form10-q20070930.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the quarterly period ended SEPTEMBER 30,
2007 or
|
o
|
Transition
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.
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):
Large
accelerated filer o Accelerated
filer x Non-accelerated
filero
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
October 31, 2007 was 13,351,231.
|
|
|
|
WASHINGTON
TRUST BANCORP, INC. AND SUBSIDIARIES
|
(Dollars
in thousands)
|
|
|
As
Restated
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
Assets:
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
31,521
|
|
|
$ |
54,337
|
|
Federal
funds sold
|
|
|
21,975
|
|
|
|
16,425
|
|
Other
short-term investments
|
|
|
1,516
|
|
|
|
1,147
|
|
Mortgage
loans held for sale
|
|
|
2,095
|
|
|
|
2,148
|
|
Securities:
|
|
|
|
|
|
|
|
|
Available
for sale, at fair value; amortized cost $691,836 in 2007 and $525,966
in
2006
|
|
|
688,709
|
|
|
|
526,396
|
|
Held
to maturity, at cost; fair value $175,369 in 2006
|
|
|
–
|
|
|
|
177,455
|
|
Total
securities
|
|
|
688,709
|
|
|
|
703,851
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
28,727
|
|
|
|
28,727
|
|
Loans:
|
|
|
|
|
|
|
|
|
Commercial
and other
|
|
|
650,023
|
|
|
|
587,397
|
|
Residential
real estate
|
|
|
578,816
|
|
|
|
588,671
|
|
Consumer
|
|
|
285,654
|
|
|
|
283,918
|
|
Total
loans
|
|
|
1,514,493
|
|
|
|
1,459,986
|
|
Less
allowance for loan losses
|
|
|
19,472
|
|
|
|
18,894
|
|
Net
loans
|
|
|
1,495,021
|
|
|
|
1,441,092
|
|
Premises
and equipment, net
|
|
|
25,790
|
|
|
|
24,307
|
|
Accrued
interest receivable
|
|
|
12,030
|
|
|
|
11,268
|
|
Investment
in bank-owned life insurance
|
|
|
40,936
|
|
|
|
39,770
|
|
Goodwill
|
|
|
50,479
|
|
|
|
44,558
|
|
Identifiable
intangible assets, net
|
|
|
11,759
|
|
|
|
12,816
|
|
Other
assets
|
|
|
21,204
|
|
|
|
18,719
|
|
Total
assets
|
|
$ |
2,431,762
|
|
|
$ |
2,399,165
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$ |
182,830
|
|
|
$ |
186,533
|
|
NOW
accounts
|
|
|
172,378
|
|
|
|
175,479
|
|
Money
market accounts
|
|
|
312,257
|
|
|
|
286,998
|
|
Savings
accounts
|
|
|
189,157
|
|
|
|
205,998
|
|
Time
deposits
|
|
|
799,265
|
|
|
|
822,989
|
|
Total
deposits
|
|
|
1,655,887
|
|
|
|
1,677,997
|
|
Dividends
payable
|
|
|
2,676
|
|
|
|
2,556
|
|
Federal
Home Loan Bank advances
|
|
|
502,265
|
|
|
|
474,561
|
|
Junior
subordinated debentures
|
|
|
22,681
|
|
|
|
22,681
|
|
Other
borrowings
|
|
|
36,403
|
|
|
|
14,684
|
|
Accrued
expenses and other liabilities
|
|
|
33,953
|
|
|
|
33,630
|
|
Total
liabilities
|
|
|
2,253,865
|
|
|
|
2,226,109
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
Common
stock of $.0625 par value; authorized 30,000,000 shares;
|
|
|
|
|
|
|
|
|
issued
13,492,110 in 2007 and 2006
|
|
|
843
|
|
|
|
843
|
|
Paid-in
capital
|
|
|
34,821
|
|
|
|
35,893
|
|
Retained
earnings
|
|
|
151,537
|
|
|
|
141,548
|
|
Accumulated
other comprehensive loss
|
|
|
(5,587 |
) |
|
|
(3,515 |
) |
Treasury
stock, at cost; 141,646 shares in 2007 and 62,432 shares in
2006
|
|
|
(3,717 |
) |
|
|
(1,713 |
) |
Total
shareholders’ equity
|
|
|
177,897
|
|
|
|
173,056
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
2,431,762
|
|
|
$ |
2,399,165
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
As
Restated
|
|
|
|
Three
Months
|
Nine
Months
|
|
Periods
ended September 30,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$ |
25,032
|
|
|
$ |
23,430
|
|
|
$ |
73,380
|
|
|
$ |
68,457
|
|
Interest
on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
7,565
|
|
|
|
8,493
|
|
|
|
23,196
|
|
|
|
25,553
|
|
Nontaxable
|
|
|
781
|
|
|
|
405
|
|
|
|
2,208
|
|
|
|
1,104
|
|
Dividends
on corporate stock and Federal Home Loan Bank stock
|
|
|
669
|
|
|
|
1,197
|
|
|
|
2,072
|
|
|
|
2,124
|
|
Interest
on federal funds sold and other short-term investments
|
|
|
275
|
|
|
|
252
|
|
|
|
650
|
|
|
|
517
|
|
Total
interest income
|
|
|
34,322
|
|
|
|
33,777
|
|
|
|
101,506
|
|
|
|
97,755
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
13,140
|
|
|
|
12,473
|
|
|
|
39,332
|
|
|
|
33,872
|
|
Federal
Home Loan Bank advances
|
|
|
5,243
|
|
|
|
5,011
|
|
|
|
15,323
|
|
|
|
16,115
|
|
Junior
subordinated debentures
|
|
|
338
|
|
|
|
338
|
|
|
|
1,014
|
|
|
|
1,014
|
|
Other
|
|
|
291
|
|
|
|
89
|
|
|
|
730
|
|
|
|
256
|
|
Total
interest expense
|
|
|
19,012
|
|
|
|
17,911
|
|
|
|
56,399
|
|
|
|
51,257
|
|
Net
interest income
|
|
|
15,310
|
|
|
|
15,866
|
|
|
|
45,107
|
|
|
|
46,498
|
|
Provision
for loan losses
|
|
|
300
|
|
|
|
300
|
|
|
|
900
|
|
|
|
900
|
|
Net
interest income after provision for loan losses
|
|
|
15,010
|
|
|
|
15,566
|
|
|
|
44,207
|
|
|
|
45,598
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
management services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
and investment advisory fees
|
|
|
5,336
|
|
|
|
4,727
|
|
|
|
15,626
|
|
|
|
14,036
|
|
Mutual
fund fees
|
|
|
1,386
|
|
|
|
1,229
|
|
|
|
4,000
|
|
|
|
3,573
|
|
Financial
planning, commissions and other service fees
|
|
|
456
|
|
|
|
509
|
|
|
|
1,915
|
|
|
|
2,033
|
|
Wealth
management services
|
|
|
7,178
|
|
|
|
6,465
|
|
|
|
21,541
|
|
|
|
19,642
|
|
Service
charges on deposit accounts
|
|
|
1,214
|
|
|
|
1,312
|
|
|
|
3,559
|
|
|
|
3,667
|
|
Merchant
processing fees
|
|
|
2,252
|
|
|
|
2,125
|
|
|
|
5,285
|
|
|
|
4,828
|
|
Income
from bank-owned life insurance
|
|
|
376
|
|
|
|
389
|
|
|
|
1,166
|
|
|
|
1,014
|
|
Net
