Form 10-Q for Quarter Ended June 30, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
xQuarterly
Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for
the
quarterly period ended JUNE 30,
2006
or
oTransition
Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for
the
transition period from ______ to ______.
Commission
file number: 000-13091
WASHINGTON TRUST BANCORP, INC.
(Exact
name of registrant as specified in its charter)
RHODE
ISLAND
|
|
05-0404671
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
23
BROAD STREET
|
|
|
WESTERLY,
RHODE ISLAND
|
|
02891
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(401)
348-1200
|
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
xYes oNo
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
oLarge
accelerated
filer xAccelerated
filer oNon-accelerated
filer
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
oYes xNo
The
number of shares of common stock of the registrant outstanding as of
July 31, 2006 was 13,442,052.
This
report contains certain statements that may be considered “forward-looking
statements” within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical facts, including
statements regarding our strategy, effectiveness of investment programs,
evaluations of future interest rate trends and liquidity, expectations as to
growth in assets, deposits and results of operations, success of acquisitions,
future operations, market position, financial position, and prospects, plans,
goals and objectives of management are forward-looking statements. The actual
results, performance or achievements of the Corporation (as defined below)
could
differ materially from those projected in the forward-looking statements as
a
result of, among other factors, changes in general national or regional economic
conditions, changes in interest rates, reductions in the market value of wealth
management and trust assets under administration, reductions in loan demand,
reductions in deposit levels necessitating increased borrowing to fund loans
and
investments, changes in loan default and charge-off rates, changes in the size
and nature of the Corporation’s competition, changes in legislation or
regulation and accounting principles, policies and guidelines, and changes
in
the assumptions used in making such forward-looking statements. The Corporation
assumes no obligation to update forward-looking statements or
update
the reasons actual results, performance or achievements could differ materially
from those provided in the forward-looking statements, except as required by
law.
|
|
|
|
WASHINGTON
TRUST BANCORP, INC. AND SUBSIDIARIES
|
(Dollars
in thousands)
|
|
|
(Unaudited)
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
Assets:
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
44,042
|
|
$
|
48,997
|
|
Federal
funds sold and other short-term investments
|
|
|
8,133
|
|
|
17,166
|
|
Mortgage
loans held for sale
|
|
|
1,362
|
|
|
439
|
|
Securities:
|
|
|
|
|
|
|
|
Available
for sale, at fair value; amortized cost $636,298 in 2006 and $620,638
in
2005
|
|
|
625,793
|
|
|
619,234
|
|
Held
to maturity, at cost; fair value $155,484 in 2006 and $162,756 in
2005
|
|
|
160,458
|
|
|
164,707
|
|
Total
securities
|
|
|
786,251
|
|
|
783,941
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
33,915
|
|
|
34,966
|
|
Loans:
|
|
|
|
|
|
|
|
Commercial
and other
|
|
|
565,609
|
|
|
554,734
|
|
Residential
real estate
|
|
|
589,194
|
|
|
582,708
|
|
Consumer
|
|
|
276,505
|
|
|
264,466
|
|
Total
loans
|
|
|
1,431,308
|
|
|
1,401,908
|
|
Less
allowance for loan losses
|
|
|
18,480
|
|
|
17,918
|
|
Net
loans
|
|
|
1,412,828
|
|
|
1,383,990
|
|
Premises
and equipment, net
|
|
|
24,261
|
|
|
23,737
|
|
Accrued
interest receivable
|
|
|
10,749
|
|
|
10,594
|
|
Investment
in bank-owned life insurance
|
|
|
38,985
|
|
|
30,360
|
|
Goodwill
|
|
|
39,963
|
|
|
39,963
|
|
Identifiable
intangible assets, net
|
|
|
13,598
|
|
|
14,409
|
|
Other
assets
|
|
|
18,190
|
|
|
13,441
|
|
Total
assets
|
|
$
|
2,432,277
|
|
$
|
2,402,003
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$
|
184,227
|
|
$
|
196,102
|
|
NOW
accounts
|
|
|
178,063
|
|
|
178,677
|
|
Money
market accounts
|
|
|
239,912
|
|
|
223,255
|
|
Savings
accounts
|
|
|
191,585
|
|
|
212,499
|
|
Time
deposits
|
|
|
877,010
|
|
|
828,725
|
|
Total
deposits
|
|
|
1,670,797
|
|
|
1,639,258
|
|
Dividends
payable
|
|
|
2,554
|
|
|
2,408
|
|
Federal
Home Loan Bank advances
|
|
|
543,588
|
|
|
545,323
|
|
Junior
subordinated debentures
|
|
|
22,681
|
|
|
22,681
|
|
Other
borrowings
|
|
|
7,173
|
|
|
9,774
|
|
Accrued
expenses and other liabilities
|
|
|
24,155
|
|
|
24,113
|
|
Total
liabilities
|
|
|
2,270,948
|
|
|
2,243,557
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
Common
stock of $.0625 par value; authorized 30,000,000 shares;
|
|
|
|
|
|
|
|
issued
13,443,046 shares in 2006 and 13,372,295 in 2005
|
|
|
840
|
|
|
836
|
|
Paid-in
capital
|
|
|
34,516
|
|
|
32,778
|
|
Retained
earnings
|
|
|
133,880
|
|
|
126,735
|
|
Accumulated
other comprehensive loss
|
|
|
(7,566
|
)
|
|
(1,653
|
)
|
Treasury
stock, at cost; 13,677 shares in 2006 and 10,519 shares in
2005
|
|
|
(341
|
)
|
|
(250
|
)
|
Total
shareholders’ equity
|
|
|
161,329
|
|
|
158,446
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,432,277
|
|
$
|
2,402,003
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
WASHINGTON
TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
(Dollars
and shares in thousands,
|
|
|
|
except
per share amounts)
|
|
|
|
(Unaudited)
|
|
|
|
Three
Months
|
|
Six
Months
|
|
Periods
ended June 30,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
23,130
|
|
$
|
19,096
|
|
$
|
45,027
|
|
$
|
36,921
|
|
Interest
on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
8,648
|
|
|
8,285
|
|
|
17,060
|
|
|
16,719
|
|
Nontaxable
|
|
|
371
|
|
|
204
|
|
|
699
|
|
|
389
|
|
Dividends
on corporate stock and Federal Home Loan Bank stock
|
|
|
249
|
|
|
625
|
|
|
926
|
|
|
1,244
|
|
Interest
on federal funds sold and other short-term investments
|
|
|
150
|
|
|
79
|
|
|
265
|
|
|
134
|
|
Total
interest income
|
|
|
32,548
|
|
|
28,289
|
|
|
63,977
|
|
|
55,407
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
11,161
|
|
|
7,627
|
|
|
21,399
|
|
|
14,559
|
|
Federal
Home Loan Bank advances
|
|
|
5,745
|
|
|
5,670
|
|
|
11,104
|
|
|
11,219
|
|
Junior
subordinated debentures
|
|
|
338
|
|
|
-
|
|
|
676
|
|
|
-
|
|
Other
|
|
|
87
|
|
|
20
|
|
|
166
|
|
|
36
|
|
Total
interest expense
|
|
|
17,331
|
|
|
13,317
|
|
|
33,345
|
|
|
25,814
|
|
Net
interest income
|
|
|
15,217
|
|
|
14,972
|
|
|
30,632
|
|
|
29,593
|
|
Provision
for loan losses
|
|
|
300
|
|
|
300
|
|
|
600
|
|
|
600
|
|
Net
interest income after provision for loan losses
|
|
|
14,917
|
|
|
14,672
|
|
|
30,032
|
|
|
28,993
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
management and trust services
|
|
|
6,177
|
|
|
3,486
|
|
|
12,059
|
|
|
6,698
|
|
Service
charges on deposit accounts
|
|
|
1,236
|
|
|
1,168
|
|
|
2,355
|
|
|
2,179
|
|
Merchant
processing fees
|
|
|
1,656
|
|
|
1,337
|
|
|
2,703
|
|
|
2,115
|
|
Income
from bank-owned life insurance
|
|
|
346
|
|
|
279
|
|
|
625
|
|
|
551
|
|
Net
gains on loan sales
|
|
|
336
|
|
|
418
|
|
|
612
|
|
|
905
|
|
Net
realized gains on securities
|
|
|
765
|
|
|
3
|
|
|
824
|
|
|
3
|
|
Other
income
|
|
|
931
|
|
|
303
|
|
|
1,789
|
|
|
622
|
|
Total
noninterest income
|
|
|
11,447
|
|
|
6,994
|
|
|
20,967
|
|
|
13,073
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
9,830
|
|
|
7,450
|
|
|
19,449
|
|
|
14,909
|
|
Net
occupancy
|
|
|
1,018
|
|
|
802
|
|
|
1,972
|
|
|
1,655
|
|
Equipment
|
|
|
881
|
|
|
869
|
|
|
1,680
|
|
|
1,751
|
|
Merchant
processing costs
|
|
|
1,407
|
|
|
1,098
|
|
|
2,294
|
|
|
1,734
|
|
Advertising
and promotion
|
|
|
681
|
|
|
733
|
|
|
1,118
|
|
|
1,036
|
|
Outsourced
services
|
|
|
496
|
|
|
444
|
|
|
1,014
|
|
|
857
|
|
Legal,
audit and professional fees
|
|
|
403
|
|
|
520
|
|
|
779
|
|
|
912
|
|
Amortization
of intangibles
|
|
|
406
|
|
|
99
|
|
|
811
|
|
|
246
|
|
Other
|
|
|
2,158
|
|
|
1,358
|
|
|
3,867
|
|
|
2,717
|
|
Total
noninterest expense
|
|
|
17,280
|
|
|
13,373
|
|
|
32,984
|
|
|
25,817
|
|
Income
before income taxes
|
|
|
9,084
|
|
|
8,293
|
|
|
18,015
|
|
|
16,249
|
|
Income
tax expense
|
|
|
2,907
|
|
|
2,654
|
|
|
5,765
|
|
|
5,200
|
|
Net
income
|
|
$
|
6,177
|
|
$
|
5,639
|
|
$
|
12,250
|
|
$
|
11,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
13,419.9
|
|
|
13,296.0
|
|
|
13,403.4
|
|
|
13,289.4
|
|
Weighted
average shares outstanding - diluted
|
|
|
13,703.2
|
|
|
13,592.3
|
|
|
13,699.6
|
|
|
13,602.3
|
|
Per
share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.46
|
|
$
|
0.42
|
|
$
|
0.91
|
|
$
|
0.83
|
|
Diluted
earnings per share
|
|
$
|
0.45
|
|
$
|
0.41
|
|
$
|
0.89
|
|
$
|
0.81
|
|
Cash
dividends declared per share
|
|
$
|
0.19
|
|
$
|
0.18
|
|
$
|
0.38
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
WASHINGTON
TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
(Dollars
in thousands)
|
|
|
|
|
|
Six
months ended June 30,
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
12,250
|
|
$
|
11,049
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
600
|
|
|
600
|
|
Depreciation
of premises and equipment
|
|
|
1,513
|
|
|
1,507
|
|
Net
amortization of premium and discount
|
|
|
791
|
|
|
1,210
|
|
Net
amortization of intangibles
|
|
|
811
|
|
|
246
|
|
Share-based
compensation
|
|
|
360
|
|
|
154
|
|
Earnings
from bank-owned life insurance
|
|
|
(625
|
)
|
|
(551
|
)
|
Net
gains on loan sales
|
|
|
(612
|
)
|
|
(905
|
)
|
Net
realized gains on securities
|
|
|
(824
|
)
|
|
(3
|
)
|
Proceeds
from sales of loans
|
|
|
18,208
|
|
|
28,103
|
|
Loans
originated for sale
|
|
|
(18,646
|
)
|
|
(28,353
|
)
|
Increase
in accrued interest receivable, excluding purchased
interest
|
|
|
(51
|
)
|
|
(390
|
)
|
Increase
in other assets
|
|
|
(1,562
|
)
|
|
(3,046
|
)
|
Increase
in accrued expenses and other liabilities
|
|
|
42
|
|
|
1,121
|
|
Other,
net
|
|
|
(101
|
)
|
|
37
|
|
Net
cash provided by operating activities
|
|
|
12,154
|
|
|
10,779
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of: Mortgage-backed securities available for sale
|
|
|
(23,854
|
)
|
|
(31,993
|
)
|
Other
investment securities available for sale
|
|
|
(41,868
|
)
|
|
(22,223
|
)
|
Mortgage-backed
securities held to maturity
|
|
|
-
|
|
|
(17,505
|
)
|
Other
investment securities held to maturity
|
|
|
(12,526
|
)
|
|
(14,113
|
)
|
Proceeds
from sale of: Mortgage-backed securities available for sale
|
|
|
1,026
|
|
|
-
|
|
Other
investment securities available for sale
|
|
|
193
|
|
|
41,199
|
|
Maturities
and principal payments of: Mortgage-backed securities available for
sale
|
|
|
49,168
|
|
|
59,193
|
|
Other
investment securities available for sale
|
|
|
-
|
|
|
30,000
|
|
Mortgage-backed
securities held to maturity
|
|
|
8,965
|
|
|
13,675
|
|
Other
investment securities held to maturity
|
|
|
7,685
|
|
|
2,110
|
|
Remittance
(purchase) of Federal Home Loan Bank stock
|
|
|
1,051
|
|
|
(593
|
)
|
Principal
collected on loans under loan originations
|
|
|
(8,016
|
)
|
|
(40,454
|
)
|
Purchases
of loans, including purchased interest
|
|
|
(21,592
|
)
|
|
(55,207
|
)
|
Purchases
of premises and equipment
|
|
|
(2,037
|
)
|
|
(1,425
|
)
|
Purchases
of bank-owned life insurance
|
|
|
(8,000
|
)
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(49,805
|
)
|
|
(37,336
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
31,541
|
|
|
72,819
|
|
Net
decrease in other borrowings
|
|
|
(2,601
|
)
|
|
(541
|
)
|
Proceeds
from Federal Home Loan Bank advances
|
|
|
338,104
|
|
|
387,683
|
|
Repayment
of Federal Home Loan Bank advances
|
|
|
(339,814
|
)
|
|
(434,753
|
)
|
Purchases
of treasury stock, net
|
|
|
(91
|
)
|
|
20
|
|
Proceeds
from the issuance of common stock under dividend reinvestment
plan
|
|
|
610
|
|
|
-
|
|
Proceeds
from the exercise of share options
|
|
|
632
|
|
|
226
|
|
Tax
benefit from share option exercises
|
|
|
241
|
|
|
-
|
|
Cash
dividends paid
|
|
|
(4,959
|
)
|
|
(4,651
|
)
|
Net
cash provided by financing activities
|
|
|
23,663
|
|
|
20,803
|
|
Net
decrease in cash and cash equivalents
|
|
|
(13,988
|
)
|
|
(5,754
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
66,163
|
|
|
52,081
|
|
Cash
and cash equivalents at end of period
|
|
$
|
52,175
|
|
$
|
46,327
|
|
Noncash
Investing and Financing Activities: Loans
charged off
|
|
$
|
151
|
|
$
|
238
|
|
Supplemental
Disclosures: Interest
payments
|
|
|
32,588
|
|
|
25,023
|
|
Income
tax payments (refunds)
|
|
|
6,400
|
|
|
5,241
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
|
|
|
General
Washington
Trust Bancorp, Inc. (the “Bancorp”) is a publicly-owned registered bank holding
company and financial holding company. The Bancorp owns all of the outstanding
common stock of The Washington Trust Company (the “Bank”), a Rhode Island
chartered commercial bank founded in 1800. Through its subsidiaries, the Bancorp
offers a complete product line of financial services to individuals and
businesses including commercial, residential and consumer lending, retail and
commercial deposit products, and wealth management and trust services through
its branch offices in Rhode Island, Massachusetts and southeastern Connecticut,
ATMs, and its Internet web site (www.washtrust.com).
(1)
Basis of Presentation
The
consolidated financial statements include the accounts of the Bancorp and its
subsidiaries (collectively, the “Corporation” or “Washington Trust”). All
significant intercompany transactions have been eliminated. Certain prior year
amounts have been reclassified to conform to the current year classification.
Such reclassifications have no effect on previously reported net income or
shareholders’ equity.
The
accounting and reporting policies of the Corporation conform to accounting
principles generally accepted in the United States of America (“GAAP”) and to
general practices of the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
from
those estimates. Material estimates that are particularly susceptible to change
are the determination of the allowance for loan losses and the review of
goodwill and other intangible assets for impairment.
In
the
opinion of management, the accompanying consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) and
disclosures necessary to present fairly the Corporation’s financial position as
of June 30, 2006 and December 31, 2005, respectively, and the
results of operations and cash flows for the interim periods presented. The
unaudited consolidated financial statements of the Corporation presented herein
have been prepared pursuant to the rules of the Securities and Exchange
Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of
the information and note disclosures required by accounting principles generally
accepted in the United States of America. The accompanying consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in Washington Trust’s Annual
Report on Form 10-K for the year ended December 31, 2005.
