Corporation and Subsidiary and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about W.T.B. Financial Corporation and Subsidiary's ability to continue as a going concern within one year after the date that the financial statements are issued.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

•  Exercise professional judgment and maintain professional skepticism throughout the audit.

•  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

•  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.

•  Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

•  Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about W.T.B. Financial Corporation and Subsidiary's ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Other Matter

Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The Consolidated Financial Highlights on page 3 are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the consolidated financial statements, and accordingly, we express no opinion on it.

Everett, Washington

March 17, 2023

Selected Consolidated Financial Highlights

(unaudited) (dollars in thousands, except per share data)

At or for the Years Ended December 31,2022

2021

2020

2019

2018

PERFORMANCE

Net interest revenue, fully tax-equivalent Fully tax-equivalent adjustment

• $ 323,305 185

  • $ 299,320

    • $ 272,625

  • 263

    • 368

      • $ 255,519 461

        • $ 236,749 497

          Net interest revenue

          323,120

  • 299,057

    • 272,257

      255,058 236,252

      (Recapture of) provision for loan losses

      (20,500)

  • 9,000

    • 33,000

      3,200 2,700

      Net interest revenue after provision for loan losses Noninterest revenue

      343,620

  • 290,057

    • 239,257

      251,858 233,552

      58,183

  • 67,848

    • 67,372

      48,297 52,926

      Noninterest expense

      256,026

  • 229,910

    • 208,740

      193,416 182,042

      Income before provision for income taxes Provision for income taxes

      145,777

  • 127,995

    • 97,889

      106,739 104,436

      31,724

  • 27,965

    • 21,577

      23,455 21,380

      Net income available to common shareholders

• $ 114,053

  • $ 100,030

    • $ 76,312

    • $ 83,284

      • $ 83,056

        SELECTED YEAR-END DATA Interest-bearing deposits with banks Debt securities

• $ 273,938

• $ 1,987,135

  $

  1,463,300

  • $ 523,953

  • $ 751,180

    3,759,164

• 3,325,754

  2,578,360

  • 1,895,823 1,589,251

    Total loans

    6,042,262

• 5,536,076

  5,591,532

  • 4,542,597 4,047,398

  Allowance for loan losses Earning assets

  120,839

  140,603

  132,811

  96,415

  90,749

  10,133,251

  10,854,717

  9,561,272

  • 6,958,855 6,420,888

    Total assets Deposits Interest-bearing liabilities Total shareholders' equity Full-time equivalent employees

    10,423,090

• 11,089,567

  9,813,963

  • 7,164,664 6,552,350

    9,217,086

• 9,890,270

  8,698,791

  • 6,226,866 5,638,923

    5,180,503

• 5,556,691

  4,763,925

  • 3,572,797 3,485,267

  867,129

  832,945

806,518

695,904 602,665

1,125

1,095

1,070

1,021 996

PER COMMON SHARE

Net income available to common shareholders (basic) Net income available to common shareholders (diluted) Common cash dividends

$

Total shareholders' equity

• 45.32 $ 45.28 10.40 344.59

39.46 39.40 9.40 328.11

$

30.09 30.06 7.40 316.30

$

32.62

• $ 32.52

32.56 32.42 7.00 4.60 272.23 234.45

PERFORMANCE RATIOS Return on average assets

1.06%

0.96%

0.89%

1.26% 1.30%

Return on average shareholders' equity Margin on average earning assets Noninterest expense to average assets Efficiency ratio

13.45%

12.34%

9.90%

12.70% 14.94%

3.08%

2.95%

3.28%

3.97% 3.77%

2.38%

2.21%

2.43%

2.93% 2.86%

67.1%

62.6%

61.4%

63.7% 62.8%

Net loans to deposits

64.2%

54.6%

62.8%

71.4% 70.2%

Total cash dividends to net income

22.9%

23.8%

24.6%

21.5% 14.2%

CAPITAL RATIOS

Total equity to total assets Tier 1 leverage

8.32%

7.51%

8.22%

9.71% 9.20%

8.62%

7.64%

8.06%

10.34% 9.81%

Common equity tier 1 capital Tier 1 risk-based capital Total risk-based capital

12.49%

12.53%

13.29%

13.02% 13.36%

12.49%

12.53%

13.29%

13.02% 13.36%

13.75%

13.79%

14.55%

14.28% 14.62%

ASSET QUALITY RATIOS Allowance for loan losses to total loans Allowance for loan losses to noncurrent loans Net charge-offs (recoveries) to total average loans Noncurrent loans and ORE to assets

2.00%

2.54%

2.38%

2.12% 2.24%

3,743%

273%

1,162%

671% 755%

(0.01%)

0.02%

(0.06%)

(0.06%) (0.03%)

0.03%

0.46%

0.12%

0.20% 0.18%

Noncurrent loans, ORE and TDRs to assets

0.04%

0.47%

0.13%

0.22% 0.20%

Consolidated Statements of Financial Condition

December 31,

2022

ASSETS

Cash and due from banks Interest-bearing deposits with banks Securities available for sale, at fair value Securities held to maturity, at amortized cost

Federal Home Loan Bank and Pacific Coast Bankers' Bancshares stock, at cost Loans receivable:

Held for sale Held in portfolio

Total loans

Allowance for loan losses

Loans, net of allowance for loan losses Premises and equipment, net

Operating lease right of use assets Deferred income taxes, net

Cash surrender value of life insurance, net Accrued interest receivable

Prepaid expenses and other assets

Total assets

LIABILITIES

Deposits:

Noninterest-bearing Interest-bearing

Total deposits

Securities sold under agreements to repurchase Other borrowings

Operating lease liabilities Accrued interest payable Other liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES (NOTE 18)

SHAREHOLDERS' EQUITY

Class C preferred stock, no par value, 500,000 shares authorized; no shares issued and outstanding

Class A common stock, no par value, 25,000 shares authorized, issued and outstanding Class B common stock, no par value, 3,475,000 shares authorized; 2,491,430 shares issued and outstanding at December 31, 2022; 2,513,617 issued and outstanding at December 31, 2021

Surplus

Undivided profits

Accumulated other comprehensive loss, net of tax

Total shareholders' equity

Total liabilities and shareholders' equity

See notes to consolidated financial statements.

$

119,932,630 273,938,004 537,169,969 3,221,994,093

10,060,000 10,060,000

- 4,283,439

2021

• $ 62,283,161 1,987,135,451 538,718,995 2,787,035,395

  6,042,262,030 6,042,262,030 (120,838,526) 5,921,423,504

  5,531,792,118 5,536,075,557 (140,603,388) 5,395,472,169

  87,432,873 88,114,622

  12,552,387 16,082,007

  41,250,613 30,795,996

  85,416,642 84,788,121

  32,246,663 23,678,316

  79,672,191 65,403,261

  • $ 10,423,089,569

• $ 11,089,567,494

  $

  4,245,614,949

  4,971,470,925 5,297,117,374

• $ 4,593,153,112

9,217,085,874

9,890,270,486

209,031,623 239,510,563

- 20,063,287

13,461,452 17,188,096

370,567 116,010,801 9,555,960,317

662,208 88,927,522 10,256,622,162

- 250,000

- 250,000

10,851,840 19,012,049

32,665,000 32,665,000

871,561,981 783,617,442

915,328,821 (48,199,569) 867,129,252

• $ 10,423,089,569

835,544,491

(2,599,159) 832,945,332

$

11,089,567,494