gains on loan sales and commissions on loans originated for
others
|
|
|
431
|
|
|
|
417
|
|
|
|
1,205
|
|
|
|
1,029
|
|
Net
realized (losses) gains on securities
|
|
|
–
|
|
|
|
(365 |
) |
|
|
336
|
|
|
|
459
|
|
Other
income
|
|
|
399
|
|
|
|
440
|
|
|
|
1,129
|
|
|
|
1,111
|
|
Total
noninterest income
|
|
|
11,850
|
|
|
|
10,783
|
|
|
|
34,221
|
|
|
|
31,750
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
10,098
|
|
|
|
9,651
|
|
|
|
30,195
|
|
|
|
29,100
|
|
Net
occupancy
|
|
|
1,021
|
|
|
|
934
|
|
|
|
3,076
|
|
|
|
2,906
|
|
Equipment
|
|
|
871
|
|
|
|
872
|
|
|
|
2,564
|
|
|
|
2,552
|
|
Merchant
processing costs
|
|
|
1,916
|
|
|
|
1,796
|
|
|
|
4,493
|
|
|
|
4,090
|
|
Outsourced
services
|
|
|
556
|
|
|
|
490
|
|
|
|
1,610
|
|
|
|
1,504
|
|
Advertising
and promotion
|
|
|
466
|
|
|
|
371
|
|
|
|
1,467
|
|
|
|
1,489
|
|
Legal,
audit and professional fees
|
|
|
444
|
|
|
|
563
|
|
|
|
1,298
|
|
|
|
1,342
|
|
Amortization
of intangibles
|
|
|
341
|
|
|
|
398
|
|
|
|
1,057
|
|
|
|
1,209
|
|
Debt
prepayment penalties
|
|
|
–
|
|
|
|
–
|
|
|
|
1,067
|
|
|
|
–
|
|
Other
|
|
|
1,599
|
|
|
|
1,536
|
|
|
|
5,354
|
|
|
|
5,403
|
|
Total
noninterest expense
|
|
|
17,312
|
|
|
|
16,611
|
|
|
|
52,181
|
|
|
|
49,595
|
|
Income
before income taxes
|
|
|
9,548
|
|
|
|
9,738
|
|
|
|
26,247
|
|
|
|
27,753
|
|
Income
tax expense
|
|
|
2,992
|
|
|
|
3,160
|
|
|
|
8,234
|
|
|
|
8,925
|
|
Net
income
|
|
$ |
6,556
|
|
|
$ |
6,578
|
|
|
$ |
18,013
|
|
|
$ |
18,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
13,323.6
|
|
|
|
13,436.6
|
|
|
|
13,358.1
|
|
|
|
13,414.6
|
|
Weighted
average shares outstanding - diluted
|
|
|
13,564.1
|
|
|
|
13,726.3
|
|
|
|
13,612.7
|
|
|
|
13,708.2
|
|
Per
share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.49
|
|
|
$ |
0.49
|
|
|
$ |
1.35
|
|
|
$ |
1.40
|
|
Diluted
earnings per share
|
|
$ |
0.48
|
|
|
$ |
0.48
|
|
|
$ |
1.32
|
|
|
$ |
1.37
|
|
Cash
dividends declared per share
|
|
$ |
0.20
|
|
|
$ |
0.19
|
|
|
$ |
0.60
|
|
|
$ |
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
WASHINGTON
TRUST BANCORP, INC. AND SUBSIDIARIES
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
As
Restated
|
|
Nine
months ended September 30,
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,013
|
|
|
$ |
18,828
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
900
|
|
|
|
900
|
|
Depreciation
of premises and equipment
|
|
|
2,209
|
|
|
|
2,287
|
|
Loss
on disposal of premises and equipment
|
|
|
23
|
|
|
|
–
|
|
Net
amortization of premium and discount
|
|
|
466
|
|
|
|
1,070
|
|
Net
amortization of intangibles
|
|
|
1,057
|
|
|
|
1,209
|
|
Share-based
compensation
|
|
|
427
|
|
|
|
535
|
|
Non-cash
charitable contribution
|
|
|
520
|
|
|
|
513
|
|
Earnings
from bank-owned life insurance
|
|
|
(1,166 |
) |
|
|
(1,014 |
) |
Net
gains on loan sales
|
|
|
(1,205 |
) |
|
|
(1,029 |
) |
Net
realized gains on sales of securities
|
|
|
(336 |
) |
|
|
(459 |
) |
Proceeds
from sales of loans
|
|
|
47,313
|
|
|
|
29,395
|
|
Loans
originated for sale
|
|
|
(46,496 |
) |
|
|
(31,076 |
) |
Increase
in accrued interest receivable, excluding purchased
interest
|
|
|
(731 |
) |
|
|
(724 |
) |
Increase
in other assets
|
|
|
(1,211 |
) |
|
|
(2,483 |
) |
Increase
in accrued expenses and other liabilities
|
|
|
533
|
|
|
|
2,233
|
|
Other,
net
|
|
|
(3 |
) |
|
|
10
|
|
Net
cash provided by operating activities
|
|
|
20,313
|
|
|
|
20,195
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of:
|
Mortgage-backed
securities available for sale
|
|
|
(143,774 |
) |
|
|
(31,820 |
) |
|
Other
investment securities available for sale
|
|
|
(39,290 |
) |
|
|
(58,561 |
) |
|
Other
investment securities held to maturity
|
|
|
(12,882 |
) |
|
|
(17,682 |
) |
Proceeds
from sale of:
|
Mortgage-backed
securities available for sale
|
|
|
47,938
|
|
|
|
45,249
|
|
|
Other
investment securities available for sale
|
|
|
10,160
|
|
|
|
12,251
|
|
|
Mortgage-backed
securities held to maturity
|
|
|
38,501
|
|
|
|
–
|
|
|
Other
investment securities held to maturity
|
|
|
21,698
|
|
|
|
–
|
|
Maturities
and principal payments of:
|
Mortgage-backed
securities available for sale
|
|
|
50,042
|
|
|
|
69,613
|
|
|
Other
investment securities available for sale
|
|
|
14,957
|
|
|
|
1,999
|
|
|
Mortgage-backed
securities held to maturity
|
|
|
3,191
|
|
|
|
12,873
|
|
|
Other
investment securities held to maturity
|
|
|
20,490
|
|
|
|
8,490
|
|
Remittance
of Federal Home Loan Bank stock
|
|
|
–
|
|
|
|
3,000
|
|
Net
increase in loans
|
|
|
(48,704 |
) |
|
|
(1,557 |
) |
Purchases
of loans, including purchased interest
|
|
|
(5,841 |
) |
|
|
(25,309 |
) |
Purchases
of premises and equipment
|
|
|
(3,715 |
) |
|
|
(2,619 |
) |
Purchases
of bank-owned life insurance
|
|
|
–
|
|
|
|
(8,000 |
) |
Payment
of deferred acquisition obligation
|
|
|
(6,720 |
) |
|
|
–
|
|
Net
cash (used in) provided by investing activities
|
|
|
(53,949 |
) |
|
|
7,927
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in deposits
|
|
|
(22,110 |
) |
|
|
60,929
|
|
Net
increase in other borrowings
|
|
|
22,518
|
|
|
|
559
|
|
Proceeds
from Federal Home Loan Bank advances
|
|
|
532,463
|
|
|
|
382,529
|
|
Repayment
of Federal Home Loan Bank advances
|
|
|
(504,729 |
) |
|
|
(463,668 |
) |
Purchases
of treasury stock, including deferred compensation plan
activity
|
|
|
(5,211 |
) |
|
|
(117 |
) |
Proceeds
from the issuance of common stock under dividend reinvestment
plan
|
|
|
–
|
|
|
|
911
|
|