(2)
New Accounting Pronouncements
In
May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 154, “Accounting Changes and Error Corrections”. SFAS No 154
replaces Accounting Principles Board (“APB”) Opinion No. 20, “Accounting
Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim
Financial Statements”, and changes the requirements for the accounting for and
reporting of a change in accounting principle. This Statement applies to all
voluntary changes in accounting principles. It also applies to changes required
by an accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. APB Opinion 20 previously
required that most voluntary changes in accounting principle be recognized
by
including in net income of the period of the change the cumulative effect of
changing to the new accounting principle. SFAS No. 154 requires
retrospective application to prior periods’ financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. SFAS
No. 154 defines retrospective application as the application of a different
accounting principle to prior accounting periods as if that principle had always
been used or as the adjustment of previously issued financial statements to
reflect a change in the reporting entity. This Statement also redefines
restatement as the revising of previously issued financial statements to reflect
the correction of an error. This Statement requires that retrospective
application of a change in accounting principle be limited to the direct effects
of the change. This Statement carries forward without change the guidance
contained in APB Opinion 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate.
This
Statement also carries forward the guidance in APB Opinion 20 requiring
justification of a change in accounting principle on the basis of preferability.
This Statement was effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. The adoption of
SFAS No. 154 did not have a material impact on the Corporation’s financial
position or results of operations.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
In
November 2005, the FASB issued FASB Staff Position (“FSP”) 115-1, “The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain Investments.”
This FSP provides additional guidance on when an investment in a debt or equity
security should be considered impaired, and when that impairment should be
considered other-than-temporary and recognized as a loss in earnings.
Specifically, the guidance clarifies that an investor should recognize an
impairment loss no later than when the impairment is deemed
other-than-temporary, even if a decision to sell has not been made. The FSP
also
requires certain disclosures about unrealized losses that have not been
recognized as other-than-temporary impairments. This FSP was effective for
reporting periods beginning after December 15, 2005. The adoption of
FSP 115-1 did not have a material impact on the Corporation’s financial
position or results of operations.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 140.”
This Statement eliminates the exemption from applying SFAS No. 133 to
interests in securitized financial assets so that similar instruments are
accounted for similarly regardless of the form of the instruments. This
Statement also allows a preparer to elect fair value measurement at acquisition,
at issuance, or when a previously recognized financial instrument is subject
to
a remeasurement event, on an instrument-by-instrument basis, in cases in which
a
derivative would otherwise have to be bifurcated. SFAS No. 155 is effective
for all financial instruments acquired or issued after the beginning of an
entity’s first fiscal year that begins after September 15, 2006. Provisions
of this Statement may be applied to instruments that an entity holds at the
date
of adoption on an instrument-by-instrument basis. Prior periods should not
be
restated. The Corporation believes the adoption of SFAS No. 155 will not
have a material impact on the Corporation’s financial position or results of
operations.
In
March
2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
Assets - an amendment of FASB Statement No. 140.” This Statement requires
that all separately recognized servicing assets and servicing liabilities be
initially measured at fair value. SFAS No. 156 permits, but does not
require, the subsequent measurement of servicing assets and servicing
liabilities at fair value. An entity that used derivative instruments to
mitigate the risks inherent in servicing assets and servicing liabilities is
required to account for those derivative instruments at fair value. SFAS
No. 156 is effective as of the beginning of the first fiscal year that
begins after September 15, 2006. The Corporation believes the adoption of
SFAS No. 156 will not have a material impact on the Corporation’s financial
position or results of operations.
In
June
2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN 48").
FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with FASB Statement No.
109, "Accounting for Income Taxes." FIN 48 also prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax return.
In
addition, FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006. The provisions of FIN 48 are to be
applied to all tax positions upon initial adoption of this standard. Only tax
positions that meet the more-likely-than-not recognition threshold at the
effective date may be recognized or continue to be recognized upon adoption
of
FIN 48. The Corporation has not yet determined the potential financial
impact of adopting FIN 48.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(3)
Share-Based Compensation Arrangements
Washington
Trust has three share-based compensation plans, which are described below.
Effective January 1, 2006, the fair value recognition provisions of
SFAS 123R, “Share-Based Payment”, were adopted on a modified prospective
basis. Prior to this date, the provisions of APB No. 25 and related
interpretations were applied for option grant accounting.
In
the
Corporation’s consolidated financial statements for the three and six months
ended June 30, 2005, the following pro forma net income and earnings
per share information was disclosed in accordance with SFAS No. 123 and
SFAS No. 148:
(Dollars
in thousands, except per share amounts)
|
|
Three
Months
|
|
Six
Months
|
|
|
|
|
|
Ended
|
|
Ended
|
|
|
|
|
|
June 30,
2005
|
|
June 30,
2005
|
|
Net
income
|
|
|
As
reported
|
|
$
|
5,639
|
|
$
|
11,049
|
|
Less
total share-based compensation determined under
|
|
|
|
|
|
|
|
|
|
|
the
fair value method for all awards, net of tax
|
|
|
|
|
|
(590
|
)
|
|
(728
|
)
|
Pro
forma
|
|
|
|
|
$
|
5,049
|
|
$
|
10,321
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
As
reported
|
|
$
|
0.42
|
|
$
|
0.83
|
|
Pro
forma
|
|
|
|
|
$
|
0.38
|
|
$
|
0.78
|
|
Diluted
earnings per share
|
|
|
As
reported
|
|
$
|
0.41
|
|
$
|
0.81
|
|
Pro
forma
|
|
|
|
|
$
|
0.37
|
|
$
|
0.76
|
|
The
Bancorp’s 2003 Stock Incentive Plan, as amended (the “2003 Plan”), which is
shareholder approved, permits the granting of share options and other equity
incentives to officers, employees, directors, and other key persons. Up to
600,000 shares of the Bancorp’s common stock may be used from authorized but
unissued shares, treasury stock, shares reacquired by the Corporation, or shares
available from expired or terminated awards. No more than 200,000 shares may
be
issued in the form of awards other than share options or stock appreciation
rights. Share options are designated as either non-qualified or incentive share
options. Incentive share option awards may be granted at any time until
February 20, 2013.
The
Bancorp’s 1997 Equity Incentive Plan, as amended (the “1997 Plan”), which is
shareholder approved, permits the granting of share options and other equity
incentives to key employees, directors, advisors, and consultants. Up to
1,012,500 shares of the Bancorp’s common stock may be used from authorized but
unissued shares, treasury stock, shares reacquired by the Corporation, or shares
available from expired or terminated awards. Share options are designated as
either non-qualified or incentive share options. Incentive share option awards
may be granted at any time until April 29, 2007.
The
Amended and Restated 1988 Stock Option Plan (the “1988 Plan”), which was
shareholder approved, provided for the granting of share options to directors,
officers and key employees. The 1988 Plan permitted share options to be granted
at any time until December 31, 1997. The 1988 Plan provided for shares of
the Bancorp’s common stock to be used from authorized but unissued shares,
treasury stock, or shares available from expired awards. Share options were
designated as either non-qualified or incentive share options.
The
1988
Plan, the 1997 Plan and the 2003 Plan (collectively, “the Plans”) permit options
to be granted with stock appreciation rights ("SARs"), however, no share options
have been granted with SARs. Pursuant to the Plans, the exercise price of each
share option may not be less than fair market value of the common stock on
the
date of the grant. In general, the share option price is payable in cash, by
the
delivery of shares of common stock already owned by the grantee, or a
combination thereof. Nonvested share units and shares are valued at the fair
market value of the common stock as of the award date. No option, share unit
or
share awards made prior to January 1, 2003 had requisite vesting periods
remaining as of January 1, 2006. Share options awarded during 2003, 2004
and 2005 were granted with a variety of vesting terms including immediate
vesting, graded vesting over three-year periods and cliff vesting over
three-year periods. Nonvested share units or shares awarded during 2004, 2005
and 2006 were granted with vesting terms ranging from one to five years. Share
option and share awards provide for accelerated vesting if there is a change
in
control (as defined in the Plans).
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Amounts
recognized in the consolidated financial statements for share option, nonvested
share unit and nonvested share awards are as follows:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Three
Months
|
|
Six
Months
|
|
Periods
ended June 30,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Share-based
compensation expense
|
|
$
|
179
|
|
$
|
84
|
|
$
|
360
|
|
$
|
154
|
|
Related
income tax benefit
|
|
|
56
|
|
|
30
|
|
|
107
|
|
|
54
|
|
A
summary
of share option activity under the Plans as of June 30, 2006, and changes
during the six months ended June 30, 2006, is presented below:
(Dollars
in thousands)
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Number
|
|
Weighted
|
|
Average
|
|
|
|
|
|
of
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Share
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Options
|
|
Price
|
|
Term
(Years)
|
|
Value
|
|
Outstanding
at January 1, 2006
|
|
|
1,198,111
|
|
$
|
20.31
|
|
|
-
|
|
|
-
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
67,146
|
|
|
15.24
|
|
|
-
|
|
|
-
|
|
Forfeited
or expired
|
|
|
5,583
|
|
|
27.13
|
|
|
-
|
|
|
-
|
|
Outstanding
at June 30, 2006
|
|
|
1,125,382
|
|
$
|
20.58
|
|
|
5.8
years
|
|
$
|
8,089
|
|
Exercisable
at June 30, 2006
|
|
|
1,096,047
|
|
$
|
20.40
|
|
|
5.8
years
|
|
$
|
8,083
|
|
The
total
intrinsic value of share options exercised during the six months ended
June 30, 2006 was $774 thousand.
A
summary
of the status of Washington Trust’s nonvested shares as of June 30, 2006,
and changes during the six months ended June 30, 2006, is presented
below:
|
|
|
|
Weighted
|
|
|
|
Number
|
|
Average
|
|
|
|
of
|
|
Grant
Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
Nonvested
at January 1, 2006
|
|
|
55,850
|
|
$
|
24.77
|
|
Granted
|
|
|
17,400
|
|
|
26.59
|
|
Vested
|
|
|
-
|
|
|
-
|
|
Forfeited
|
|
|
(450
|
)
|
|
23.61
|
|
Nonvested
at June 30, 2006
|
|
|
72,800
|
|
$
|
25.21
|
|
As
of
June 30, 2006, there was $1.2 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
(including share option and nonvested share awards) granted under the Plans.
That cost is expected to be recognized over a weighted average period of
2.2 years.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(4)
Securities
Securities
available for sale are summarized as follows:
(Dollars
in thousands)
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
June 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
U.S. government-sponsored agencies
|
|
$
|
145,126
|
|
$
|
63
|
|
$
|
(2,503
|
)
|
$
|
142,686
|
|
Mortgage-backed
securities
|
|
|
411,237
|
|
|
579
|
|
|
(14,615
|
)
|
|
397,201
|
|
Corporate
bonds
|
|
|
63,560
|
|
|
322
|
|
|
(652
|
)
|
|
63,230
|
|
Corporate
stocks
|
|
|
16,375
|
|
|
6,747
|
|
|
(446
|
)
|
|
22,676
|
|
Total
|
|
|
636,298
|
|
|
7,711
|
|
|
(18,216
|
)
|
|
625,793
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
U.S. government-sponsored agencies
|
|
|
107,135
|
|
|
1,332
|
|
|
(816
|
)
|
|
107,651
|
|
Mortgage-backed
securities
|
|
|
436,142
|
|
|
1,019
|
|
|
(8,987
|
)
|
|
428,174
|
|
Corporate
bonds
|
|
|
63,565
|
|
|
346
|
|
|
(716
|
)
|
|
63,195
|
|
Corporate
stocks
|
|
|
13,796
|
|
|
6,573
|
|
|
(155
|
)
|
|
20,214
|
|
Total
|
|
$
|
620,638
|
|
$
|
9,270
|
|
$
|
(10,674
|
)
|
$
|
619,234
|
|
Securities
held to maturity are summarized as follows:
(Dollars
in thousands)
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
June 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
U.S. government-sponsored agencies
|
|
$
|
42,000
|
|
$
|
-
|
|
$
|
(936
|
)
|
$
|
41,064
|
|
Mortgage-backed
securities
|
|
|
76,487
|
|
|
243
|
|
|
(2,814
|
)
|
|
73,916
|
|
States
and political subdivisions
|
|
|
41,971
|
|
|
15
|
|
|
(1,482
|
)
|
|
40,504
|
|
Total
|
|
|
160,458
|
|
|
258
|
|
|
(5,232
|
)
|
|
155,484
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
U.S. government-sponsored agencies
|
|
|
47,250
|
|
|
-
|
|
|
(797
|
)
|
|
46,453
|
|
Mortgage-backed
securities
|
|
|
84,960
|
|
|
768
|
|
|
(1,527
|
)
|
|
84,201
|
|
States
and political subdivisions
|
|
|
32,497
|
|
|
72
|
|
|
(467
|
)
|
|
32,102
|
|
Total
|
|
$
|
164,707
|
|
$
|
840
|
|
$
|
(2,791
|
)
|
$
|
162,756
|
|
Securities
available for sale and held to maturity with a fair value of $580.5 million
and $564.3 million were pledged in compliance with state regulations
concerning trust powers and to secure Treasury Tax and Loan deposits,
borrowings, and certain public deposits at June 30, 2006 and
December 31, 2005, respectively. In addition, securities available for
sale and held to maturity with a fair value of $11.1 million and
$13.8 million were collateralized for the discount window at the Federal
Reserve Bank at June 30, 2006 and December 31, 2005,
respectively. There were no borrowings with the Federal Reserve Bank at either
date. Securities available for sale with a fair value of $2.0 million and
$2.2 million were designated in a rabbi trust for a nonqualified retirement
plan at June 30, 2006 and December 31, 2005,
respectively.
At
June 30, 2006 and December 31, 2005, the available for sale and held
to maturity securities portfolio included $15.5 million and
$3.4 million of net pretax unrealized losses, respectively. Included in
these net amounts were gross unrealized losses amounting to $23.4 million
and $13.5 million at June 30, 2006 and December 31, 2005,
respectively.
The
following tables summarize, for all securities in an unrealized loss position
at
June 30, 2006 and December 31, 2005, respectively, the aggregate fair
value and gross unrealized loss by length of time those securities have been
continuously in an unrealized loss position.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Dollars
in thousands)
|
|
Less
than 12 Months
|
|
12
Months or Longer
|
|
Total
|
|
|
|
|
|
Fair
|
|
Unrealized
|
|
|
|
Fair
|
|
Unrealized
|
|
|
|
Fair
|
|
Unrealized
|
|
At
June 30, 2006
|
|
#
|
|
Value
|
|
Losses
|
|
#
|
|
Value
|
|
Losses
|
|
#
|
|
Value
|
|
Losses
|
|
U.S.
Treasury obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
obligations of U.S. government-sponsored agencies
|
|
|
13
|
|
$
|
110,346
|
|
$
|
1,546
|
|
|
11
|
|
$
|
67,357
|
|
$
|
1,893
|
|
|
24
|
|
$
|
177,703
|
|
$
|
3,439
|
|
Mortgage-backed
securities
|
|
|
47
|
|
|
118,588
|
|
|
3,039
|
|
|
74
|
|
|
285,004
|
|
|
14,389
|
|
|
121
|
|
|
403,592
|
|
|
17,428
|
|
States
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political
subdivisions
|
|
|
46
|
|
|
29,603
|
|
|
1,122
|
|
|
14
|
|
|
7,380
|
|
|
360
|
|
|
60
|
|
|
36,983
|
|
|
1,482
|
|
Corporate
bonds
|
|
|
5
|
|
|
13,033
|
|
|
277
|
|
|
10
|
|
|
28,389
|
|
|
375
|
|
|
15
|
|
|
41,422
|
|
|
652
|
|
Subtotal,
debt securities
|
|
|
111
|
|
|
271,570
|
|
|
5,984
|
|
|
109
|
|
|
388,130
|
|
|
17,017
|
|
|
220
|
|
|
659,700
|
|
|
23,001
|
|
Corporate
stocks
|
|
|
10
|
|
|
8,195
|
|
|
370
|
|
|
1
|
|
|
435
|
|
|
76
|
|
|
11
|
|
|
8,630
|
|
|
446
|
|
Total
temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired
securities
|
|
|
121
|
|
$
|
279,765
|
|
$
|
6,354
|
|
|
110
|
|
$
|
388,565
|
|
$
|
17,093
|
|
|
231
|
|
$
|
668,330
|
|
$
|
23,447
|
|
(Dollars
in thousands)
|
|
Less
than 12 Months
|
|
12
Months or Longer
|
|
Total
|
|
|
|
|
|
Fair
|
|
Unrealized
|
|
|
|
Fair
|
|
Unrealized
|
|
|
|
Fair
|
|
Unrealized
|
|
At
December 31, 2005
|
|
#
|
|
Value
|
|
Losses
|
|
#
|
|
Value
|
|
Losses
|
|
#
|
|
Value
|
|
Losses
|
|
U.S.
Treasury obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
obligations of U.S. government-sponsored agencies
|
|
|
12
|
|
$
|
70,586
|
|
$
|
827
|
|
|
6
|
|
$
|
43,464
|
|
$
|
786
|
|
|
18
|
|
$
|
114,050
|
|
$
|
1,613
|
|
Mortgage-backed
securities
|
|
|
56
|
|
|
178,688
|
|
|
2,565
|
|
|
47
|
|
|
238,844
|
|
|
7,949
|
|
|
103
|
|
|
417,532
|
|
|
10,514
|
|
States
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political
subdivisions
|
|
|
33
|
|
|
19,129
|
|
|
349
|
|
|
5
|
|
|
3,557
|
|
|
118
|
|
|
38
|
|
|
22,686
|
|
|
467
|
|
Corporate
bonds
|
|
|
5
|
|
|
10,929
|
|
|
75
|
|
|
9
|
|
|
25,019
|
|
|
641
|
|
|
14
|
|
|
35,948
|
|
|
716
|
|
Subtotal,
debt securities
|
|
|
106
|
|
|
279,332
|
|
|
3,816
|
|
|
67
|
|
|
310,884
|
|
|
9,494
|
|
|
173
|
|
|
590,216
|
|
|
13,310
|
|
Corporate
stocks
|
|
|
6
|
|
|
2,617
|
|
|
126
|
|
|
1
|
|
|
483
|
|
|
28
|
|
|
7
|
|
|
3,100
|
|
|
155
|
|
Total
temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired
securities
|
|
|
112
|
|
$
|
281,949
|
|
$
|
3,942
|
|
|
68
|
|
$
|
311,367
|
|
$
|
9,522
|
|
|
180
|
|
$
|
593,316
|
|
$
|
13,465
|
|
For
those
debt securities whose amortized cost exceeds fair value, the primary cause
is
related to interest rates. The majority of debt securities reported in an
unrealized loss position at June 30, 2006 were purchased during 2005, 2004
and 2003, during which time interest rates were at or near historical lows.
The
relative increase in short and medium term interest rates resulted in a decline
in market value for these debt securities. The Corporation believes that the
nature and duration of impairment on its debt security holdings are primarily
a
function of future interest rate movements and changes in investment spreads,
and does not consider full repayment of principal on the reported debt
obligations to be at risk. The debt securities in an unrealized loss position
at
June 30, 2006 consisted of 220 debt security holdings. The largest loss
percentage of any single holding was 7.21% of its amortized cost.
Causes
of
conditions whereby the fair value of corporate stock equity securities is less
than cost include the timing of purchases and changes in valuation specific
to
individual industries or issuers. The relationship between the level of market
interest rates and the dividend rates paid on individual equity securities
may
also be a contributing factor. The Corporation believes that the nature and
duration of impairment on its equity securities holdings are considered to
be a
function of general financial market movements and industry conditions. The
equity securities in an unrealized loss position at June 30, 2006 consisted
of 11 holdings of financial and commercial entities. The largest loss percentage
position of any single holding was 14.84% of its cost.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(5)
Loan Portfolio
The
following is a summary of loans:
(Dollars
in thousands)
|
|
June 30,
2006
|
|
December 31,
2005
|
|
|
|
Amount
|
|
%
|
|
Amount
|
|
% |
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
(1)
|
|
$
|
273,186
|
|
|
19
|
%
|
$
|
291,292
|
|
|
21
|
%
|
Construction
and development (2)
|
|
|
33,768
|
|
|
2
|
%
|
|
37,190
|
|
|
3
|
%
|
Other
(3)
|
|
|
258,655
|
|
|
19
|
%
|
|
226,252
|
|
|
16
|
%
|
Total
commercial
|
|
|
565,609
|
|
|
40
|
%
|
|
554,734
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
(4)
|
|
|
568,914
|
|
|
40
|
%
|
|
565,680
|
|
|
40
|
%
|
Homeowner
construction
|
|
|
20,280
|
|
|
1
|
%
|
|
17,028
|
|
|
2
|
%
|
Total
residential real estate
|
|
|
589,194
|
|
|
41
|
%
|
|
582,708
|
|
|
42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
153,037
|
|
|
11
|
%
|
|
161,100
|
|
|
11
|
%
|
Home
equity loans
|
|
|
84,030
|
|
|
6
|
%
|
|
72,288
|
|
|
5
|
%
|
Other
|
|
|
39,438
|
|
|
2
|
%
|
|
31,078
|
|
|
2
|
%
|
Total
consumer
|
|
|
276,505
|
|
|
19
|
%
|
|
264,466
|
|
|
18
|
%
|
Total
loans (5)
|
|
$
|
1,431,308
|
|
|
100
|
%
|
$
|
1,401,908
|
|
|
100
|
%
|
(1)
Amortizing mortgages, primarily secured by income producing
property.
(2)
Loans
for construction of residential and commercial properties and for land
development.
(3)
Loans
to businesses and individuals, a substantial portion of which are fully or
partially collateralized by real estate.
(4)
A
substantial portion of these loans is used as qualified collateral for FHLB
borrowings (See Note 9 for additional discussion of FHLB
borrowings).
(5)
Net
of unamortized loan origination fees, net of costs, totaling $302 thousand
and $373 thousand at June 30, 2006 and December 31, 2005,
respectively. Also includes $484 thousand and $753 thousand of
premium, net of discount, on purchased loans at June 30, 2006 and
December 31, 2005, respectively.
(6)
Allowance For Loan Losses
The
following is an analysis of the allowance for loan losses:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Three
Months
|
|
Six
Months
|
|
Periods
ended June 30,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Balance
at beginning of period
|
|
$
|
18,247
|
|
$
|
17,058
|
|
$
|
17,918
|
|
$
|
16,771
|
|
Provision
charged to expense
|
|
|
300
|
|
|
300
|
|
|
600
|
|
|
600
|
|
Subtotal
|
|
|
18,547
|
|
|
17,358
|
|
|
18,518
|
|
|
17,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(113
|
)
|
|
(134
|
)
|
|
(151
|
)
|
|
(238
|
)
|
Recoveries
|
|
|
46
|
|
|
218
|
|
|
113
|
|
|
309
|
|
Net
recoveries (charge-offs)
|
|
|
(67
|
)
|
|
84
|
|
|
(38
|
)
|
|
71
|
|
Balance
at end of period
|
|
$
|
18,480
|
|
$
|
17,442
|
|
$
|
18,480
|
|
$
|
17,442
|
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(7)
Goodwill and Other Intangibles
The
changes in the carrying value of goodwill and other intangible assets for the
six months ended June 30, 2006 are as follows:
Goodwill
|
|
|
|
Wealth
|
|
|
|
(Dollars
in thousands)
|
|
Commercial
|
|
Management
|
|
|
|
|
|
Banking
|
|
Service
|
|
|
|
|
|
Segment
|
|
Segment
|
|
Total
|
|
Balance
at December 31, 2005
|
|
$
|
22,591
|
|
$
|
17,372
|
|
$
|
39,963
|
|
Goodwill
acquired during the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Impairment
recognized
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Balance
at June 30, 2006
|
|
$
|
22,591
|
|
$
|
17,372
|
|
$
|
39,963
|
|
Other
Intangible Assets
|
|
Core
Deposit
|
|
Advisory
|
|
Non-compete
|
|
|
|
|
|
Intangible
|
|
Contracts
|
|
Agreements
|
|
Total
|
|
Balance
at December 31, 2005
|
|
$
|
911
|
|
$
|
13,220
|
|
$
|
278
|
|
$
|
14,409
|
|
Amortization
|
|
|
131
|
|
|
656
|
|
|
24
|
|
|
811
|
|
Balance
at June 30, 2006
|
|
$
|
780
|
|
$
|
12,564
|
|
$
|
254
|
|
$
|
13,598
|
|
Amortization
of intangible assets for the six months ended June 30, 2006, totaled
$811 thousand. Estimated annual amortization expense of current intangible
assets with finite useful lives, absent any impairment or change in estimated
useful lives, is summarized below.
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
Advisory
|
|
Non-compete
|
|
|
|
|
|
Deposits
|
|
Contracts
|
|
Agreements
|
|
Total
|
|
Estimated
amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
(full year)
|
|
$
|
261
|
|
$
|
1,283
|
|
$
|
49
|
|
$
|
1,593
|
|
2007
|
|
|
140
|
|
|
1,194
|
|
|
49
|
|
|
1,383
|
|
2008
|
|
|
120
|
|
|
1,111
|
|
|
49
|
|
|
1,280
|
|
2009
|
|
|
120
|
|
|
1,040
|
|
|
49
|
|
|
1,209
|
|
2010
|
|
|
120
|
|
|
922
|
|
|
49
|
|
|
1,091
|
|
The
components of intangible assets at June 30, 2006 are as
follows:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
Advisory
|
|
Non-compete
|
|
|
|
|
|
Deposits
|
|
Contracts
|
|
Agreements
|
|
Total
|
|
Gross
carrying amount
|
|
$
|
2,997
|
|
$
|
13,657
|
|
$
|
1,147
|
|
$
|
17,801
|
|
Accumulated
amortization
|
|
|
2,217
|
|
|
1,093
|
|
|
893
|
|
|
4,203
|
|
Net
amount
|
|
$
|
780
|
|
$
|
12,564
|
|
$
|
254
|
|
$
|
13,598
|
|
(8)
Financial Instruments With Off-Balance Sheet Risk and Derivative Financial
Instruments
The
Corporation is a party to financial instruments with off-balance sheet risk
in
the normal course of business to meet the financing needs of its customers
and
to manage the Corporation’s exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit, standby letters
of
credit, financial guarantees, and commitments to originate and commitments
to
sell fixed rate mortgage loans. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the Corporation’s
Consolidated Balance Sheets. The contract or notional amounts of these
instruments reflect the extent of involvement the Corporation has in particular
classes of financial instruments. The Corporation uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. The contractual and notional amounts of financial instruments
with off-balance sheet risk are as follows:
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Dollars
in thousands)
|
|
June 30,
2006
|
|
December 31,
2005
|
|
Financial
instruments whose contract amounts represent credit risk:
|
|
|
|
|
|
|
|
Commitments
to extend credit:
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
|
108,573
|
|
$
|
105,971
|
|
Home
equity lines
|
|
|
180,301
|
|
|
174,073
|
|
Other
loans
|
|
|
11,844
|
|
|
17,271
|
|
Standby
letters of credit
|
|
|
11,056
|
|
|
10,986
|
|
Financial
instruments whose notional amounts exceed the amount of credit
risk:
|
|
|
|
|
|
|
|
Forward
loan commitments:
|
|
|
|
|
|
|
|
Commitments
to originate fixed rate mortgage loans to be sold
|
|
|
2,668
|
|
|
2,188
|
|
Commitments
to sell fixed rate mortgage loans
|
|
|
4,034
|
|
|
2,626
|
|
Commitments
to Extend Credit
Commitments
to extend credit are agreements to lend to a customer as long as there are
no
violations of any conditions established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since some of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. Each borrower’s creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained is based on management’s
credit evaluation of the borrower.
Standby
Letters of Credit
Standby
letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Under the standby letters of credit, the Corporation
is
required to make payments to the beneficiary of the letters of credit upon
request by the beneficiary contingent upon the customer’s failure to perform
under the terms of the underlying contract with the beneficiary. Standby letters
of credit extend up to five years. At June 30, 2006 and December 31,
2005, the maximum potential amount of undiscounted future payments, not reduced
by amounts that may be recovered, totaled $11.1 million and
$11.0 million, respectively. At June 30, 2006 and December 31,
2005, there was no liability to beneficiaries resulting from standby letters
of
credit.
At
June 30, 2006, a substantial portion of the standby letters of credit were
supported by pledged collateral. The collateral obtained is determined based
on
management’s credit evaluation of the customer. Should the Corporation be
required to make payments to the beneficiary, repayment from the customer to
the
Corporation is required.
Forward
Loan Commitments
Commitments
to originate and commitments to sell fixed rate mortgage loans are derivative
financial instruments. Accordingly, the fair value of these commitments is
recognized in other assets on the balance sheet and changes in fair value of
such commitments are recorded in current earnings in the income statement.
The
carrying value of such commitments as of June 30, 2006 and December 31,
2005 and the respective changes in fair values for the six months ended
June 30, 2006 and 2005 were insignificant.
(9)
Borrowings
Federal
Home Loan Bank Advances
Advances
payable to the Federal Home Loan Bank (“FHLB”) are summarized as
follows:
(Dollars
in thousands)
|
|
June 30,
|
|
December 31,
|
|
|
|
2006
|
|
2005
|
|
FHLB
advances
|
|
$
|
543,588
|
|
$
|
545,323
|
|
In
addition to outstanding advances, the Corporation also has access to an unused
line of credit amounting to $8.0 million at June 30, 2006 and
December 31, 2005. Under agreement with the FHLB, the Corporation is
required to maintain qualified collateral, free and clear of liens, pledges,
or
encumbrances that, based on certain percentages of
book
and
market values, has a value equal to the aggregate amount of the line of credit
and outstanding advances (“FHLB borrowings”). The FHLB maintains a security
interest in various assets of the Corporation including, but not limited to,
residential mortgages loans, U.S. government or agency securities, U.S.
government-sponsored agency securities, and amounts maintained on deposit at
the
FHLB. The Corporation maintained qualified collateral in excess of the amount
required to collateralize the line of credit and outstanding advances at
June 30, 2006 and December 31, 2005. Included in the collateral were
securities available for sale and held to maturity with a fair value of
$497.2 million and $498.0 million that were specifically pledged to
secure FHLB borrowings at June 30, 2006 and December 31, 2005,
respectively. Unless there is an event of default under the agreement with
the
FHLB, the Corporation may use, encumber or dispose of any portion of the
collateral in excess of the amount required to secure FHLB borrowings, except
for that collateral that has been specifically pledged.
Junior
Subordinated Debentures
In
connection with the Weston Financial Group, Inc. (“Weston Financial”)
acquisition, trust preferred securities totaling $22 million were issued in
the third quarter of 2005 by WT Capital Trust I (“Trust I”) and WT
Capital Trust II (“Trust II”), capital trusts created by the Bancorp.
In accordance with FASB Interpretation 46-R, “Consolidation of Variable Interest
Entities - Revised”, Trust I and Trust II are not consolidated into
the Corporation’s financial statements; however, the Corporation reflects the
amounts of junior subordinated debentures payable to Trust I and
Trust II as debt in its financial statements. At June 30, 2006 and
December 31, 2005, junior subordinated debentures payable amounted to
$22.7 million.
Other
Borrowings
The
following is a summary of other borrowings:
(Dollars
in thousands)
|
|
June 30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Treasury,
Tax and Loan demand note balance
|
|
$
|
1,122
|
|
$
|
3,794
|
|
Deferred
acquisition obligations
|
|
|
5,592
|
|
|
5,469
|
|
Other
|
|
|
459
|
|
|
511
|
|
Other
borrowings
|
|
$
|
7,173
|
|
$
|
9,774
|
|
There
were no securities sold under repurchase agreements outstanding at June 30,
2006 and December 31, 2005. Securities sold under repurchase agreements
generally mature within 90 days. The securities underlying the agreements are
held in safekeeping by the counterparty in the name of the Corporation and
are
repurchased when the agreement matures. Accordingly, these underlying securities
are included in securities available for sale and the obligations to repurchase
such securities are reflected as a liability.
(10)
Defined Benefit Pension Plans
The
Corporation’s noncontributory tax-qualified defined benefit pension plan covers
substantially all employees. Benefits are based on an employee’s years of
service and highest 3-year compensation. The plan is funded on a current basis,
in compliance with the requirements of the Employee Retirement Income Security
Act of 1974, as amended. The Corporation also has non-qualified retirement
plans
to provide supplemental retirement benefits to certain employees, as defined
in
the plans.
The
actuarial assumptions used for the non-qualified retirement plans are the same
as those used for the Corporation’s tax-qualified pension plan. The
non-qualified retirement plans provide for the designation of assets in rabbi
trusts. At June 30, 2006 and December 31, 2005, securities available
for sale and other assets designated for this purpose with a carrying value
of
$2.6 million and $2.8 million, respectively, were included in the
Corporation’s Consolidated Balance Sheets.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Components
of Net Periodic Benefit Costs:
(Dollars
in thousands)
|
|
Qualified
|
|
Non-Qualified
|
|
|
|
Pension
Plan
|
|
Retirement
Plans
|
|
Six
months ended June 30,
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
Service
cost
|
|
$
|
1,034
|
|
$
|
935
|
|
$
|
176
|
|
$
|
156
|
|
Interest
cost
|
|
|
825
|
|
|
761
|
|
|
233
|
|
|
218
|
|
Expected
return on plan assets
|
|
|
(900
|
)
|
|
(843
|
)
|
|
-
|
|
|
-
|
|
Amortization
of transition asset
|
|
|
(3
|
)
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
Amortization
of prior service cost
|
|
|
(17
|
)
|
|
15
|
|
|
32
|
|
|
38
|
|
Recognized
net actuarial loss
|
|
|
159
|
|
|
62
|
|
|
107
|
|
|
66
|
|
Net
periodic benefit cost
|
|
$
|
1,098
|
|
$
|
927
|
|
$
|
548
|
|
$
|
478
|
|
Assumptions:
The
measurement date and weighted-average assumptions used to determine net periodic
benefit cost for the six months ended June 30, 2006 and 2005 were as
follows:
|
|
Qualified
|
|
Non-Qualified
|
|
|
|
Pension
Plan
|
|
Retirement
Plans
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Measurement
date
|
|
|
Sept.
30, 2005
|
|
|
Sept.
30, 2004
|
|
|
Sept.
30, 2005
|
|
|
Sept.