Proceeds
from the exercise of share options
|
|
|
989
|
|
|
|
611
|
|
Tax
benefit from share option exercises
|
|
|
723
|
|
|
|
259
|
|
Cash
dividends paid
|
|
|
(7,904 |
) |
|
|
(7,513 |
) |
Net
cash provided by (used in) financing activities
|
|
|
16,739
|
|
|
|
(25,500 |
) |
Net
(decrease) increase in cash and cash equivalents
|
|
|
(16,897 |
) |
|
|
2,622
|
|
Cash
and cash equivalents at beginning of year
|
|
|
71,909
|
|
|
|
66,163
|
|
Cash
and cash equivalents at end of period
|
|
$ |
55,012
|
|
|
$ |
68,785
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
|
|
|
|
|
WASHINGTON
TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
(Dollars
in thousands)
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
|
|
|
|
|
(Continued)
|
|
|
|
|
As
Restated
|
|
|
Nine
months ended September 30,
|
|
|
2007
|
|
|
2006
|
|
Noncash
Investing and Financing Activities:
|
|
|
|
|
|
|
Loans
charged off
|
|
$ |
553
|
|
|
$ |
325
|
|
Increase
to deferred acquisition obligation
|
|
|
5,921
|
|
|
|
4,595
|
|
Held
to maturity securities transferred to available for sale |
|
|
162,997 |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures:
|
Interest
payments
|
|
|
56,792
|
|
|
|
50,868
|
|
|
Income
tax payments
|
|
|
8,965
|
|
|
|
10,327
|
|
|
|
|
|
|
|
|
|
|
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 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 U.S. generally
accepted accounting principles (“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
near-term change are the determination of the allowance for loan losses and
tax
estimates.
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 September 30, 2007 and December 31, 2006, respectively, and the
results of operations and cash flows for the interim periods
presented. Interim results are not necessarily reflective of the
results of the entire year. 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 GAAP. 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, 2006.
On
October 30, 2007, we announced that we identified accounting errors related
to sales of certain held-to-maturity investment securities conducted in the
second quarter of 2007. Based on our assessment of the provisions of
Statement of Financial Accounting Standards No. 159, “The Fair Value Option
for Financial Assets and Liabilities” (“SFAS No. 159”), on April 12,
2007 we had decided to implement early adoption of SFAS
No. 159. In connection with this, we selected the fair value
option for certain U.S. Government sponsored agency and mortgage-backed
securities with lower coupons and slower prepayment characteristics in the
held-to-maturity portfolio totaling approximately
$61.9 million. A portfolio restructuring plan was also
undertaken to reduce interest rate risk and improve net interest margin,
which
included the sale of these securities. On Friday
April 13, 2007 we executed sale trades for these held-to-maturity
securities. At the time of the sales transactions the historical
amortized cost basis of the sold securities exceeded the total sales price
by
$1.7 million. On Monday April 16, 2007 additional
information became available regarding clarifications of the interpretation
of
the application of SFAS No. 159 by applicable regulatory and accounting
industry bodies that led us to conclude that the application of SFAS No.
159 to our transactions might be inconsistent with the intent and spirit
of SFAS No. 159. Consequently, we decided not to early-adopt
SFAS No. 159.
In
connection with that decision, we were able to promptly execute purchase
trade
transactions for the identical securities prior to the sales settlement date
for
approximately $49.9 million of the $61.9 million total, with the
intent that, in substance, the sale transaction would be offset for these
securities. The reacquired securities were retained in the
held-to-maturity portfolio at the original pre-sale amortized cost and a
$1.4 million loss on the sale of the reacquired securities was not
recognized. The sale and reacquisition of the $49.9 million in
held-to-maturity securities as well as certain other investing and financing
transactions conducted in connection with the portfolio restructuring strategy
were similarly treated in an offset manner and these transaction amounts
were
incorrectly omitted from the
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
consolidated
statement of cash flows for the period ended June 30, 2007; the
correction for these other investing and financing transactions had no effect
on
net income. For the reacquired securities, the reacquisition price
exceeded the selling price by $153 thousand and an expense of this amount
was recognized in other noninterest expense in the second quarter of
2007. Also in the second quarter of 2007, a realized securities loss
in the amount of $261 thousand was recognized on the securities that were
sold but not reacquired. We discussed the accounting treatment
described above with KPMG LLP, our independent registered public accounting
firm, in connection with its quarterly review process.
Based
on
a recent review of these transactions, in consultation with KPMG, we have
determined that the offsetting of the April 13, 2007 sales and
subsequent reacquisition of identical securities was incorrect and that the
sale
transactions should have been recognized with a $1.4 million realized
securities loss and corresponding reduction in the carrying value of the
reacquired securities.
Also,
we
have determined that the remaining held-to-maturity portfolio should have
been
reclassified to the available-for-sale category. This
reclassification has been recognized as of April 13,
2007. Accordingly, the effect on the June 30, 2007 consolidated
balance sheet was to reclassify the portfolio of held-to-maturity securities
to
the available-for-sale category, which resulted in a $1.6 million reduction
in shareholders’ equity. We will not be able to classify securities
in the held-to-maturity category for a period of two years from the
April 13, 2007 sales date as a result of this action.
The
correction to reduce the cost basis of the reacquired securities results
in a
change to the accretion of discount for these securities, which is recognized
in
interest income until their maturity dates. The resulting additional
amount of accretion income recognized on these securities was $79 thousand
in each of the quarters ended June 30, 2007 and September 30,
2007.
For
the
quarter ended June 30, 2007, the accounting corrections for these
transactions, including recognition of the realized loss on the sales
transactions and other related changes, result in an after-tax reduction
in net
income of $828 thousand, or 6 cents per diluted share, from
$6.3 million, or 46 cents per diluted share, to $5.5 million, or
40 cents per diluted share. For the six-month period ended
June 30, 2007 the accounting corrections result in a reduction in net
income from $12.3 million, or 90 cents per diluted share, to
$11.5 million, or 84 cents per diluted share.
All
applicable amounts related to this restatement have been reflected in this
Form
10-Q, including the Consolidated Financial Statements and Notes
thereto.
On
October 24, 2007, management, in consultation with KPMG, concluded that the
Corporation’s interim financial statements for the period ended June 30,
2007 should be restated and that the Corporation’s financial statements for the
quarter ended June 30, 2007 should no longer be relied upon. The
Audit Committee of our Board of Directors has thoroughly reviewed this matter
and, on October 26, 2007, approved management’s conclusion.
The
Corporation will file an amended Form 10-Q for the quarter ended June 30,
2007 reflecting the necessary adjustments with the SEC as soon as
practicable. The Corporation will also file an amended Form 10-Q for
the quarter ended March 31, 2007 with the SEC as soon as practicable to add
a
subsequent event footnote to disclose the second quarter 2007 transactions
described above.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The
following tables summarize the effect of the restatement adjustments on the
consolidated financial statements as of and for the three and six months
ended
June 30, 2007:
Consolidated
Balance Sheet (unaudited)
|
|
As
of June 30, 2007
|
|
(Dollars
in thousands)
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Restated
|
|
Available
for sale securities
|
|
$ |
525,688
|
|
|
$ |
150,516
|
|
|
$ |
676,204
|
|
Held
to maturity securities
|
|
|
154,171
|
|
|
|
(154,171 |
) |
|
|
–
|
|
Total
securities
|
|
|
679,859
|
|
|
|
(3,655 |
) |
|
|
676,204
|
|
Other
assets
|
|
|
21,063
|
|
|
|
1,237
|
|
|
|
22,300
|
|
Total
assets
|
|
|
2,396,300
|
|
|
|
(2,418 |
) |
|
|
2,393,882
|
|
Retained
earnings
|
|
|
148,485
|
|
|
|
(828 |
) |
|
|
147,657
|
|
Accumulated
other comprehensive loss
|
|
|
(6,519 |
) |
|
|
(1,590 |
) |
|
|
(8,109 |
) |
Shareholders’
equity
|
|
|
173,606
|
|
|
|
(2,418 |
) |
|
|
171,188
|
|
Total
liabilities and shareholders’ equity
|
|
|
2,396,300
|
|
|
|
(2,418 |
) |
|
|
2,393,882
|
|
Consolidated
Statement of Income (unaudited)
|
|
Three
Months Ended June 30, 2007
|
|
(Dollars
in thousands, except per share amounts)
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Restated
|
|
Interest
income on taxable securities
|
|
$ |
7,709
|
|
|
$ |
130
|
|
|
$ |
7,839
|
|
Interest
expense on Federal Home Loan Bank advances
|
|
|
5,063
|
|
|
|
49
|
|
|
|
5,112
|
|
Net
interest income
|
|
|
14,846
|
|
|
|
81
|
|
|
|
14,927
|
|
Net
interest income after provision for loan losses
|
|
|
14,546
|
|
|
|
81
|
|
|
|
14,627
|
|
Net
realized gains (losses) on securities
|
|
|
705
|
|
|
|
(1,405 |
) |
|
|
(700 |
) |
Total
noninterest income
|
|
|
12,528
|
|
|
|
(1,405 |
) |
|
|
11,123
|
|
Other
noninterest expense
|
|
|
2,274
|
|
|
|
(115 |
) |
|
|
2,159
|
|
Total
noninterest expense
|
|
|
17,875
|
|
|
|
(115 |
) |
|
|
17,760
|
|
Income
before taxes
|
|
|
9,199
|
|
|
|
(1,209 |
) |
|
|
7,990
|
|
Income
tax expense
|
|
|
2,889
|
|
|
|
(381 |
) |
|
|
2,508
|
|
Net
income
|
|
|
6,310
|
|
|
|
(828 |
) |
|
|
5,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.47
|
|
|
$ |
(0.06 |
) |
|
$ |
0.41
|
|
Diluted
earnings per share
|
|
$ |
0.46
|
|
|
$ |
(0.06 |
) |
|
$ |
0.40
|
|
Consolidated
Statement of Income (unaudited)
|
|
Six
Months Ended June 30, 2007
|
|
(Dollars
in thousands, except per share amounts)
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Restated
|
|
Interest
income on taxable securities
|
|
$ |
15,501
|
|
|
$ |
130
|
|
|
$ |
15,631
|
|
Interest
expense on FHLB advances