30, 2004
|
|
Discount
rate
|
|
|
5.50
|
%
|
|
6.00
|
%
|
|
5.50
|
%
|
|
6.00
|
%
|
Expected
long-term return on plan assets
|
|
|
8.25
|
%
|
|
8.25
|
%
|
|
-
|
|
|
-
|
|
Rate
of compensation increase
|
|
|
4.25
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
|
4.25
|
%
|
Employer
Contributions:
The
Corporation previously disclosed in its financial statements for the year ended
December 31, 2005 that it expected to contribute $1.3 million to its
qualified pension plan and $335 thousand in benefit payments to its
non-qualified retirement plans in 2006. As of June 30, 2006,
$1.3 million of contributions have been made to the qualified pension plan
and $168 thousand in benefit payments have been made to the non-qualified
retirement plans. The Corporation presently anticipates contributing an
additional $167 thousand in benefit payments to the non-qualified
retirement plans in 2006.
(11)
Litigation
The
Corporation is involved in various claims and legal proceedings arising out
of
the ordinary course of business. Management is of the opinion, based on its
review with counsel of the development of such matters to date, that the
ultimate disposition of such matters will not materially affect the consolidated
financial position or results of operations of the Corporation.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(12)
Shareholders’ Equity
The
following table presents the Corporation’s and the Bank’s actual capital amounts
and ratios at June 30, 2006 and December 31, 2005, as well as the
corresponding minimum regulatory amounts and ratios:
(Dollars
in thousands)
|
|
Actual
|
|
For
Capital Adequacy Purposes
|
|
To
Be Well Capitalized Under Prompt Corrective Action
Provisions
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
As
of June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
157,634
|
|
|
10.85
|
%
|
$
|
116,182
|
|
|
8.00
|
%
|
$
|
145,228
|
|
|
10.00
|
%
|
Bank
|
|
$
|
161,132
|
|
|
11.10
|
%
|
$
|
116,110
|
|
|
8.00
|
%
|
$
|
145,137
|
|
|
10.00
|
%
|
Tier
1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
136,637
|
|
|
9.41
|
%
|
$
|
58,091
|
|
|
4.00
|
%
|
$
|
87,137
|
|
|
6.00
|
%
|
Bank
|
|
$
|
140,147
|
|
|
9.66
|
%
|
$
|
58,055
|
|
|
4.00
|
%
|
$
|
87,082
|
|
|
6.00
|
%
|
Tier
1 Capital (to Average Assets): (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
136,637
|
|
|
5.73
|
%
|
$
|
95,332
|
|
|
4.00
|
%
|
$
|
119,165
|
|
|
5.00
|
%
|
Bank
|
|
$
|
140,147
|
|
|
5.88
|
%
|
$
|
95,288
|
|
|
4.00
|
%
|
$
|
119,110
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
147,454
|
|
|
10.51
|
%
|
$
|
112,221
|
|
|
8.00
|
%
|
$
|
140,277
|
|
|
10.00
|
%
|
Bank
|
|
$
|
151,383
|
|
|
10.80
|
%
|
$
|
112,152
|
|
|
8.00
|
%
|
$
|
140,190
|
|
|
10.00
|
%
|
Tier
1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
127,023
|
|
|
9.06
|
%
|
$
|
56,111
|
|
|
4.00
|
%
|
$
|
84,166
|
|
|
6.00
|
%
|
Bank
|
|
$
|
130,962
|
|
|
9.34
|
%
|
$
|
56,076
|
|
|
4.00
|
%
|
$
|
84,114
|
|
|
6.00
|
%
|
Tier
1 Capital (to Average Assets): (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
127,023
|
|
|
5.45
|
%
|
$
|
93,285
|
|
|
4.00
|
%
|
$
|
116,606
|
|
|
5.00
|
%
|
Bank
|
|
$
|
130,962
|
|
|
5.62
|
%
|
$
|
93,254
|
|
|
4.00
|
%
|
$
|
116,568
|
|
|
5.00
|
%
|
As
previously disclosed, in connection with the Weston Financial acquisition,
trust
preferred securities totaling $22 million were issued in the third quarter
of 2005 by Trust I and Trust II, capital trusts created by the
Bancorp. In accordance with FASB Interpretation 46-R, “Consolidation of Variable
Interest Entities - Revised”, Trust I and Trust II are not
consolidated into the Corporation’s financial statements; however, the
Corporation reflects the amounts of junior subordinated debentures payable
to
Trust I and Trust II as debt in its financial statements. The trust
preferred securities qualify as Tier 1 capital.
The
Corporation’s capital ratios at June 30, 2006 place the Corporation in the
“well-capitalized” category according to regulatory standards. On March 1,
2005, the Federal Reserve Board issued a final rule that would retain trust
preferred securities in Tier 1 capital of bank holding companies, but with
stricter quantitative limits and clearer standards. Under the proposal, after
a
five-year transition period that would end on March 31, 2009, the aggregate
amount of trust preferred securities would be limited to 25% of Tier 1
capital elements, net of goodwill. The Corporation has evaluated the potential
impact of such a change on its Tier 1 capital ratio and has concluded that
the regulatory capital treatment of the trust preferred securities in the
Corporation’s total capital ratio would be unchanged.
(13)
Comprehensive Income
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Six
months ended June 30,
|
|
2006
|
|
2005
|
|
Net
income
|
|
$
|
12,250
|
|
$
|
11,049
|
|
|
|
|
|
|
|
|
|
Unrealized
holding losses on securities available for sale, net of
tax
|
|
|
(5,266
|
)
|
|
(1,673
|
)
|
Reclassification
adjustments for gains arising during the period, net of
tax
|
|
|
(647
|
)
|
|
(2
|
)
|
Total
comprehensive income
|
|
$
|
6,337
|
|
$
|
9,374
|
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(14)
Earnings Per Share
Basic
earnings per share (“EPS”) is calculated by dividing net income by the weighted
average common stock outstanding, excluding options and other equity
instruments. The dilutive effect of options, restricted stock units and other
items is calculated using the treasury stock method for purposes of weighted
average dilutive shares. Diluted EPS is computed by dividing net income by
the
average number of common stock and common stock equivalents
outstanding.
(Dollars
and shares in thousands, except per share amounts)
|
|
|
|
|
|
Three
Months
|
|
Six
Months
|
|
Periods
ended June 30,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,177
|
|
$
|
5,639
|
|
$
|
12,250
|
|
$
|
11,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares
|
|
|
13,419.9
|
|
|
13,296.0
|
|
|
13,403.4
|
|
|
13,289.4
|
|
Dilutive
effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
242.4
|
|
|
272.4
|
|
|
258.3
|
|
|
294.3
|
|
Other
|
|
|
40.9
|
|
|
23.9
|
|
|
37.9
|
|
|
18.6
|
|
Weighted
average diluted shares
|
|
|
13,703.2
|
|
|
13,592.3
|
|
|
13,699.6
|
|
|
13,602.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.46
|
|
$
|
0.42
|
|
$
|
0.91
|
|
$
|
0.83
|
|
Diluted
|
|
$
|
0.45
|
|
$
|
0.41
|
|
$
|
0.89
|
|
$
|
0.81
|
|
(15)
Business Segments
Washington
Trust segregates financial information in assessing its results among two
operating segments: Commercial Banking and Wealth Management Services. The
amounts in the Corporate column include activity not related to the segments,
such as the investment securities portfolio, wholesale funding activities and
administrative units. The Corporate column is not considered to be an operating
segment. The methodologies and organizational hierarchies that define the
business segments are periodically reviewed and revised. Results may be
restated, when necessary, to reflect changes in organizational structure or
allocation methodology. The following table presents the statement of operations
and total assets for Washington Trust’s reportable segments.
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Banking
|
|
Wealth
Management Services
|
|
Corporate
|
|
Consolidated
Total
|
|
Three
months ended June 30,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
interest income (expense)
|
|
$
|
13,273
|
|
$
|
13,186
|
|
$
|
(27
|
)
|
$
|
(13
|
)
|
$
|
1,971
|
|
$
|
1,799
|
|
$
|
15,217
|
|
$
|
14,972
|
|
Noninterest
income
|
|
|
4,327
|
|
|
3,224
|
|
|
6,737
|
|
|
3,486
|
|
|
383
|
|
|
284
|
|
|
11,447
|
|
|
6,994
|
|
Total
income
|
|
|
17,600
|
|
|
16,410
|
|
|
6,710
|
|
|
3,473
|
|
|
2,354
|
|
|
2,083
|
|
|
26,664
|
|
|
21,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
300
|
|
|
300
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
300
|
|
|
300
|
|
Depreciation
and
amortization
expense
|
|
|
574
|
|
|
628
|
|
|
425
|
|
|
163
|
|
|
191
|
|
|
57
|
|
|
1,190
|
|
|
848
|
|
Other
noninterest expenses
|
|
|
9,883
|
|
|
8,648
|
|
|
4,442
|
|
|
2,076
|
|
|
1,765
|
|
|
1,801
|
|
|
16,090
|
|
|
12,525
|
|
Total
noninterest expenses
|
|
|
10,757
|
|
|
9,576
|
|
|
4,867
|
|
|
2,239
|
|
|
1,956
|
|
|
1,858
|
|
|
17,580
|
|
|
13,673
|
|
Income
before income taxes
|
|
|
6,843
|
|
|
6,834
|
|
|
1,843
|
|
|
1,234
|
|
|
398
|
|
|
225
|
|
|
9,084
|
|
|
8,293
|
|
Income
tax expense (benefit)
|
|
|
2,384
|
|
|
2,377
|
|
|
720
|
|
|
434
|
|
|
(197
|
)
|
|
(157
|
)
|
|
2,907
|
|
|
2,654
|
|
Net
income
|
|
$
|
4,459
|
|
$
|
4,457
|
|
$
|
1,123
|
|
$
|
800
|
|
$
|
595
|
|
$
|
382
|
|
$
|
6,177
|
|
$
|
5,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at period end
|
|
|
1,514,253
|
|
|
1,427,729
|
|
|
33,585
|
|
|
4,676
|
|
|
884,439
|
|
|
906,859
|
|
|
2,432,277
|
|
|
2,339,264
|
|
Expenditures
for
long-lived
assets
|
|
|
726
|
|
|
856
|
|
|
106
|
|
|
144
|
|
|
107
|
|
|
113
|
|
|
939
|
|
|
1,113
|
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Banking
|
|
Wealth
Management Services
|
|
Corporate
|
|
Consolidated
Total
|
|
Six
months ended June 30,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
interest income (expense)
|
|
$
|
26,415
|
|
$
|
25,857
|
|
$
|
(51
|
)
|
$
|
(32
|
)
|
$
|
4,268
|
|
$
|
3,768
|
|
$
|
30,632
|
|
$
|
29,593
|
|
Noninterest
income
|
|
|
7,076
|
|
|
5,798
|
|
|
13,177
|
|
|
6,698
|
|
|
714
|
|
|
577
|
|
|
20,967
|
|
|
13,073
|
|
Total
income
|
|
|
33,491
|
|
|
31,655
|
|
|
13,126
|
|
|
6,666
|
|
|
4,982
|
|
|
4,345
|
|
|
51,599
|
|
|
42,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
600
|
|
|
600
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
600
|
|
|
600
|
|
Depreciation
and
amortization
expense
|
|
|
1,132
|
|
|
1,301
|
|
|
844
|
|
|
341
|
|
|
348
|
|
|
111
|
|
|
2,324
|
|
|
1,753
|
|
Other
noninterest expenses
|
|
|
18,198
|
|
|
16,490
|
|
|
8,784
|
|
|
4,156
|
|
|
3,678
|
|
|
3,418
|
|
|
30,660
|
|
|
24,064
|
|
Total
noninterest expenses
|
|
|
19,930
|
|
|
18,391
|
|
|
9,628
|
|
|
4,497
|
|
|
4,026
|
|
|
3,529
|
|
|
33,584
|
|
|
26,417
|
|
Income
before income taxes
|
|
|
13,561
|
|
|
13,264
|
|
|
3,498
|
|
|
2,169
|
|
|
956
|
|
|
816
|
|
|
18,015
|
|
|
16,249
|
|
Income
tax expense (benefit)
|
|
|
4,720
|
|
|
4,623
|
|
|
1,378
|
|
|
764
|
|
|
(333
|
)
|
|
(187
|
)
|
|
5,765
|
|
|
5,200
|
|
Net
income
|
|
$
|
8,841
|
|
$
|
8,641
|
|
$
|
2,120
|
|
$
|
1,405
|
|
$
|
1,289
|
|
$
|
1,003
|
|
$
|
12,250
|
|
$
|
11,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at period end
|
|
|
1,514,253
|
|
|
1,427,729
|
|
|
33,585
|
|
|
4,676
|
|
|
884,439
|
|
|
906,859
|
|
|
2,432,277
|
|
|
2,339,264
|
|
Expenditures
for
long-lived
assets
|
|
|
1,514
|
|
|
1,074
|
|
|
360
|
|
|
163
|
|
|
163
|
|
|
188
|
|
|
2,037
|
|
|
1,425
|
|
Management
uses certain methodologies to allocate income and expenses to the business
lines. A funds transfer pricing methodology is used to assign interest income
and interest expense to each interest-earning asset and interest-bearing
liability on a matched maturity funding basis. Certain indirect expenses are
allocated to segments. These include support
unit expenses such as technology and processing operations and other support
functions. Taxes are allocated to each segment based on the effective rate
for
the period shown.
Commercial
Banking
The
Commercial Banking segment includes commercial, commercial real estate,
residential and consumer lending activities; mortgage banking, secondary market
and loan servicing activities; deposit generation; merchant credit card
services; cash management activities; and direct banking activities, which
include the operation of ATMs, telephone and internet banking services and
customer support and sales.
Wealth
Management Services
Wealth
Management Services includes asset management services provided for individuals
and institutions; personal trust services, including services as executor,
trustee, administrator, custodian and guardian; corporate trust services,
including services as trustee for pension and profit sharing plans; and other
financial planning and advisory services. The increase in revenues and expenses
for this segment in the 2006 is primarily attributable to the acquisition of
Weston Financial completed on August 31, 2005.
Corporate
Corporate
includes the Treasury Unit, which is responsible for managing the wholesale
investment portfolio and wholesale funding needs. It also includes income from
bank-owned life insurance as well as administrative and executive expenses
not
allocated to the business lines and the residual impact of methodology
allocations such as funds transfer pricing offsets.
(15)
Subsequent Event
In
July
2006, a portfolio management strategy was approved by the Executive Committee
of
the Board of Directors under which approximately $19.0 million of
mortgage-backed securities were sold, resulting in a realized loss of
$1.1 million and certain equity securities were sold resulting in a
realized gain of approximately $1.1 million. The proceeds from these
transactions will be used to reduce FHLB advances during the third quarter
of
2006.
With
respect to the unaudited consolidated financial
statements of Washington Trust Bancorp, Inc. and Subsidiaries at
June 30, 2006 and for the three and six months ended June 30, 2006 and
2005, KPMG LLP has made a review (based on the standards of the Public Company
Accounting Oversight Board (United States)) and not an audit, set forth in
their
separate report dated August 8, 2006 appearing below. That report does not
express an opinion on the interim unaudited consolidated financial information.
KPMG LLP has not carried out any significant or additional audit tests beyond
those which would have been necessary if their report had not been included.
Accordingly, such report is not a “report” or “part of the Registration
Statement” within the meaning of Sections 7 and 11 of the Securities Act of
1933, as amended, and the liability provisions of Section 11 of the
Securities Act do not apply.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholders
Washington
Trust Bancorp, Inc.:
We
have
reviewed the accompanying consolidated balance sheet of Washington Trust
Bancorp, Inc. and Subsidiaries (the “Corporation”) as of June 30, 2006, the
related consolidated statements of income for the three and six-month periods
ended June 30, 2006 and 2005 and the related consolidated statements of
cash flows for the six-month periods ended June 30, 2006 and 2005. These
consolidated financial statements are the responsibility of the Corporation’s
management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the
objective of which is the expression of an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do not express such
an
opinion.
Based
on
our review, we are not aware of any material modifications that should be made
to the consolidated financial statements referred to above for them to be in
conformity with U.S. generally accepted accounting principles.
We
have
previously audited, in accordance with standards established by the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Washington Trust Bancorp, Inc. and Subsidiaries as of December 31,
2005, and the related consolidated statements of income, changes in
shareholders’ equity and cash flows for the year then ended (not presented
herein); and in our report dated March 15, 2006, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the consolidated balance sheet as of
December 31, 2005, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
KPMG LLP
Providence,
Rhode Island
August 8,
2006
Forward-Looking
Statements
This
report contains statements that are “forward-looking statements.” All
statements, other than statements of historical facts, including statements
regarding our strategy, effectiveness of investment programs, evaluations of
future interest rate trends and liquidity, expectations as to growth in assets,
deposits and results of operations, success of acquisitions, future operations,
market position, financial position, and prospects, plans, goals and objectives
of management are forward-looking statements. We may also make written or oral
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 which 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 the control of the Corporation. These
risks, uncertainties and other factors may cause the actual results, performance
or achievements of the Corporation to be materially different from 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: changes
in
general national or regional economic conditions, changes in interest rates,
reductions in the market value of wealth management and trust assets under
administration, reductions in loan demand, reductions in deposit levels
necessitating increased borrowing to fund loans and investments, changes in
loan
defaults and charge-off rates, changes in the size and nature of the
Corporation’s competition, changes in legislation or regulation and accounting
principles, policies and guidelines and changes in the assumptions used in
making such forward-looking statements. In addition, the factors described
under
“Risk Factors” in Item 1A of Washington Trust’s Annual Report on Form 10-K for
the year ended December 31, 2005 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
Accounting
policies involving significant judgments and assumptions by management that
have, or could have, a material impact on the carrying value of certain assets
and impact income are considered critical accounting policies. The Corporation’s
accounting and reporting policies comply with accounting principles generally
accepted in the United States and conform to general practices within the
banking industry. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions. The financial position and results
of operations can be affected by these estimates and assumptions, which are
important in understanding the reported results. Management has discussed the
development and the selection of critical accounting policies with the Audit
Committee of our board of directors. As discussed in our 2005 Annual Report
on
Form 10-K, we have identified the allowance for loan losses, accounting for
acquisitions and review of goodwill and intangible assets for impairment,
other-than-temporary impairment, interest income recognition, and tax estimates
as critical accounting policies. There have been no significant changes in
the
methods or assumptions used in the accounting policies that require material
estimates and assumptions.