|
|
|
10,031
|
|
|
|
49
|
|
|
|
10,080
|
|
Net
interest income
|
|
|
29,716
|
|
|
|
81
|
|
|
|
29,797
|
|
Net
interest income after provision for loan losses
|
|
|
29,116
|
|
|
|
81
|
|
|
|
29,197
|
|
Net
realized gains on securities
|
|
|
1,741
|
|
|
|
(1,405 |
) |
|
|
336
|
|
Total
noninterest income
|
|
|
23,776
|
|
|
|
(1,405 |
) |
|
|
22,371
|
|
Other
noninterest expense
|
|
|
3,870
|
|
|
|
(115 |
) |
|
|
3,755
|
|
Total
noninterest expense
|
|
|
34,984
|
|
|
|
(115 |
) |
|
|
34,869
|
|
Income
before taxes
|
|
|
17,908
|
|
|
|
(1,209 |
) |
|
|
16,699
|
|
Income
tax expense
|
|
|
5,623
|
|
|
|
(381 |
) |
|
|
5,242
|
|
Net
income
|
|
|
12,285
|
|
|
|
(828 |
) |
|
|
11,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings
|
|
$ |
0.92
|
|
|
$ |
(0.06 |
) |
|
$ |
0.86
|
|
Diluted
earnings
|
|
$ |
0.90
|
|
|
$ |
(0.06 |
) |
|
$ |
0.84
|
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Consolidated
Statement of Cash Flows (unaudited)
|
|
Six
Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
As
Reported
|
|
|
Adjustment
|
|
|
As
Restated
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
12,285
|
|
|
$ |
(828 |
) |
|
$ |
11,457
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amortization of premium and discount
|
|
|
433
|
|
|
|
(79 |
) |
|
|
354
|
|
Net
realized gains on sales of securities
|
|
|
(1,741 |
) |
|
|
1,405
|
|
|
|
(336 |
) |
Increase
in other assets
|
|
|
(607 |
) |
|
|
(380 |
) |
|
|
(987 |
) |
Net
cash provided by operating activities
|
|
|
9,434
|
|
|
|
118
|
|
|
|
9,552
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities available for sale
|
|
|
(29,065 |
) |
|
|
(84,584 |
) |
|
|
(113,649 |
) |
Other
investment securities available for sale
|
|
|
(18,865 |
) |
|
|
(15,031 |
) |
|
|
(33,896 |
) |
Mortgage-backed
securities held to maturity
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other
investment securities held to maturity
|
|
|
(16,011 |
) |
|
|
3,129
|
|
|
|
(12,882 |
) |
Proceeds
from sale of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities available for sale
|
|
|
–
|
|
|
|
47,938
|
|
|
|
47,938
|
|
Other
investment securities available for sale
|
|
|
9,438
|
|
|
|
–
|
|
|
|
9,438
|
|
Mortgage-backed
securities held to maturity
|
|
|
1,954
|
|
|
|
36,547
|
|
|
|
38,501
|
|
Other
investment securities held to maturity
|
|
|
9,815
|
|
|
|
11,883
|
|
|
|
21,698
|
|
Maturities
and principal payments of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities available for sale
|
|
|
29,542
|
|
|
|
3,041
|
|
|
|
32,583
|
|
Other
investment securities available for sale
|
|
|
5,982
|
|
|
|
450
|
|
|
|
6,432
|
|
Mortgage-backed
securities held to maturity
|
|
|
6,232
|
|
|
|
(3,041 |
) |
|
|
3,191
|
|
Other
investment securities held to maturity
|
|
|
20,940
|
|
|
|
(450 |
) |
|
|
20,490
|
|
Net
cash used in investing activities
|
|
|
(19,376 |
) |
|
|
(118 |
) |
|
|
(19,494 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Federal Home Loan Bank advances
|
|
|
344,719
|
|
|
|
47,000
|
|
|
|
391,719
|
|
Repayment
of Federal Home Loan Bank advances
|
|
|
(350,433 |
) |
|
|
(47,000 |
) |
|
|
(397,433 |
) |
Net
cash provided by financing activities
|
|
|
(3,951 |
) |
|
|
–
|
|
|
|
(3,951 |
) |
Net
decrease in cash and cash and cash equivalents
|
|
|
(13,893 |
) |
|
|
–
|
|
|
|
(13,893 |
) |
(2)
New Accounting Pronouncements
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 155, “Accounting for Certain Hybrid Financial Instruments - an
amendment of FASB Statements No. 133 and 140” (“SFAS
No. 155”). SFAS No. 155 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. SFAS No. 155 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 SFAS No. 155 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 adoption
of SFAS No. 155 did 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” (“SFAS
No. 156”). SFAS No. 156 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
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
after
September 15, 2006. The adoption of SFAS No. 156 did not
have a material impact on the Corporation’s financial position or results of
operations.
Effective
January 1, 2007, the Corporation adopted the provisions of 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 adoption of FIN 48 did not have a material
impact on the Corporation’s financial position or results of
operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). This Statement defines fair value, establishes
a framework for measuring fair value and expands disclosures of fair value
measurements. SFAS No. 157 applies to the accounting principles
that currently use fair value measurement, and does not require any new fair
value measurements. The expanded disclosures focus on the inputs used
to measure fair value as well as the effect of the fair value measurements
on
earnings. SFAS No. 157 is effective as of the beginning of the first fiscal
year beginning after November 15, 2007 and interim periods within that
fiscal year. The Corporation believes the adoption of SFAS
No. 157 will not have a material impact on the Corporation’s financial
position or results of operations.
In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Post Retirement Plans (an amendment of FASB
Statements No. 87, 88, 106 and 132R)” (“SFAS No. 158”). The
recognition and disclosure provisions of SFAS No. 158 were adopted by the
Corporation for the fiscal year ended December 31, 2006. Upon
adoption, the funded status of an employer’s postretirement benefit plan was
recognized in the statement of financial position and the changes in funded
status of the defined benefit plan, including actuarial gains and losses and
prior service costs and credits were recognized in comprehensive
income. The requirement to measure the plan’ assets and obligations
as of the employers fiscal year end is effective for fiscal years ending after
December 15, 2008. The Corporation is currently evaluating the
impact the measurement date provisions of SFAS No. 158 will have on its
consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159. SFAS No. 159
permits entities to choose to measure eligible items at fair value at specified
election dates. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings at each subsequent
reporting date. The fair value option (i) may be applied
instrument-by-instrument with certain exceptions, (ii) is irrevocable (unless
a
new election date occurs) and (iii) is applied only to entire instruments
and
not to portions of instruments. SFAS No. 159 is effective as of
the beginning of the first fiscal year that begins after November 15,
2007. Early adoption was permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also
elected to apply the provisions of SFAS No. 157, “Fair Value
Instruments.” Based on our assessment of the provisions of
SFAS 159, on April 12, 2007 we decided to implement early adoption of
SFAS 159. In connection with this adoption, we selected the fair
value option for certain U.S. Government sponsored agency and mortgage-backed
securities with lower coupons and slower prepayment characteristics in the
held-to-maturity portfolio totaling approximately
$61.9 million. A portfolio restructuring plan was also
undertaken to reduce interest rate risk and improve net interest margin,
which
included the sale of these securities. On Friday
April 13, 2007 we executed sale trades for these held-to-maturity
securities. At the time of the sales transactions the historical
amortized cost basis of the sold securities exceeded the total sales price
by
$1.7 million. On Monday April 16, 2007 additional
information became available regarding clarifications of the interpretation
of
the application of SFAS 159 by applicable regulatory and accounting
industry bodies that led us to conclude that the application of SFAS 159 to
our transactions might be inconsistent with the intent and spirit of
SFAS 159. Consequently, we decided not to early-adopt
SFAS 159. See further discussion regarding the restatement in
Note 1 and Note 3 to the Consolidated Financial
Statements.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(3)
Securities
Securities
available for sale are summarized as follows:
(Dollars
in thousands)
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
September
30, 2007 (As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
of
U.S. government-sponsored agencies
|
|
$ |
173,396
|
|
|
$ |
1,381
|
|
|
$ |
(89 |
) |
|
$ |
174,688
|
|
Mortgage-backed
securities issued by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government-sponsored agencies
|
|
|
369,718
|
|
|
|
1,099
|
|
|
|
(4,858 |
) |
|
|
365,959
|
|
States
and political subdivision
|
|
|
80,640
|
|
|
|
85
|
|
|
|
(746 |
) |
|
|
79,979
|
|
Trust
preferred securities
|
|
|
38,010
|
|
|
|
–
|
|
|
|
(2,410 |
) |
|
|
35,600
|
|
Corporate
bonds
|
|
|
16,954
|
|
|
|
38
|
|
|
|
(28 |
) |
|
|
16,964
|
|
Corporate
stocks
|
|
|
13,118
|
|
|
|
3,120
|
|
|
|
(719 |
) |
|
|
15,519
|
|
Total
|
|
|
691,836
|
|
|
|
5,723
|
|
|
|
(8,850 |
) |
|
|
688,709
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
U.S. government-sponsored agencies
|
|
|
157,383
|
|
|
|
778
|
|
|
|
(876 |
) |
|
|
157,285
|
|
Mortgage-backed
securities issued by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government-sponsored agencies
|
|
|
298,038
|
|
|
|
923
|
|
|
|
(5,174 |
) |
|
|
293,787
|
|
Trust
preferred securities
|
|
|
30,571
|
|
|
|
208
|
|
|
|
(205 |
) |
|
|
30,574
|
|
Corporate
bonds
|
|
|
24,998
|
|
|
|
83
|
|
|
|
(47 |
) |
|
|
25,034
|
|
Corporate
stocks
|
|
|
14,976
|
|
|
|
4,915
|
|
|
|
(175 |
) |
|
|
19,716
|
|
Total
|
|
$ |
525,966
|
|
|
$ |
6,907
|
|
|
$ |
(6,477 |
) |
|
$ |
526,396
|
|
Securities
held to maturity are summarized as follows:
(Dollars
in thousands)
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury obligations and obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
of
U.S. government-sponsored agencies
|
|
$ |
42,000
|
|
|
$ |
–
|
|
|
$ |
(422 |
) |
|
$ |
41,578
|
|
Mortgage-backed
securities issued by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
government-sponsored agencies
|
|
|
69,340
|
|
|
|
440
|
|
|
|
(1,604 |
) |
|
|
68,176
|
|
States
and political subdivisions
|
|
|
66,115
|
|
|
|
88
|
|
|
|
(588 |
) |
|
|
65,615
|
|
Total
|
|
$ |
177,455
|
|
|
$ |
528
|
|
|
$ |
(2,614 |
) |
|
$ |
175,369
|
|
In
connection with a planned early adoption of SFAS No. 159, the Corporation
sold twelve held to maturity securities with an amortized cost of
$61.9 million on April 13, 2007. The Corporation
subsequently decided not to early-adopt SFAS No. 159 and realized
securities losses of $1.7 million were recognized in the second quarter of
2007 (as restated). In addition, the remaining held-to-maturity
portfolio was reclassified to the available-for-sale category as of the
April 13, 2007 sale date of the securities. The Corporation will
not be able to classify securities in the held-to-maturity category for a
period
of two years from the April 13, 2007 sales date as a result of this
action. See additional discussion regarding the restatement in
Note 1 to the Consolidated Financial Statements.
Securities
available for sale with a fair value of $528.9 million and securities
available for sale and held to maturity with a fair value of $557.4 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
September 30, 2007 and December 31, 2006, respectively. In
addition, securities available for sale with a fair value of $8.3 million
and securities available for sale and held to maturity with a fair value of
$9.6 million were collateralized for the discount window at the Federal
Reserve Bank at September 30, 2007 and December 31, 2006,
respectively. There were no borrowings with the Federal Reserve Bank
at either date. Securities available for sale with a fair value of
$1.9 million and $2.1 million were designated in a rabbi trust for a
nonqualified retirement plan at September 30, 2007 and
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
December 31,
2006. As of September 30, 2007, securities available for sale
with a fair value of $21.5 million were pledged as collateral to secure
securities sold under agreements to repurchase.
At
September 30, 2007 and December 31, 2006, the securities portfolio
included $3.1 million and $1.7 million of net pretax unrealized
losses, respectively. Included in these net amounts were gross
unrealized losses amounting to $8.9 million and $9.1 million at
September 30, 2007 and December 31, 2006, respectively.
The
following tables summarize, for all securities in an unrealized loss position
at
September 30, 2007 and December 31, 2006, respectively, the aggregate
fair value and gross unrealized loss by length of time those securities have
been continuously in an unrealized loss position.
(Dollars
in thousands)
|
|
Less
than 12 Months
|
|
|
12
Months or Longer
|
|
|
Total
|
|
(As
Restated) |
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
At
September 30, 2007
|
|
|
#
|
|
|
Value
|
|
|
Losses
|
|
|
|
#
|
|
|
Value
|
|
|
Losses
|
|
|
|
#
|
|
|
Value
|
|
|
Losses
|
|
U.S.