Results
of Operations
Overview
Net
income for the second quarter of 2006 was $6.2 million, an increase of 9.5%
from the $5.6 million reported for the second quarter of 2005. On a per
diluted share basis, the Corporation earned $0.45 for the second quarter of
2006, up $0.04, or 9.8%, from the same quarter in 2005. The rates of return
on
average equity and average assets for the three months ended June 30, 2006
were 15.28% and 1.02%, up from 14.58% and 0.97%, respectively, for the same
period in 2005.
Net
income for the six months ended June 30, 2006 amounted to
$12.3 million, an increase of 10.9% from the $11.0 million reported
for the same period a year ago. On a diluted earnings per share basis, the
Corporation earned $0.89 for the first half of 2006, up $0.08 from the
81 cents reported for the first half of 2005. The returns on average equity
and average assets for the six months ended June 30, 2006 were 15.19% and
1.02%, respectively, compared to 14.39% and 0.95%, respectively, for the
comparable period in 2005.
Selected
financial highlights are presented in the table below.
(Dollars
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
Three
Months
|
|
Six
Months
|
|
Periods
ended June 30,
|
|
2006
|
|
2005
|
|
2005
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,177
|
|
$
|
5,639
|
|
$
|
12,250
|
|
$
|
11,049
|
|
Diluted
earnings per share
|
|
|
0.45
|
|
|
0.41
|
|
|
0.89
|
|
|
0.81
|
|
Dividends
declared per common share
|
|
|
0.19
|
|
|
0.18
|
|
|
0.38
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
1.02
|
%
|
|
0.97
|
%
|
|
1.02
|
%
|
|
0.95
|
%
|
Return
on average shareholders equity
|
|
|
15.28
|
%
|
|
14.58
|
%
|
|
15.19
|
%
|
|
14.39
|
%
|
Interest
rate spread (taxable equivalent basis)
|
|
|
2.43
|
%
|
|
2.48
|
%
|
|
2.49
|
%
|
|
2.49
|
%
|
Net
interest margin (taxable equivalent basis)
|
|
|
2.75
|
%
|
|
2.76
|
%
|
|
2.79
|
%
|
|
2.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
March
31,
|
|
|
Dec.
31,
|
|
|
June
30,
|
|
As
of
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
value per share
|
|
$
|
12.01
|
|
$
|
11.92
|
|
$
|
11.86
|
|
$
|
11.79
|
|
Tangible
book value per common share
|
|
|
8.02
|
|
|
7.90
|
|
|
7.79
|
|
|
10.01
|
|
Market
value per share
|
|
|
27.72
|
|
|
28.07
|
|
|
26.18
|
|
|
27.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
August 31, 2005, the Corporation completed the acquisition of Weston
Financial Group, Inc. (“Weston Financial”), a registered investment advisor and
financial planning company located in Wellesley, Massachusetts, with
broker-dealer and insurance agency subsidiaries. The results of Weston
Financial’s operations have been included in the Consolidated Statements of
Income since that date. The acquisition of Weston Financial increased the size
and range of products and services offered by Washington Trust’s wealth
management group.
Net
Interest Income
Net
interest income is the difference between interest earned on loans and
investments and interest paid on deposits and other borrowings, and continues
to
be the primary source of Washington Trust’s operating income. Included in
interest income are loan prepayment fees and certain other fees, such as late
charges. Net interest income is affected by the level of interest rates, changes
in interest rates and changes in the amount and composition of interest-earnings
assets and interest-bearing liabilities.
Net
interest income totaled $15.2 million and $30.6 million for the three
and six months ended June 30, 2006, respectively, up 1.6% and 3.5%,
respectively, from the corresponding periods in 2005. In the second quarter
of
2006, no dividend income was recognized nor included in net interest income
on
the Corporation’s investment in Federal Home Loan Bank of Boston (“FHLB”) stock
due to a timing change made by the FHLB in its dividend payment schedule. The
Corporation estimates that it would have otherwise recorded approximately
$450 thousand of FHLB stock dividend income in the second quarter. The FHLB
has indicated that it intends to pay dividends during the third quarter with
a
catch-up for the delayed dividend, although the amount of such dividends has
not
yet been announced.
The
following discussion presents net interest income on a fully taxable equivalent
(“FTE”) basis by adjusting income and yields on tax-exempt loans and securities
to be comparable to taxable loans and securities. For more information see
the
section entitled “Average Balances / Net Interest Margin - Fully Taxable
Equivalent (FTE) Basis” below.
FTE
net
interest income for the three and six months ended June 30, 2006 amounted
to $15.6 million and $31.3 million, respectively, up 2.3% and 4.0%
from the same periods a year ago. The net interest margin (annualized
tax-equivalent net interest income as a percentage of average interest-earning
assets) amounted to 2.75% for the second quarter of 2006, down 1 basis
point from the second quarter last year and down 9 basis points from the
first quarter of 2006. The decline in the net interest margin from the first
quarter of 2006 was largely due to the FHLB dividend schedule change, which
was
approximately 8 basis points. The continuing rise in short-term interest
rates in
the
first
half of 2006 and the shift in the mix of deposits from lower cost savings
accounts into premium money market accounts and certificates of deposit have
also affected the margin.
Average
interest-earning assets for the three and six months ended June 30, 2006
increased $64.4 million and $61.2 million, respectively, over the
amounts reported for the same periods last year. This increase was mainly due
to
growth in the loan portfolio, which was partially offset by reductions in the
securities portfolio. The yield on total loans for the three and six months
ended June 30, 2006 increased 68 and 65 basis points, respectively,
from the comparable 2005 periods. The contribution of loan prepayment and other
fees to the yield on total loans was 9 and 7 basis points, respectively,
for the three and six months ended June 30, 2006. Comparable amounts for
the three and six months ended June 30, 2005 were 5 and 4 basis points,
respectively. Total average securities for the three and six months ended
June 30, 2006 decreased $47.5 million and $64.2 million,
respectively, from the same periods last year, as the flattening of the yield
curve has made reinvestment of maturing balances unattractive relative to
funding costs during these periods. The FTE rate of return on securities for
the
three and six months ended June 30, 2006 increased 39 and 47 basis
points, respectively, from the comparable 2005 periods. The increase in the
total yield on securities reflects a combination of higher yields on variable
rate securities tied to short-term interest rates, runoff of lower yielding
securities and higher marginal rates on reinvestment of cash flows in 2006
relative to the prior year. The Corporation continues to monitor appropriate
strategies to manage rising funding costs and more slowly increasing investment
yields given the flat yield curve.
For
the
three and six months ended June 30, 2006, average interest-bearing
liabilities rose $86.3 million and $77.9 million, respectively, over
the amounts reported for the comparable periods last year. The Corporation
experienced growth in time deposits and money market accounts, and declines
in
NOW accounts, savings accounts and FHLB advances. Included in time deposits
were
brokered certificates of deposit, which are utilized by the Corporation as
part
of its overall funding program along with FHLB advances and other sources.
The
balance of average FHLB advances for the three and six months ended
June 30, 2006 decreased $76.8 million and $92.4 million,
respectively, while the average rate paid on FHLB advances increased 55 and
54 basis points, respectively, from the same periods a year
ago.
Average
Balances / Net Interest Margin - Fully Taxable Equivalent (FTE)
Basis
The
following tables present 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. For dividends on corporate stocks, the
70% federal dividends received deduction is also used in the calculation of
tax
equivalency. Unrealized gains (losses) on available for sale securities are
excluded from the average balance and yield calculations. Nonaccrual and
renegotiated loans, as well as interest earned on these loans (to the extent
recognized in the Consolidated Statements of Income) are included in amounts
presented for loans.
Three
months ended June 30,
|
|
2006
|
|
2005
|
|
|
|
Average
|
|
|
|
Yield/
|
|
Average
|
|
|
|
Yield/
|
|
(Dollars
in thousands)
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
$
|
590,595
|
|
$
|
7,505
|
|
|
5.10
|
%
|
$
|
558,645
|
|
$
|
6,889
|
|
|
4.95
|
%
|
Commercial
and other loans
|
|
|
568,937
|
|
|
11,049
|
|
|
7.79
|
%
|
|
518,025
|
|
|
8,922
|
|
|
6.91
|
%
|
Consumer
loans
|
|
|
272,819
|
|
|
4,633
|
|
|
6.81
|
%
|
|
243,756
|
|
|
3,329
|
|
|
5.48
|
%
|
Total
loans
|
|
|
1,432,351
|
|
|
23,187
|
|
|
6.49
|
%
|
|
1,320,426
|
|
|
19,140
|
|
|
5.81
|
%
|
Federal
funds sold and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
short-term investments
|
|
|
12,827
|
|
|
150
|
|
|
4.69
|
%
|
|
12,018
|
|
|
79
|
|
|
2.64
|
%
|
Taxable
debt securities
|
|
|
737,987
|
|
|
8,648
|
|
|
4.70
|
%
|
|
804,232
|
|
|
8,285
|
|
|
4.13
|
%
|
Nontaxable
debt securities
|
|
|
39,659
|
|
|
570
|
|
|
5.76
|
%
|
|
21,369
|
|
|
315
|
|
|
5.91
|
%
|
Corporate
stocks and FHLB stock
|
|
|
51,128
|
|
|
343
|
|
|
2.69
|
%
|
|
51,511
|
|
|
720
|
|
|
5.61
|
%
|
Total
securities
|
|
|
841,601
|
|
|
9,711
|
|
|
4.63
|
%
|
|
889,130
|
|
|
9,399
|
|
|
4.24
|
%
|
Total
interest-earning assets
|
|
|
2,273,952
|
|
|
32,898
|
|
|
5.80
|
%
|
|
2,209,556
|
|
|
28,539
|
|
|
5.18
|
%
|
Non
interest-earning assets
|
|
|
154,648
|
|
|
|
|
|
|
|
|
127,417
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,428,600
|
|
|
|
|
|
|
|
$
|
2,336,973
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
$
|
177,260
|
|
$
|
80
|
|
|
0.18
|
%
|
$
|
180,103
|
|
$
|
77
|
|
|
0.17
|
%
|
Money
market accounts
|
|
|
233,489
|
|
|
1,835
|
|
|
3.15
|
%
|
|
186,957
|
|
|
919
|
|
|
1.97
|
%
|
Savings
deposits
|
|
|
195,251
|
|
|
274
|
|
|
0.56
|
%
|
|
241,594
|
|
|
372
|
|
|
0.62
|
%
|
Time
deposits
|
|
|
871,519
|
|
|
8,972
|
|
|
4.13
|
%
|
|
733,927
|
|
|
6,259
|
|
|
3.42
|
%
|
FHLB
advances
|
|
|
554,639
|
|
|
5,745
|
|
|
4.15
|
%
|
|
631,390
|
|
|
5,670
|
|
|
3.60
|
%
|
Junior
subordinated debentures
|
|
|
22,681
|
|
|
338
|
|
|
5.98
|
%
|
|
-
|
|
|
-
|
|
|
-
|
%
|
Other
borrowed funds
|
|
|
7,346
|
|
|
87
|
|
|
4.75
|
%
|
|
1,891
|
|
|
20
|
|
|
4.12
|
%
|
Total
interest-bearing liabilities
|
|
|
2,062,185
|
|
|
17,331
|
|
|
3.37
|
%
|
|
1,975,862
|
|
|
13,317
|
|
|
2.70
|
%
|
Demand
deposits
|
|
|
182,546
|
|
|
|
|
|
|
|
|
189,465
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,184
|
|
|
|
|
|
|
|
|
16,983
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
161,685
|
|
|
|
|
|
|
|
|
154,663
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,428,600
|
|
|
|
|
|
|
|
$
|
2,336,973
|
|
|
|
|
|
|
|
Net
interest income (FTE)
|
|
|
|
|
$
|
15,567
|
|
|
|
|
|
|
|
$
|
15,222
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
2.43
|
%
|
|
|
|
|
|
|
|
2.48
|
%
|
Net
interest margin
|
|
|
|
|
|
|
|
|
2.75
|
%
|
|
|
|
|
|
|
|
2.76
|
%
|
Interest
income amounts presented in the preceding table include the following
adjustments for taxable equivalency:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30,
|
|
2006
|
|
2005
|
|
Commercial
and other loans
|
|
$
|
57
|
|
$
|
44
|
|
Nontaxable
debt securities
|
|
|
199
|
|
|
111
|
|
Corporate
stocks
|
|
|
94
|
|
|
95
|
|
Six
months ended June 30,
|
|
2006
|
|
2005
|
|
|
|
Average
|
|
|
|
Yield/
|
|
Average
|
|
|
|
Yield/
|
|
(Dollars
in thousands)
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Balance
|
|
Interest
|
|
Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
$
|
590,217
|
|
$
|
14,909
|
|
|
5.09
|
%
|
$
|
544,822
|
|
$
|
13,394
|
|
|
4.96
|
%
|
Commercial
and other loans
|
|
|
562,511
|
|
|
21,303
|
|
|
7.64
|
%
|
|
515,158
|
|
|
17,348
|
|
|
6.79
|
%
|
Consumer
loans
|
|
|
269,960
|
|
|
8,922
|
|
|
6.66
|
%
|
|
237,278
|
|
|
6,268
|
|
|
5.33
|
%
|
Total
loans
|
|
|
1,422,688
|
|
|
45,134
|
|
|
6.40
|
%
|
|
1,297,258
|
|
|
37,010
|
|
|
5.75
|
%
|
Federal
funds sold and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
short-term investments
|
|
|
11,510
|
|
|
265
|
|
|
4.64
|
%
|
|
11,349
|
|
|
134
|
|
|
2.38
|
%
|
Taxable
debt securities
|
|
|
737,776
|
|
|
17,060
|
|
|
4.66
|
%
|
|
817,412
|
|
|
16,719
|
|
|
4.12
|
%
|
Nontaxable
debt securities
|
|
|
37,430
|
|
|
1,074
|
|
|
5.79
|
%
|
|
20,256
|
|
|
599
|
|
|
5.96
|
%
|
Corporate
stocks and FHLB stock
|
|
|
50,241
|
|
|
1,104
|
|
|
4.43
|
%
|
|
52,178
|
|
|
1,443
|
|
|
5.58
|
%
|
Total
securities
|
|
|
836,957
|
|
|
19,503
|
|
|
4.70
|
%
|
|
901,195
|
|
|
18,895
|
|
|
4.23
|
%
|
Total
interest-earning assets
|
|
|
2,259,645
|
|
|
64,637
|
|
|
5.77
|
%
|
|
2,198,453
|
|
|
55,905
|
|
|
5.13
|
%
|
Non
interest-earning assets
|
|
|
152,019
|
|
|
|
|
|
|
|
|
126,801
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,411,664
|
|
|
|
|
|
|
|
$
|
2,325,254
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
$
|
173,859
|
|
$
|
147
|
|
|
0.17
|
%
|
$
|
175,630
|
|
$
|
155
|
|
|
0.18
|
%
|
Money
market accounts
|
|
|
230,911
|
|
|
3,442
|
|
|
3.01
|
%
|
|
191,740
|
|
|
1,760
|
|
|
1.85
|
%
|
Savings
deposits
|
|
|
199,984
|
|
|
561
|
|
|
0.57
|
%
|
|
245,256
|
|
|
748
|
|
|
0.62
|
%
|
Time
deposits
|
|
|
861,464
|
|
|
17,249
|
|
|
4.04
|
%
|
|
711,527
|
|
|
11,896
|
|
|
3.37
|
%
|
FHLB
advances
|
|
|
551,035
|
|
|
11,104
|
|
|
4.06
|
%
|
|
643,410
|
|
|
11,219
|
|
|
3.52
|
%
|
Junior
subordinated debentures
|
|
|
22,681
|
|
|
676
|
|
|
6.01
|
%
|
|
-
|
|
|
-
|
|
|
-
|
%
|
Other
borrowed funds
|
|
|
7,183
|
|
|
166
|
|
|
4.67
|
%
|
|
1,700
|
|
|
36
|
|
|
4.17
|
%
|
Total
interest-bearing liabilities
|
|
|
2,047,117
|
|
|
33,345
|
|
|
3.28
|
%
|
|
1,969,263
|
|
|
25,814
|
|
|
2.64
|
%
|
Demand
deposits
|
|
|
181,257
|
|
|
|
|
|
|
|
|
185,893
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
21,972
|
|
|
|
|
|
|
|
|
16,550
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
161,318
|
|
|
|
|
|
|
|
|
153,548
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,411,664
|
|
|
|
|
|
|
|
$
|
2,325,254
|
|
|
|
|
|
|
|
Net
interest income (FTE)
|
|
|
|
|
$
|
31,292
|
|
|
|
|
|
|
|
$
|
30,091
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
2.49
|
%
|
|
|
|
|
|
|
|
2.49
|
%
|
Net
interest margin
|
|
|
|
|
|
|
|
|
2.79
|
%
|
|
|
|
|
|
|
|
2.76
|
%
|
Interest
income amounts presented in the preceding table include the following
adjustments for taxable equivalency:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30,
|
|
2006
|
|
2005
|
|
Commercial
and other loans
|
|
$
|
107
|
|
$
|
89
|
|
Nontaxable
debt securities
|
|
|
375
|
|
|
210
|
|
Corporate
stocks
|
|
|
178
|
|
|
199
|
|
The
following table presents certain information on a fully taxable equivalent
basis
regarding changes in our interest income and interest expense for the periods
indicated. The net change attributable to both volume and rate has been
allocated proportionately.