Treasury obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
obligations of U.S. government-sponsored agencies
|
|
|
–
|
|
|
$ |
–
|
|
|
$ |
–
|
|
|
|
5
|
|
|
$ |
27,162
|
|
|
$ |
89
|
|
|
|
5
|
|
|
$ |
27,162
|
|
|
$ |
89
|
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
by U.S. government-sponsored agencies
|
|
|
19
|
|
|
|
79,778
|
|
|
|
704
|
|
|
|
62
|
|
|
|
185,462
|
|
|
|
4,154
|
|
|
|
81
|
|
|
|
265,240
|
|
|
|
4,858
|
|
States
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political
subdivisions
|
|
|
69
|
|
|
|
57,400
|
|
|
|
567
|
|
|
|
13
|
|
|
|
8,134
|
|
|
|
179
|
|
|
|
82
|
|
|
|
65,534
|
|
|
|
746
|
|
Trust
preferred securities
|
|
|
8
|
|
|
|
24,572
|
|
|
|
1,381
|
|
|
|
5
|
|
|
|
11,029
|
|
|
|
1,029
|
|
|
|
13
|
|
|
|
35,601
|
|
|
|
2,410
|
|
Corporate
bonds
|
|
|
2
|
|
|
|
6,120
|
|
|
|
18
|
|
|
|
1
|
|
|
|
2,993
|
|
|
|
10
|
|
|
|
3
|
|
|
|
9,113
|
|
|
|
28
|
|
Subtotal,
debt securities
|
|
|
98
|
|
|
|
167,870
|
|
|
|
2,670
|
|
|
|
86
|
|
|
|
234,780
|
|
|
|
5,461
|
|
|
|
184
|
|
|
|
402,650
|
|
|
|
8,131
|
|
Corporate
stocks
|
|
|
6
|
|
|
|
6,632
|
|
|
|
620
|
|
|
|
3
|
|
|
|
938
|
|
|
|
99
|
|
|
|
9
|
|
|
|
7,570
|
|
|
|
719
|
|
Total
temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired
securities
|
|
|
104
|
|
|
$ |
174,502
|
|
|
$ |
3,290
|
|
|
|
89
|
|
|
$ |
235,718
|
|
|
$ |
5,560
|
|
|
|
193
|
|
|
$ |
410,220
|
|
|
$ |
8,850
|
|
(Dollars
in thousands)
|
|
Less
than 12 Months
|
|
|
12
Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
At
December 31, 2006
|
|
|
#
|
|
|
Value
|
|
|
Losses
|
|
|
|
#
|
|
|
Value
|
|
|
Losses
|
|
|
|
#
|
|
|
Value
|
|
|
Losses
|
|
U.S.
Treasury obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
obligations of U.S. government-sponsored agencies
|
|
|
8
|
|
|
$ |
52,751
|
|
|
$ |
211
|
|
|
|
14
|
|
|
$ |
94,393
|
|
|
$ |
1,087
|
|
|
|
22
|
|
|
$ |
147,144
|
|
|
$ |
1,298
|
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
by U.S. government-sponsored agencies
|
|
|
7
|
|
|
|
20,620
|
|
|
|
122
|
|
|
|
69
|
|
|
|
240,457
|
|
|
|
6,656
|
|
|
|
76
|
|
|
|
261,077
|
|
|
|
6,778
|
|
States
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political
subdivisions
|
|
|
61
|
|
|
|
45,948
|
|
|
|
419
|
|
|
|
12
|
|
|
|
6,747
|
|
|
|
169
|
|
|
|
73
|
|
|
|
52,695
|
|
|
|
588
|
|
Trust
preferred securities
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7
|
|
|
|
14,840
|
|
|
|
205
|
|
|
|
7
|
|
|
|
14,840
|
|
|
|
205
|
|
Corporate
bonds
|
|
|
2
|
|
|
|
6,130
|
|
|
|
34
|
|
|
|
1
|
|
|
|
3,006
|
|
|
|
13
|
|
|
|
3
|
|
|
|
9,136
|
|
|
|
47
|
|
Subtotal,
debt securities
|
|
|
78
|
|
|
|
125,449
|
|
|
|
786
|
|
|
|
103
|
|
|
|
359,443
|
|
|
|
8,130
|
|
|
|
181
|
|
|
|
484,892
|
|
|
|
8,916
|
|
Corporate
stocks
|
|
|
5
|
|
|
|
5,823
|
|
|
|
110
|
|
|
|
4
|
|
|
|
1,494
|
|
|
|
65
|
|
|
|
9
|
|
|
|
7,317
|
|
|
|
175
|
|
Total
temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired
securities
|
|
|
83
|
|
|
$ |
131,272
|
|
|
$ |
896
|
|
|
|
107
|
|
|
$ |
360,937
|
|
|
$ |
8,195
|
|
|
|
190
|
|
|
$ |
492,209
|
|
|
$ |
9,091
|
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
For
those
debt securities whose amortized cost exceeds fair value, the primary cause
is
related to the movement of interest rates. The Corporation believes
that the nature and duration of impairment on its debt security holdings are
primarily a function of 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 Corporation has the ability and intent
to hold these investments to full recovery of the cost basis. The
debt securities in an unrealized loss position at September 30, 2007
consisted of 184 debt security holdings. The largest loss percentage
of any single holding was 11.45% 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 September 30, 2007 consisted of 9 holdings of financial and
commercial entities.
(4)
Loan Portfolio
The
following is a summary of loans:
(Dollars
in thousands)
|
|
September
30, 2007
|
|
|
December
31, 2006
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
(1)
|
|
$ |
276,995
|
|
|
|
18 |
% |
|
$ |
282,019
|
|
|
|
19 |
% |
Construction
and development (2)
|
|
|
48,899
|
|
|
|
3 |
% |
|
|
32,233
|
|
|
|
2 |
% |
Other
(3)
|
|
|
324,129
|
|
|
|
22 |
% |
|
|
273,145
|
|
|
|
19 |
% |
Total
commercial
|
|
|
650,023
|
|
|
|
43 |
% |
|
|
587,397
|
|
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
(4)
|
|
|
566,776
|
|
|
|
37 |
% |
|
|
577,522
|
|
|
|
39 |
% |
Homeowner
construction
|
|
|
12,040
|
|
|
|
1 |
% |
|
|
11,149
|
|
|
|
1 |
% |
Total
residential real estate
|
|
|
578,816
|
|
|
|
38 |
% |
|
|
588,671
|
|
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity lines
|
|
|
139,732
|
|
|
|
9 |
% |
|
|
145,676
|
|
|
|
10 |
% |
Home
equity loans
|
|
|
99,798
|
|
|
|
7 |
% |
|
|
93,947
|
|
|
|
6 |
% |
Other
|
|
|
46,124
|
|
|
|
3 |
% |
|
|
44,295
|
|
|
|
4 |
% |
Total
consumer
|
|
|
285,654
|
|
|
|
19 |
% |
|
|
283,918
|
|
|
|
20 |
% |
Total
loans (5)
|
|
$ |
1,514,493
|
|
|
|
100 |
% |
|
$ |
1,459,986
|
|
|
|
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 8 for additional discussion of FHLB
borrowings).
|
(5)
|
Net
of unamortized loan origination fees, net of costs, totaling
$92 thousand and $277 thousand at September 30, 2007 and
December 31, 2006, respectively. Also includes
$130 thousand and $342 thousand of premium, net of discount, on
purchased loans at September 30, 2007 and December 31, 2006,
respectively.