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June 30,
2006 vs. 2005
|
|
June 30,
2006 vs. 2005
|
|
|
|
Increase
(decrease) due to
|
|
Increase
(decrease) due to
|
|
(Dollars
in thousands)
|
|
Volume
|
|
Rate
|
|
Net
Chg
|
|
Volume
|
|
Rate
|
|
Net
Chg
|
|
Interest
on interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
$
|
403
|
|
$
|
213
|
|
$
|
616
|
|
$
|
1,153
|
|
$
|
362
|
|
$
|
1,515
|
|
Commercial
and other loans
|
|
|
927
|
|
|
1,200
|
|
|
2,127
|
|
|
1,674
|
|
|
2,281
|
|
|
3,955
|
|
Consumer
loans
|
|
|
429
|
|
|
875
|
|
|
1,304
|
|
|
944
|
|
|
1,710
|
|
|
2,654
|
|
Federal
funds sold and other short-term investments
|
|
|
6
|
|
|
63
|
|
|
69
|
|
|
2
|
|
|
128
|
|
|
130
|
|
Taxable
debt securities
|
|
|
(719
|
)
|
|
1,082
|
|
|
363
|
|
|
(1,721
|
)
|
|
2,062
|
|
|
341
|
|
Nontaxable
debt securities
|
|
|
263
|
|
|
(6
|
)
|
|
257
|
|
|
493
|
|
|
(16
|
)
|
|
477
|
|
Corporate
stocks and FHLB stock
|
|
|
(5
|
)
|
|
(372
|
)
|
|
(377
|
)
|
|
(52
|
)
|
|
(287
|
)
|
|
(339
|
)
|
Total
interest income
|
|
|
1,304
|
|
|
3,055
|
|
|
4,359
|
|
|
2,493
|
|
|
6,240
|
|
|
8,733
|
|
Interest
on interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
|
(1
|
)
|
|
4
|
|
|
3
|
|
|
(1
|
)
|
|
(7
|
)
|
|
(8
|
)
|
Money
market accounts
|
|
|
456
|
|
|
460
|
|
|
916
|
|
|
828
|
|
|
854
|
|
|
1,682
|
|
Savings
deposits
|
|
|
(66
|
)
|
|
(31
|
)
|
|
(97
|
)
|
|
(130
|
)
|
|
(57
|
)
|
|
(187
|
)
|
Time
deposits
|
|
|
1,287
|
|
|
1,426
|
|
|
2,713
|
|
|
2,754
|
|
|
2,599
|
|
|
5,353
|
|
FHLB
advances
|
|
|
(734
|
)
|
|
809
|
|
|
75
|
|
|
(1,722
|
)
|
|
1,607
|
|
|
(115
|
)
|
Junior
subordinated debentures
|
|
|
338
|
|
|
-
|
|
|
338
|
|
|
676
|
|
|
-
|
|
|
676
|
|
Other
borrowed funds
|
|
|
64
|
|
|
2
|
|
|
66
|
|
|
127
|
|
|
4
|
|
|
131
|
|
Total
interest expense
|
|
|
1,344
|
|
|
2,670
|
|
|
4,014
|
|
|
2,532
|
|
|
5,000
|
|
|
7,532
|
|
Net
interest income
|
|
$
|
(40
|
)
|
$
|
385
|
|
$
|
345
|
|
$
|
(39
|
)
|
$
|
1,240
|
|
$
|
1,201
|
|
Provision
and Allowance for Loan Losses
The
Corporation’s loan loss provision charged to earnings amounted to
$300 thousand and $600 thousand, respectively, for the three and six
months ended June 30, 2006, consistent with the amounts recorded in 2005.
The allowance for loan losses was $18.5 million, or 1.29% of total loans,
at June 30, 2006, compared to $17.9 million, or 1.28%, at
December 31, 2005.
Noninterest
Income
Noninterest
income is an important source of revenue for Washington Trust. Noninterest
income, excluding realized gains on securities, comprised 41% of total revenue,
excluding realized gains on securities, for the second quarter of 2006, compared
with 32% for the same quarter in 2005. Primary sources of noninterest income
are
wealth management and trust services fees, service charges on deposit accounts,
merchant credit card processing fees and net gains on sales of loans.
Noninterest income, excluding realized gains on securities amounted to
$10.7 million and $20.1 million, respectively, for the three and six
months ended June 30, 2006, up 53% and 54% over the same periods last year.
This increase is primarily attributable to higher revenues from wealth
management and trust services, mainly due to the acquisition of Weston Financial
in the third quarter of 2005.
The
following table presents a noninterest income comparison for the three and
six
months ended June 30, 2006 and 2005:
(Dollars
in thousands)
|
|
Three
Months
|
|
Six
Months
|
|
|
|
|
|
|
|
$
|
|
%
|
|
|
|
|
|
$
|
|
%
|
|
Periods
ended June 30
|
|
2006
|
|
2005
|
|
Chg
|
|
Chg
|
|
2006
|
|
2005
|
|
Chg
|
|
Chg
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
management and trust services
|
|
$
|
6,177
|
|
$
|
3,486
|
|
$
|
2,691
|
|
|
77
|
%
|
$
|
12,059
|
|
$
|
6,698
|
|
$
|
5,361
|
|
|
80
|
%
|
Service
charges on deposit accounts
|
|
|
1,236
|
|
|
1,168
|
|
|
68
|
|
|
6
|
%
|
|
2,355
|
|
|
2,179
|
|
|
176
|
|
|
8
|
%
|
Merchant
processing fees
|
|
|
1,656
|
|
|
1,337
|
|
|
319
|
|
|
24
|
%
|
|
2,703
|
|
|
2,115
|
|
|
588
|
|
|
28
|
%
|
Income
from bank-owned life insurance
|
|
|
346
|
|
|
279
|
|
|
67
|
|
|
24
|
%
|
|
625
|
|
|
551
|
|
|
74
|
|
|
13
|
%
|
Net
gains on loan sales
|
|
|
336
|
|
|
418
|
|
|
(82
|
)
|
|
(20
|
)%
|
|
612
|
|
|
905
|
|
|
(293
|
)
|
|
(32
|
)%
|
Other
income
|
|
|
931
|
|
|
303
|
|
|
628
|
|
|
207
|
%
|
|
1,789
|
|
|
622
|
|
|
1,167
|
|
|
188
|
%
|
Subtotal
|
|
|
10,682
|
|
|
6,991
|
|
|
3,691
|
|
|
53
|
%
|
|
20,143
|
|
|
13,070
|
|
|
7,073
|
|
|
54
|
%
|
Net
realized gains on securities
|
|
|
765
|
|
|
3
|
|
|
762
|
|
|
|
|
|
824
|
|
|
3
|
|
|
821
|
|
|
|
|
Total
noninterest income
|
|
$
|
11,447
|
|
$
|
6,994
|
|
$
|
4,453
|
|
|
64
|
%
|
$
|
20,967
|
|
$
|
13,073
|
|
$
|
7,894
|
|
|
60
|
%
|
Revenues
from wealth management and trust services for the three and six months ended
June 30, 2006 rose by 77% and 80%, respectively, over the same periods in
2005. The increase was primarily attributable to the acquisition of Weston
Financial completed on August 31, 2005. Revenue from wealth management and
trust services is largely dependent on the value of assets under administration
and is closely tied to the performance of the financial markets. Assets under
administration totaled $3.425 billion at June 30, 2006, up
$153 million, or 5%, from $3.272 billion at December 31, 2005.
This increase was due to business development efforts and, to a lesser extent,
financial market appreciation.
For
the
three and six months ended June 30, 2006, service charges on deposits were
up 6% and 8%, respectively, from the same periods a year ago, primarily due
to
the broadening of existing product fee arrangements.
Merchant
processing fees for the three and six months ended June 30, 2006 increased
24% and 28%, respectively, from the corresponding periods a year ago due to
increases in the volume of transactions processed for existing and new
customers. Merchant processing fees represent charges to merchants for credit
card transactions processed.
For
the
three and six months ended June 30, 2006, net gains on loan sales were down
20% and 32%, respectively, from the comparable 2005 periods due to decreased
sales of Small Business Administration (“SBA”) loans and residential mortgage
loans. In general, loan originations have been adversely affected by higher
interest rates.
Income
from bank-owned life insurance (“BOLI”) amounted to $346 thousand and
$625 thousand, respectively, for the three and six months ended
June 30, 2006. BOLI represents life insurance on the lives of certain
employees who have consented to allowing the Bank to be the beneficiary of
such
policies. The Corporation expects to benefit from the BOLI contracts as a result
of the tax-free growth in cash surrender value and death benefits that are
expected to be generated over time. The BOLI investment provides a means to
mitigate increasing employee benefit costs. During the second quarter of 2006,
the Corporation purchased $8 million in BOLI, bringing the total investment
in BOLI to $39.0 million at June 30, 2006.
In
the
second quarter of 2006, Washington Trust recognized $765 thousand of net
realized gains on sales of securities, primarily equity securities.
Approximately $381 thousand of the gains resulted from the Corporation’s
annual contribution of appreciated equity securities to the Corporation’s
charitable foundation. The cost of the annual contribution, which was included
in noninterest expenses, amounted to $513 thousand for the second quarter
of 2006. Washington Trust made its 2005 annual contribution to its charitable
foundation in the fourth quarter of 2005. The remainder of the net realized
gains recognized in the second quarter of 2006 resulted primarily from the
market sale of appreciated equity securities.
Other
income consists of loan servicing fees, safe deposit rents, wire transfer fees,
fees on letters of credit, financial advisory services fees, commissions on
annuities and other fees. Other income amounted to $931 thousand and
$1.8 million, respectively for the three and six months ended June 30,
2006, up $628 thousand and $1.2 million from
the
same
periods a year ago. Approximately 89% of the quarter-to-quarter increase and
96%
of the year-to-year increase was attributable to the acquisition of Weston
Financial in the third quarter of 2005.
Noninterest
Expense
Noninterest
expenses amounted to $17.3 million and $33.0 million, respectively,
for the three and six months ended June 30, 2006, up 29% and 28% over the
same periods last year. Approximately 54% of the increase from 2005 was
attributable to the acquisition of Weston Financial.
The
following table presents a noninterest expense comparison for the three and
six
months ended June 30, 2006 and 2005:
(Dollars
in thousands)
|
|
Three
Months
|
|
Six
Months
|
|
|
|
|
|
|
|
$
|
|
%
|
|
|
|
|
|
$
|
|
%
|
|
Periods
ended June 30
|
|
2006
|
|
2005
|
|
Chg
|
|
Chg
|
|
2006
|
|
2005
|
|
Chg
|
|
Chg
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$
|
9,830
|
|
$
|
7,450
|
|
$
|
2,380
|
|
|
32
|
%
|
$
|
19,449
|
|
$
|
14,909
|
|
$
|
4,540
|
|
|
31
|
%
|
Net
occupancy
|
|
|
1,018
|
|
|
802
|
|
|
216
|
|
|
27
|
%
|
|
1,972
|
|
|
1,655
|
|
|
317
|
|
|
19
|
%
|
Equipment
|
|
|
881
|
|
|
869
|
|
|
12
|
|
|
1
|
%
|
|
1,680
|
|
|
1,751
|
|
|
(71
|
)
|
|
(4
|
%)
|
Merchant
processing costs
|
|
|
1,407
|
|
|
1,098
|
|
|
309
|
|
|
28
|
%
|
|
2,294
|
|
|
1,734
|
|
|
560
|
|
|
32
|
%
|
Outsourced
services
|
|
|
496
|
|
|
444
|
|
|
52
|
|
|
12
|
%
|
|
1,014
|
|
|
857
|
|
|
157
|
|
|
18
|
%
|
Advertising
and promotion
|
|
|
681
|
|
|
733
|
|
|
(52
|
)
|
|
(7
|
%)
|
|
1,118
|
|
|
1,036
|
|
|
82
|
|
|
8
|
%
|
Legal,
audit and professional fees
|
|
|
403
|
|
|
520
|
|
|
(117
|
)
|
|
(23
|
%)
|
|
779
|
|
|
912
|
|
|
(133
|
)
|
|
(15
|
%)
|
Amortization
of intangibles
|
|
|
406
|
|
|
99
|
|
|
307
|
|
|
310
|
%
|
|
811
|
|
|
246
|
|
|
565
|
|
|
230
|
%
|
Other
|
|
|
2,158
|
|
|
1,358
|
|
|
800
|
|
|
59
|
%
|
|
3,867
|
|
|
2,717
|
|
|
1,150
|
|
|
42
|
%
|
Total
noninterest expense
|
|
$
|
17,280
|
|
$
|
13,373
|
|
$
|
3,907
|
|
|
29
|
%
|
$
|
32,984
|
|
$
|
25,817
|
|
$
|
7,167
|
|
|
28
|
%
|
Salaries
and employee benefit expense for the three and six months ended June 30,
2006 were up $2.4 million and $4.5 million, respectively, from the
same periods in 2005. Approximately 61% of the increase from 2005 was due to
the
operating expenses of Weston Financial. The remainder of the increase from
2005
was due to increases in salaries and wages, higher defined benefit plan costs,
increases in performance-based compensation and higher share-based compensation.
See Note 3 to the Consolidated Financial Statements for additional
discussion on share-based compensation.
Net
occupancy expense for the three and six months ended June 30, 2006
increased 27% and 19%, respectively, over the same periods in 2005. The increase
reflected higher rental expense for leased premises and included operating
expenses of Weston Financial.
Merchant
processing costs for the three and six months ended June 30, 2006, up 28%
and 32%, respectively, from the comparable periods in 2005 due to increases
in
the volume of transactions processed for existing and new customers. Merchant
processing costs represent third-party costs incurred that are directly
attributable to handling merchant credit card transactions.
Outsourced
services for the three and six months ended June 30, 2006 increased 12% and
18%, respectively, over the same periods a year ago due to higher costs for
data
processing services and third party vendor costs.
Legal,
audit and professional fees for the three and six months ended June 30,
2006, down 23% and 15%, respectively, from the same periods last year. The
primary reason for the decrease was that the second quarter 2005 included
approximately $124 thousand related to a special project.
Amortization
of intangibles amounted to $406 thousand and $811 thousand for the
three and six months ended June 30, 2006, respectively. See Note 7 to
the Consolidated Financial Statements for additional information on identifiable
intangible assets.
Other
noninterest expense for the three and six months ended June 30, 2006,
increased $800 thousand and $1.2 million, respectively, from the same
periods last year, and included $106 thousand and $221 thousand of
operating costs for Weston Financial. Included in other noninterest expense
in
the second quarter of 2006 was the annual contribution of appreciated equity
securities to the Corporation’s charitable foundation amounting to
$513 thousand.
This transaction resulted in realized securities gains of $381 thousand in
the second quarter of 2006. Washington Trust made its 2005 annual contribution
to its charitable foundation in the fourth quarter of 2005.
Income
Taxes
Income
tax expense amounted to $2.9 million and $5.8 million for the three
and six months ended June 30, 2006, respectively. The Corporation’s
effective tax rate for first half of 2006 was 32.0%, unchanged from the first
half of 2005. These rates differed from the federal rate of 35% due to the
benefits of tax-exempt income, the dividends received deduction and income
from
BOLI.
Financial
Condition
Summary
At
June 30,
2006, total assets amounted to $2.432 billion, up $30.3 million from
December 31, 2005, mainly due to an increase in total loans. Total
liabilities increased $27.4 million in the first half of 2006, with the
largest increase in total deposits. Shareholders’ equity totaled
$161.3 million at June 30, 2006, up $2.9 million in the first six
months of 2006.
Securities
Washington
Trust’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. At June 30,
2006 the securities portfolio totaled $786.3 million, or 32.3% of total
assets, compared with $783.9 million, or 32.6% of total assets, at
December 31, 2005. As a result of increases in interest rates, the net
unrealized losses on securities available for sale and held to maturity amounted
to $15.5 million at June 30, 2006, compared to $3.4 million at
December 31, 2005. See Note 4 to the Consolidated Financial Statements
for detail of unrealized gains and losses on securities.
Loans
Total
loans increased $29.4 million, or 2.1%, in the first six months of 2006
amounting to $1.431 billion at June 30, 2006.
The
Corporation originates residential mortgages, for both portfolio and sale,
and
purchases mortgages from other financial institutions. Residential real estate
loans totaled $589.2 million at June 30, 2006, increasing
$6.5 million, or 1.1%, during the first half of 2006, including the effect
of $11.8 million in purchased adjustable rate mortgages.
Consumer
loans rose by $12.0 million, or 4.6%, in the first six months of 2006, led
by growth in home equity loans.
Commercial
loans, including commercial real estate and construction loans, totaled
$565.6 million at June 30, 2006, up $10.9 million, or 2.0%, in
the first half of 2006.
Asset
Quality
Allowance
for Loan Losses
Arriving
at an appropriate level of allowance for loan losses necessarily involves a
high
degree of judgment. The Corporation uses a methodology to systematically measure
the amount of estimated loan loss exposure inherent in the loan portfolio for
purposes of establishing a sufficient allowance for loan losses. For a more
detailed discussion on the allowance for loan losses, see additional information
in Item 7 under the caption “Application of Critical Accounting Policies
and Estimates” of Washington Trust’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2005.
The
allowance for loan losses is management’s best estimate of the probable loan
losses incurred as of the balance sheet date. The allowance is increased by
provisions charged to earnings and by recoveries of amounts previously charged
off, and is reduced by charge-offs on loans.
At
June 30, 2006, the allowance for loan losses was $18.5 million, or
1.29% of total loans, and 759% of total nonaccrual loans. This compares with
an
allowance of $17.4 million, or 1.30% of total loans, and 716% of nonaccrual
loans at June 30, 2005. Loan charge-offs, net of recoveries, amounted to
$38 thousand in the first half of 2006, compared to net recoveries of
$71 thousand in the same period a year ago.
Nonperforming
Assets
Nonperforming
assets are summarized in the following table:
(Dollars
in thousands)
|
|
June 30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Nonaccrual
loans 90 days or more past due
|
|
$
|
1,538
|
|
$
|
1,257
|
|
Nonaccrual
loans less than 90 days past due
|
|
|
897
|
|
|
1,157
|
|
Total
nonaccrual loans
|
|
|
2,435
|
|
|
2,414
|
|
Other
real estate owned, net
|
|
|
-
|
|
|
-
|
|
Total
nonperforming assets
|
|
$
|
2,435
|
|
$
|
2,414
|
|
Nonaccrual
loans as a percentage of total loans
|
|
|
0.17
|
%
|
|
0.17
|
%
|
Nonperforming
assets as a percentage of total assets
|
|
|
0.10
|
%
|
|
0.10
|
%
|
Allowance
for loan losses to nonaccrual loans
|
|
|
758.93
|
%
|
|
742.25
|
%
|
Allowance
for loan losses to total loans
|
|
|
1.29
|
%
|
|
1.28
|
%
|
Nonperforming
assets amounted to $2.4 million, or 0.10% of total assets, at June 30,
2006, essentially unchanged from the level at December 31,
2005.
There
were no accruing loans 90 days or more past due at June 30, 2006 or
December 31, 2005.
Impaired
loans consist of all nonaccrual commercial loans. At June 30, 2006, the
recorded investment in impaired loans was $566 thousand, which had a
related allowance of $59 thousand. Also during the six months ended
June 30, 2006, interest income recognized on impaired loans amounted to
approximately $173 thousand. Interest income on impaired loans is
recognized on a cash basis only.
The
following is an analysis of nonaccrual loans by loan category:
(Dollars
in thousands)
|
|
June 30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
Residential
real estate
|
|
$
|
1,692
|
|
$
|
1,147
|
|
Commercial:
|
|
|
|
|
|
|
|
Mortgages
|
|
|
-
|
|
|
394
|
|
Construction
and development
|
|
|
-
|
|
|
-
|
|
Other
|
|
|
566
|
|
|
624
|
|
Consumer
|
|
|
177
|
|
|
249
|
|
Total
nonaccrual loans
|
|
$
|
2,435
|
|
$
|
2,414
|
|
Deposits
In
the
first six months of 2006, total deposits rose by $31.5 million, or 1.9%.
Excluding a $16.0 million increase in brokered certificates of deposit,
in-market deposits were up by $15.5 million in the first half of 2006. Due
to increases in short-term interest rates, the Corporation has continued to
experience a shift in the mix of deposits, with a shift away from lower cost
savings accounts into premium money market accounts and certificates of
deposit.
Demand
deposits amounted to $184.2 million at June 30, 2006, down
$11.9 million, or 6.1%, from December 31, 2005. NOW account balances
totaled $178.1 million at June 30, 2006, down $614 thousand, or
0.3%, from the end of 2005. Money market account balances totaled
$239.9 million at June 30, 2006, up $16.7 million, or 7.5%, from
December 31, 2005. During the six months ended June 30, 2006, savings
deposits declined $20.9 million, or 9.8%, and amounted to
$191.6 million. Time deposits (including brokered certificates of deposit)
amounted to $877.0 million, up $48.3 million, or 5.8%, during the
first half of 2006. The Corporation utilizes brokered time deposits as part
of
its overall funding program along with other sources. Brokered time deposits
amounted to $216.1 million, up $16.0 million, or 8.0%, during the six
months ended June 30, 2006. Excluding
the brokered time deposits, time deposits rose $32.3 million, or 5.1%, in
the first half of 2006 due to growth in consumer and commercial certificates
of
deposit.
Borrowings
The
Corporation utilizes advances from the FHLB as well as other borrowings as
part
of its overall funding strategy. FHLB advances are used to meet short-term
liquidity needs, to purchase securities and to purchase loans from other
institutions. During the first six months of 2006, FHLB advances decreased
by
$1.7 million. See Note 9 to the Consolidated Financial Statements for
additional information on borrowings.
Liquidity
and Capital Resources
Liquidity
is the ability of a financial institution to meet maturing liability obligations
and customer loan demand. Washington Trust’s primary source of liquidity is
deposits. Deposits (demand, NOW, money market, savings and time deposits) funded
approximately 68% of total average assets in the first half of 2006. Other
sources of funding include discretionary use of purchased liabilities (e.g.,
FHLB term advances and other borrowings), cash flows from the Corporation’s
securities portfolios and loan repayments. In addition, securities designated
as
available for sale may be sold in response to short-term or long-term liquidity
needs.
The
Corporation’s Asset/Liability Committee (“ALCO”) establishes and monitors
internal liquidity measures to manage liquidity exposure. Liquidity remained
well within target ranges established by the ALCO during the first six months
of
2006. Net loans as a percentage of total assets amounted to 58% at June 30,
2006, unchanged from December 31, 2005. Total securities as a percentage of
total assets amounted to 32% at June 30, 2006, compared to 33% at
December 31, 2005.
For
the
six months ended June 30, 2006, net cash provided by financing activities
amounted to $23.7 million and was generated primarily from overall growth
in deposits. Net cash used in investing activities was $49.8 million in the
first half of 2006. The Corporation purchased $21.6 million of residential
and consumer loans in the six months ended June 30, 2006. Also during this
period, the Corporation purchased $8 million in BOLI. Net cash provided by
operating activities amounted to $12.2 million in the first six months of
2006, generated primarily by net income. See the Corporation’s Consolidated
Statements of Cash Flows for further information about sources and uses of
cash.
Total
shareholders’ equity amounted to $161.3 million at June 30, 2006, up
approximately $2.9 million since December 31, 2005. Included in this
change was a decrease in accumulated other comprehensive income of
$5.9 million. The decrease in accumulated other comprehensive income in the
first half of 2006 was due to increases in net unrealized losses on securities
available for sale. Dividends payable at June 30, 2006 amounted to
$2.6 million, representing a $0.19 per share dividend, which was paid to
shareholders on July 14, 2006. This was an increase from the $0.18 per
share rate paid throughout 2005 and represents the fourteenth consecutive year
with a dividend increase. The source of funds for dividends paid by the Bancorp
is dividends received from the Bank. The Bank is a regulated enterprise and,
as
such, its ability to pay dividends to the Bancorp is subject to regulatory
review and restriction.
The
ratio
of total equity to total assets amounted to 6.6% at June 30, 2006,
unchanged from December 31, 2005. Book value per share as of June 30,
2006 and December 31, 2005 amounted to $12.01 and $11.86, respectively. The
tangible book value per share was $8.02 at June 30, 2006, compared to $7.79
at the end of 2005.
Pursuant
to the Stock Purchase Agreement dated March 18, 2005, by and among the
Corporation, Weston Financial and Weston Financial’s shareholders, the
Corporation purchased all of the outstanding shares of capital stock of Weston
Financial in exchange for an aggregate amount of cash equal to
$20.3 million plus certain future payments. The future payments include
minimum payments of $2 million per year in each of the years 2007, 2008 and
2009. The present value of these minimum payments amounting to $5.6 million
is included in Other Borrowings in the Corporation’s Consolidated Balance Sheet.
In addition, the transaction is structured to provide for the contingent payment
of additional amounts up to a maximum of $18.5 million based on operating
results in each of the years during a three-year earn-out period ending
December 31, 2008. Contingent payments will be added to goodwill and
recorded as liabilities at the time the payments are determinable beyond a
reasonable doubt.
In
connection with the Weston Financial acquisition, trust preferred securities
totaling $22 million were issued in the third quarter of 2005 by capital trusts
created by the Corporation. In accordance with FIN 46-R, the capital trusts
that issued the trust preferred securities are not consolidated into the
Corporation’s financial statements, however, the Corporation reflects the
amounts of junior subordinated debentures payable to the capital trusts as
debt
in its financial statements. The trust preferred securities qualify as
Tier 1 capital.
The
Corporation’s capital ratios at June 30, 2006 place the Corporation in the
“well-capitalized” category according to regulatory standards. On March 1,
2005, the Federal Reserve Board issued a final rule that would retain trust
preferred securities in Tier 1 capital of bank holding companies, but with
stricter quantitative limits and clearer standards. Under the proposal, after
a
five-year transition period that would end on March 31, 2009, the aggregate
amount of trust preferred securities would be limited to 25% of Tier 1
capital elements, net of goodwill. The Corporation has evaluated the potential
impact of such a change on its Tier 1 capital ratio and has concluded that
the regulatory capital treatment of the trust preferred securities in the
Corporation’s total capital ratio would be unchanged.
Contractual
Obligations and Commitments
The
Corporation has entered into numerous contractual obligations and commitments.
The following table summarizes our contractual cash obligation and other
commitments at June 30, 2006.
(Dollars
in thousands)
|
|
Payments
Due by Period
|
|
|
|
Total
|
|
Less
Than
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
After
5
Years
|
|
Contractual
Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB
advances (1)
|
|
$
|
543,588
|
|
$
|
170,749
|
|
$
|
224,794
|
|
$
|
85,018
|
|
$
|
63,027
|
|
Junior
subordinated debentures
|
|
|
22,681
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
22,681
|
|
Operating
lease obligations
|
|
|
1,785
|
|
|
797
|
|
|
741
|
|
|
224
|
|
|
23
|
|
Software
licensing arrangements
|
|
|
452
|
|
|
283
|
|
|
81
|
|
|
88
|
|
|
-
|
|
Treasury,
tax and loan demand note
|
|
|
1,122
|
|
|
1,122
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
borrowed funds
|
|
|
6,051
|
|
|
2,008
|
|
|
3,702
|
|
|
65
|
|
|
276
|
|
Total
contractual obligations
|
|
$
|
575,679
|
|
$
|
174,959
|
|
$
|
229,318
|
|
$
|
85,395
|
|
$
|
86,007
|
|
(1) |
All
FHLB advances are shown in the period corresponding to their scheduled
maturity.
|
(Dollars
in thousands)
|
|
Amount
of Commitment Expiration - Per Period
|
|
|
|
Total
|
|
Less
Than
1
Year
|
|
1-3
Years
|
|
4-5
Years
|
|
After
5
Years
|
|
Other
Commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
|
108,573
|
|
$
|
85,057
|
|
$
|
12,218
|
|
$
|
5,113
|
|
$
|
6,185
|
|
Home
equity lines
|
|
|
180,301
|
|
|
2,746
|
|
|
7,796
|
|
|
12,293
|
|
|
157,466
|
|
Other
loans
|
|
|
11,844
|
|
|
9,598
|
|
|
1,143
|
|
|
1,103
|
|
|
-
|
|
Standby
letters of credit
|
|
|
11,056
|
|
|
1,488
|
|
|
9,078
|
|
|
490
|
|
|
-
|
|
Forward
loan commitments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originate
loans
|
|
|
2,668
|
|
|
2,668
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Sell
loans
|
|
|
4,034
|
|
|
4,034
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
commitments
|
|
$
|
318,476
|
|
$
|
105,591
|
|
$
|
30,235
|
|
$
|
18,999
|
|
$
|
163,651
|
|
See
additional discussion under the caption Note 8 to the Consolidated
Financial Statements for more information regarding the nature and business
purpose of financial instruments with off-balance sheet risk and derivative
financial instruments.
Asset/Liability
Management and Interest Rate Risk
The
ALCO
is responsible for establishing policy guidelines on liquidity and acceptable
exposure to interest rate risk. Interest rate risk is the risk of loss to future
earnings due to changes in interest rates. The objective of the ALCO is to
manage assets and funding sources to produce results that are consistent with
Washington Trust’s liquidity, capital adequacy, growth, risk and profitability
goals.
The
ALCO
manages the Corporation’s interest rate risk using 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,
the month 13 to month 24 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 and 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 June 30, 2006 and December 31, 2005, net interest
income simulations indicated that exposure to changing interest rates over
the
simulation horizons remained within tolerance levels established by the
Corporation. The Corporation defines maximum unfavorable net interest income
exposure to be a change of no more than 5% in net interest income over the
first
12 months, no more than 10% over the second 12 months, and no more than 10%
over
the full 60-month simulation horizon. 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 interest rate
scenario, the ALCO also measures the trend of both net interest income and
net
interest margin over a 60-month horizon to ensure the stability and adequacy
of
this source of earnings in different interest rate scenarios.
The
ALCO
reviews a variety of interest rate shift scenario results to evaluate interest
risk exposure, including scenarios showing the effect of steepening or
flattening changes in the yield curve shape as well as parallel changes in
interest rates. 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 interest 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 June 30, 2006 and December 31, 2005.
Interest rates are assumed to shift by a parallel 100 or 200 basis points upward
or 100 basis points downward over the periods indicated, except for core savings
deposits, which are assumed to shift by lesser amounts due to their historical
insensitivity to rate changes. 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.
|
June 30,
2006
|
December 31,
2005
|
|
Months
1 - 12
|
Months
13 - 24
|
Months
1 - 12
|
Months
13 - 24
|
100
basis point rate decrease
|
0.08%
|
0.93%
|
-0.08%
|
-1.18%
|
100
basis point rate increase
|
0.31%
|
-2.93%
|
0.93%
|
-0.14%
|
200
basis point rate increase
|
1.63%
|
-5.78%
|
1.59%
|
-1.31%
|
|
|
|
|
|
The
ALCO
estimates that the small positive exposure of net interest income to falling
rates as compared to an unchanged rate scenario, results from the near-term
effect of reducing rates paid on maturing time and certain core savings
deposits, while asset yields would decline more slowly initially as current
asset holdings mature or reprice. If rates were to fall and remain low for
a
sustained period, core savings deposit rates would likely not continue to fall
as fast as other market rates, while asset yields would decline as current
asset
holdings mature or reprice with increasing cash flows from more rapid
mortgage-related prepayments and redemption of callable securities.
The
modest positive exposure of net interest income to rising rates in Year 1 as
compared to an unchanged rate scenario results from a more rapid relative rate
of increase in asset yields than funding costs over the near term. For
simulation purposes, core savings rate changes are anticipated to lag other
market rates related to loan and investment yields in both timing and magnitude.
The ALCO’s estimate of interest rate risk exposure to rising rate environments,
including those involving a further flattening or inversion of the yield curve,
incorporates certain assumptions regarding the shift in mix from low-cost core
savings deposits to higher-cost time deposits, which has altered the composition
of the balance sheet in the current rising interest rate cycle.
The
negative exposure of net interest income to rising rates in Year 2 as compared
to an unchanged rate scenario is primarily attributable to an increase in
funding costs associated with retail deposits. With the flattening of the yield
curve, consumer demand for time deposits continues to be greater than growth
in
other lower-cost deposit categories.
For
modeling purposes, this trend is expected to continue even if interest rates
remain unchanged, since the ALCO believes that a shift in deposit mix more
heavily weighted towards time deposits accurately reflects current operating
conditions. Although asset yields would also increase in a rising interest
rate
environment, the cumulative impact of relative growth in the rate-sensitive
time
deposit category suggests that by Year 2 of rising interest rate scenarios,
the
increase in the Corporation’s cost of funds could result in a relative decline
in net interest margin compared to an unchanged rate scenario.
While
the
ALCO reviews simulation assumptions to ensure that they are reasonable and
current, income simulation may not always prove to be an accurate indicator
of
interest rate risk or future net interest margin since 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.
Firstly, 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 noted above. The static balance sheet assumption
does
not necessarily reflect the Corporation’s expectation for future balance sheet
growth, which is a function of the business environment and customer behavior.
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 assumed relationship between
short-term interest rate changes and core deposit rate and balance changes
used
in income simulation may differ from the ALCO’s estimates. Lastly,
mortgage-backed securities and mortgage 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 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. Available for sale equity securities are excluded from
this
analysis because the market value of such securities cannot be directly
correlated with changes in interest rates. The following table summarizes the
potential change in market value of the Corporation’s available for sale debt
securities as of June 30, 2006 and December 31, 2005 resulting from
immediate parallel rate shifts:
(Dollars
in thousands)
|
|
Down
100
|
|
Up
200
|
|
|
|
Basis
|
|
Basis
|
|
Security
Type
|
|
Points
|
|
Points
|
|
U.S.
Treasury and government-sponsored agency securities
(noncallable)
|
|
|
2,646
|
|
|
(4,773
|
)
|
U.S.
government-sponsored agency securities (callable)
|
|
|
2,085
|
|
|
(5,608
|
)
|
Mortgage-backed
securities
|
|
|
10,898
|
|
|
(23,176
|
)
|
Corporate
securities
|
|
|
526
|
|
|
(1,005
|
)
|
Total
change in market value as of June 30, 2006
|
|
$
|
16,155
|
|
|
($34,562
|
)
|
|
|
|
|
|
|
|
|
Total
change in market value as of December 31, 2005
|
|
$
|
13,533
|
|
|
($34,327
|
)
|
See
additional discussion in Note 8 to the Corporation’s Consolidated Financial
Statements for more information regarding the nature and business purpose of
financial instruments with off-balance sheet risk and derivative financial
instruments.
Information
regarding quantitative and qualitative disclosures about market risk appears
under Item 2, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” under the caption “Asset/Liability Management and
Interest Rate Risk.”
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the Corporation carried out an evaluation under
the supervision and with the participation of the Corporation’s management,
including the Corporation’s Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Corporation’s disclosure
controls and procedures as of the end of the quarter ended June 30, 2006.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Corporation’s disclosure controls and procedures are
adequate and designed to ensure that information required to be disclosed by
the
Corporation in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. The Corporation will continue to review and
document its disclosure controls and procedures and consider such changes in
future evaluations of the effectiveness of such controls and procedures, as
it
deems appropriate. There has been no change in our internal control over
financial reporting during the period ended June 30, 2006 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting. In the third quarter of 2005, the Corporation
completed its acquisition of Weston Financial, as discussed previously. The
Corporation has not yet completed the documentation, evaluation and testing
of
Weston Financial’s internal controls over financial reporting, which is
ongoing.
Other
Information
The
Corporation is involved in various claims and legal proceedings arising out
of
the ordinary course of business. Management is of the opinion, based on its
review with counsel of the development of such matters to date, that the
ultimate disposition of such matters will not materially affect the consolidated
financial position or results of operations of the Corporation.
There
have been no material changes in the risk factors described in Item 1A of
Washington Trust’s Annual Report on Form 10-K for the year ended
December 31, 2005.
The
following table provides information as of and for the quarter ended
June 30, 2006 regarding shares of common stock of the Corporation that were
repurchased under the Deferred Compensation Plan, the Stock Repurchase Plan,
the
Amended and Restated 1988 Stock Option Plan (the “1988 Plan”), the Bancorp’s
1997 Equity Incentive Plan, as amended (the “1997 Plan”), and the Bancorp’s 2003
Stock Incentive Plan, as amended (the “2003 Plan”).
|
|
Total
number of shares purchased
|
|
Average
price paid per share
|
|
Total
number of shares purchased as part of publicly announced
plan(s)
|
|
Maximum
number of shares that may yet be purchased under the
plan(s)
|
|
Deferred
Compensation Plan (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
7,398
|
|
4/1/2006
to 4/30/2006
|
|
|
331
|
|
$
|
26.98
|
|
|
331
|
|
|
7,067
|
|
5/1/2006
to 5/31/2006
|
|
|
256
|
|
|
25.35
|
|
|
256
|
|
|
6,811
|
|
6/1/2006
to 6/30/2006
|
|
|
247
|
|
|
26.36
|
|
|
247
|
|
|
6,564
|
|
Total
Deferred Compensation Plan
|
|
|
834
|
|
$
|
26.30
|
|
|
834
|
|
|
6,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Repurchase Plan (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
162,000
|
|
4/1/2006
to 4/30/2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162,000
|
|
5/1/2006
to 5/31/2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162,000
|
|
6/1/2006
to 6/30/2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162,000
|
|
Total
Stock Repurchase Plan
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
162,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
4/1/2006
to 4/30/2006
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
N/A
|
|
5/1/2006
to 5/31/2006
|
|
|
3,303
|
|
|
9.78
|
|
|
3,303
|
|
|
N/A
|
|
6/1/2006
to 6/30/2006
|
|
|
7,163
|
|
|
19.61
|
|
|
7,163
|
|
|
N/A
|
|
Total
Other
|
|
|
10,466
|
|
$
|
16.51
|
|
|
10,466
|
|
|
N/A
|
|
Total
Purchases of Equity Securities
|
|
|
11,300
|
|
$
|
17.23
|
|
|
11,300
|
|
|
|
|
(1)
The
Deferred Compensation Plan was established on January 1, 1999. A maximum of
25,000 shares were authorized under the plan. This plan allows directors and
officers to defer a portion of their compensation. The deferred compensation
is
contributed to a rabbi trust that invests the assets of the trust into selected
mutual funds as well as shares of the Bancorp’s common stock pursuant to the
direction of the plan participants. All shares are purchased in the open market.
(2)
The
Stock Repurchase Plan was established in September 2001. A maximum of 250,000
shares were authorized under the plan. The Bancorp plans to hold the repurchased
shares as treasury stock for general corporate purposes.
(3)
Pursuant to the Corporation’s share-based compensation plans, employees may
deliver back shares of stock previously issued in payment of the exercise price
of stock options. While required to be reported in this table, such transactions
are not reported as share repurchases in the Corporation’s Consolidated
Financial Statements. The Corporation’s share-based compensation plans (the 1988
Plan, the 1997 Plan and the 2003 Plan) have expiration dates of
December 31, 1997, April 29 2007 and April 29, 2013,
respectively.
(a) |
The
Annual Meeting of Shareholders was held on April 25, 2006. On the
record date of February 24, 2006 there were 13,407,650 shares issued,
outstanding and eligible to vote, of which 11,970,328 shares, or
89.28%,
were represented at the meeting either in person or by
proxy.
|
(b) |
The
results of matters voted upon are presented
below:
|
i. |
Election
of Directors to Serve Until 2009 Annual Meeting: Steven J. Crandall,
Victor J. Orsinger II., Patrick J. Shanahan, Jr., James P. Sullivan,
and
Neil H. Thorp were nominated and duly elected to hold office as Directors
of Washington Trust Bancorp, Inc., each to serve a term of three
years and
until their successors are duly elected and qualified, by the number
of
votes set forth opposite each person’s name as
follows:
|
|
Term
|
Votes
In
Favor
|
Votes
Withheld
|
Steven
J. Crandall
|
3
years
|
11,895,340
|
74,989
|
Victor
J. Orsinger, II
|
3
years
|
10,731,674
|
1,238,654
|
Patrick
J. Shanahan, Jr.
|
3
years
|
11,015,951
|
914,378
|
James
P. Sullivan
|
3
years
|
11,887,497
|
82,832
|
Neil
H. Thorp
|
3
years
|
11,901,042
|
69,286
|
The
following additional persons continued as Directors of Washington Trust Bancorp,
Inc. following the Annual Meeting:
Gary
P. Bennett
|
Larry
J. Hirsch, Esq.
|
Barry
G. Hittner, Esq.
|
Katherine
W. Hoxsie
|
Mary
E. Kennard, Esq.
|
Edward
M. Mazze, Ph.D.
|
Kathleen
McKeough
|
H.
Douglas Randall, III
|
Joyce
Olson Resnikoff
|
John
F. Treanor
|
John
C. Warren
|
ii. |
A
proposal for the ratification of KPMG LLP to serve as independent
auditors
of the Corporation for the current fiscal year ending December 31,
2006 was passed by a vote of 11,806,525 shares in favor, 152,647
shares
against, with 11,157 abstentions and broker
non-votes.
|
(a)
On
April 25, 2006, the Bancorp awarded Restricted Stock Units under the 1997 Plan
and Restricted Stock Units under the 2003 Plan to certain of its executive
officers and non-employee directors as set forth below.
The
following Restricted Stock Units were awarded under the 1997 Plan; vest on
the
earlier of (a) April 25, 2009 or (b) a Change in Control (as defined in the
1997
Plan) of the Bancorp, provided that a pro-rata share will vest upon the
employee’s retirement if earlier; and required no consideration to be paid by
the recipient. The Bancorp will pay phantom dividends on the date and in the
amount of the dividend paid to shareholders of the Bancorp’s common
stock.
Name
|
Position
|
Award
|
John
C. Warren
|
Chairman
and Chief Executive Officer
|
1,150
Restricted Stock Units
|
A
copy of
the form of Restricted Stock Units Certificate under the 1997 Plan used in
connection with such Restricted Stock Units grants was filed as Exhibit 10.1
to
the Bancorp’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 17, 2005.
The
following Restricted Stock Units were awarded under the 2003 Plan; vest on
the
earlier of (a) April 25, 2009 or (b) a Change in Control (as defined in the
2003
Plan) of the Bancorp, provided that a pro-rata share will vest upon
the
employee’s retirement if earlier; and required no consideration to be paid by
the recipient. The Bancorp will pay phantom dividends on the date and in the
amount of the dividend paid to shareholders of the Bancorp’s common
stock.
Name
|
Position
|
Award
|
John
C. Warren
|
Chairman
and Chief Executive Officer
|
5,350
Restricted Stock Units
|
John
F. Treanor
|
President
and Chief Operating Officer
|
3,900
Restricted Stock Units
|
A
copy of
the form of Restricted Stock Units Certificate (for employees) under the 2003
Plan used in connection with such Restricted Stock Units grant was filed as
Exhibit 10.2 to the Bancorp’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 19, 2006.
The
following Restricted Stock Units were awarded under the 2003 Plan; vest on
the
earlier of (a) April 25, 2009, (b) retirement of the Director, or (c) a Change
in Control (as defined in the 2003 Plan) of the Bancorp; and required no
consideration to be paid by the recipient. For these purposes, retirement is
defined as the cessation of service as a Director as of the Annual Meeting
of
Shareholders date following the attainment of age 70.
Name
|
Position
|
Award
|
Gary
P. Bennett
|
Director
|
500
Restricted Stock Units
|
Steven
J. Crandall
|
Director
|
500
Restricted Stock Units
|
Larry
J. Hirsch, Esq.
|
Director
|
500
Restricted Stock Units
|
Barry
G. Hittner
|
Director
|
500
Restricted Stock Units
|
Katherine
W. Hoxsie
|
Director
|
500
Restricted Stock Units
|
Mary
E. Kennard, Esq.
|
Director
|
500
Restricted Stock Units
|
Edward
M. Mazze, Ph.D.
|
Director
|
500
Restricted Stock Units
|
Kathleen
McKeough
|
Director
|
500
Restricted Stock Units
|
Victor
J. Orsinger II
|
Director
|
500
Restricted Stock Units
|
H.
Douglas Randall, III
|
Director
|
500
Restricted Stock Units
|
Joyce
O. Resnikoff
|
Director
|
500
Restricted Stock Units
|
Patrick
J. Shanahan, Jr.
|
Director
|
500
Restricted Stock Units
|
James
P. Sullivan, CPA
|
Director
|
500
Restricted Stock Units
|
Neil
H. Thorp
|
Director
|
500
Restricted Stock Units
|
A
copy of
the form of Restricted Stock Units Certificate (for Directors) under the 2003
Plan used in connection with such Restricted Stock Units grants was filed as
Exhibit 10.3 to the Bancorp’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 19, 2006.
In
addition, the Company may grant various awards to executive officers and
directors under the 2003 Plan.
A
copy of
the form of Restricted Stock Agreement under the 2003 Plan for employees was
filed as Exhibit 10.4 to the Bancorp’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 19, 2006. A copy of the form of
Restricted Stock Agreement under the 2003 Plan for members of the Board of
Directors was filed as Exhibit 10.5 to the Bancorp’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 19, 2006.
(a)
Exhibits. The following exhibits are included as part of this Form
10-Q:
Exhibit
Number
|
|
10.1
|
Form
of Restricted Stock Units Certificate under the Washington Trust
Bancorp,
Inc. 1997 Equity Incentive Plan, as amended (employees) — Filed as Exhibit
10.1 to the Registrant’s Current Report on From 8-K dated June 17, 2005.
(1)
(2)
|
10.2
|
Form
of Restricted Stock Units Certificate under the Washington Trust
Bancorp,
Inc. 2003 Stock Incentive Plan, as amended (employees) — Filed as Exhibit
10.2 to the Registrant’s Current Report on From 8-K dated May 19, 2006.
(2)
|
10.3
|
Form
of Restricted Stock Units Certificate under the Washington Trust
Bancorp,
Inc. 2003 Stock Incentive Plan, as amended (members of the Board
of
Directors) — Filed as Exhibit 10.3 to the Registrant’s Current Report on
From 8-K dated May 19, 2006. (2)
|
10.4
|
Form
of Restricted Stock Agreement under the Washington Trust Bancorp,
Inc.
2003 Stock Incentive Plan, as amended (employees) — Filed as Exhibit 10.4
to the Registrant’s Current Report on From 8-K dated May 19, 2006.
(2)
|
10.5
|
Form
of Restricted Stock Agreement under the Washington Trust Bancorp,
Inc.
2003 Stock Incentive Plan, as amended (members of the Board of Directors)
— Filed as Exhibit 10.2 to the Registrant’s Current Report on From 8-K
dated May 19, 2006. (2)
|
15.1
|
Letter
re: Unaudited Interim Financial Information - Filed
herewith.
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. - Filed herewith.
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. - Filed herewith.
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Filed herewith.
|
|
|
(1)
|
Not
filed herewith. In accordance with Rule 12b-32 promulgated to the
Exchange
Act, reference is made to the documents previously filed with the
SEC,
which are incorporated by reference herein.
|
(2)
|
Management
contract or compensatory plan or arrangement.
|
(3)
|
These
certifications are not “filed” for purposes of Section 18 of the Exchange
Act or incorporated by reference into any filing under the Securities
Act
or the Exchange Act.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
WASHINGTON
TRUST BANCORP, INC.
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
Date:
August 8, 2006
|
|
By:
|
/s/
John F.
Treanor
|
|
|
|
John
F. Treanor
|
|
|
|
President
and Chief Operating Officer
|
|
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
|
Date:
August 8, 2006
|
|
By:
|
/s/
David V.
Devault
|
|
|
|
David
V. Devault
|
|
|
|
Executive
Vice President, Secretary, Treasurer and Chief Financial
Officer
|
|
|
|
(principal
financial and accounting officer)
|
|
|
|
|
Exhibit
Index
Exhibit
Number
|
|
10.1
|
Form
of Restricted Stock Units Certificate under the Washington Trust
Bancorp,
Inc. 1997 Equity Incentive Plan, as amended (employees) — Filed as Exhibit
10.1 to the Registrant’s Current Report on From 8-K dated June 17, 2005.
(1)
(2)
|
10.2
|
Form
of Restricted Stock Units Certificate under the Washington Trust
Bancorp,
Inc. 2003 Stock Incentive Plan, as amended (employees) — Filed as Exhibit
10.2 to the Registrant’s Current Report on From 8-K dated May 19, 2006.
(2)
|
10.3
|
Form
of Restricted Stock Units Certificate under the Washington Trust
Bancorp,
Inc. 2003 Stock Incentive Plan, as amended (members of the Board
of
Directors) — Filed as Exhibit 10.3 to the Registrant’s Current Report on
From 8-K dated May 19, 2006. (2)
|
10.4
|
Form
of Restricted Stock Agreement under the Washington Trust Bancorp,
Inc.
2003 Stock Incentive Plan, as amended (employees) — Filed as Exhibit 10.4
to the Registrant’s Current Report on From 8-K dated May 19, 2006.
(2)
|
10.5
|
Form
of Restricted Stock Agreement under the Washington Trust Bancorp,
Inc.
2003 Stock Incentive Plan, as amended (members of the Board of Directors)
— Filed as Exhibit 10.2 to the Registrant’s Current Report on From 8-K
dated May 19, 2006. (2)
|
15.1
|
Letter
re: Unaudited Interim Financial Information - Filed
herewith.
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. - Filed herewith.
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. - Filed herewith.
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Filed herewith.
|
|
|
(1)
|
Not
filed herewith. In accordance with Rule 12b-32 promulgated to the
Exchange
Act, reference is made to the documents previously filed with the
SEC,
which are incorporated by reference herein.
|
(2)
|
Management
contract or compensatory plan or arrangement.
|
(3)
|
These
certifications are not “filed” for purposes of Section 18 of the Exchange
Act or incorporated by reference into any filing under the Securities
Act
or the Exchange Act.
|