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|
(5)
Allowance for Loan Losses
The
following is an analysis of the allowance for loan losses:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
Periods
ended September 30,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Balance
at beginning of period
|
|
$ |
19,327
|
|
|
$ |
18,480
|
|
|
$ |
18,894
|
|
|
$ |
17,918
|
|
Provision
charged to expense
|
|
|
300
|
|
|
|
300
|
|
|
|
900
|
|
|
|
900
|
|
Recoveries
of loans previously charged off
|
|
|
27
|
|
|
|
39
|
|
|
|
231
|
|
|
|
152
|
|
Loans
charged off
|
|
|
(182 |
) |
|
|
(174 |
) |
|
|
(553 |
) |
|
|
(325 |
) |
Balance
at end of period
|
|
$ |
19,472
|
|
|
$ |
18,645
|
|
|
$ |
19,472
|
|
|
$ |
18,645
|
|
(6)
Goodwill and Other Intangibles
The
changes in the carrying value of goodwill and other intangible assets for the
nine months ended September 30, 2007 are as follows:
Goodwill
|
|
|
|
|
Wealth
|
|
|
|
|
(Dollars
in thousands)
|
|
Commercial
|
|
|
Management
|
|
|
|
|
|
|
Banking
|
|
|
Service
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Total
|
|
Balance
at December 31, 2006
|
|
$ |
22,591
|
|
|
$ |
21,967
|
|
|
$ |
44,558
|
|
Additions
to goodwill during the period
|
|
|
–
|
|
|
|
5,921
|
|
|
|
5,921
|
|
Impairment
recognized
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Balance
at September 30, 2007
|
|
$ |
22,591
|
|
|
$ |
27,888
|
|
|
$ |
50,479
|
|
During
the third quarter of 2007, the Corporation recognized a liability of
$5.9 million, with a corresponding increase in goodwill, related to the
acquisition of Weston Financial Group, Inc. (“Weston Financial”) in August
2005. This amount represents the 2007 obligation under the terms of
the acquisition agreement, which provides for a contingent payment earn-out
in
each year during the three-year period ending December 31,
2008.
Other
Intangible Assets
|
|
Core
Deposit
|
|
|
Advisory
|
|
|
Non-compete
|
|
|
|
|
|
|
Intangible
|
|
|
Contracts
|
|
|
Agreements
|
|
|
Total
|
|
Balance
at December 31, 2006
|
|
$ |
650
|
|
|
$ |
11,937
|
|
|
$ |
229
|
|
|
$ |
12,816
|
|
Amortization
|
|
|
109
|
|
|
|
911
|
|
|
|
37
|
|
|
|
1,057
|
|
Balance
at September 30, 2007
|
|
$ |
541
|
|
|
$ |
11,026
|
|
|
$ |
192
|
|
|
$ |
11,759
|
|
Amortization
of intangible assets for the nine months ended September 30, 2007 totaled
$1.1 million. 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
|
|
|
|
|
Estimated
amortization expense:
|
|
Deposits
|
|
|
Contracts
|
|
|
Agreements
|
|
|
Total
|
|
2007
(full year)
|
|
$ |
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
|
|
2011
|
|
|
120
|
|
|
|
768
|
|
|
|
33
|
|
|
|
921
|
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The
components of intangible assets at September 30, 2007 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
|
|
|
2,456
|
|
|
|
2,631
|
|
|
|
955
|
|
|
|
6,042
|
|
Net
amount
|
|
$ |
541
|
|
|
$ |
11,026
|
|
|
$ |
192
|
|
|
$ |
11,759
|
|
(7)
Income Taxes
Effective
January 1, 2007, the Corporation adopted FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN 48”). The
adoption of FIN 48 did not result in any adjustment to retained earnings as
of January 1, 2007.
As
of the
adoption date, the Corporation had gross tax affected unrecognized tax benefits
of $1.2 million. If recognized, this amount would be recorded as
a component of income tax expense. There have been no significant
changes to this during the nine months ended September 30,
2007.
The
Corporation recognizes potential accrued interest related to unrecognized tax
benefits in income tax expense in the Consolidated Statements of
Income. As of the adoption date of January 1, 2007, accrued
interest amounted to $70 thousand. To the extent interest is not
assessed with respect to uncertain tax positions, amounts accrued will be
reduced and reflected as a reduction of the overall income tax
provision. Penalties, if incurred, would be recognized as a component
of income tax expense.
The
Corporation files income tax returns in the U.S. federal jurisdiction and
various state jurisdictions. The Corporation is no longer subject to
U.S. federal income tax examinations by tax authorities for years before
2003. With a few exceptions, the Corporation is no longer subject to
state income tax examinations by tax authorities for years before
2000.
(8)
Borrowings
Federal
Home Loan Bank Advances
Advances
payable to the Federal Home Loan Bank (“FHLB”) are summarized as
follows:
(Dollars
in thousands)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
FHLB
advances
|
|
$ |
502,265
|
|
|
$ |
474,561
|
|
During
the first quarter of 2007, the Corporation prepaid $26.5 million in
advances payable to the FHLB resulting in a debt prepayment penalty charge,
recorded in noninterest expense, of $1.1 million. See additional
discussion in Item 2, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” under the caption “Noninterest
Expense.”
In
addition to outstanding advances, the Corporation also has access to an unused
line of credit amounting to $8.0 million at September 30,
2007. Under an 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 September 30,
2007. Included in the collateral were securities available for sale
with a fair value of $402.4 million and securities available for sale and
held to maturity with a fair value of $451.5 million that were specifically
pledged to secure FHLB borrowings at September 30, 2007 and
December 31, 2006, respectively. Unless there is an event of
default under the agreement
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
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.
Other
Borrowings
The
following is a summary of other borrowings:
(Dollars
in thousands)
|
|
September 30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Treasury,
Tax and Loan demand note balance
|
|
$ |
6,742
|
|
|
$ |
3,863
|
|
Deferred
acquisition obligations
|
|
|
9,772
|
|
|
|
10,372
|
|
Securities
sold under repurchase agreements
|
|
|
19,500
|
|
|
|
–
|
|
Other
|
|
|
389
|
|
|
|
449
|
|
Other
borrowings
|
|
$ |
36,403
|
|
|
$ |
14,684
|
|
In
the
first quarter of 2007, securities sold under repurchase agreements of
$19.5 million were executed. The securities sold under
agreements to repurchase are callable at the issuer’s option, at one time only,
in one year and mature in five years. 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.
The
Stock
Purchase Agreement for the August 2005 acquisition of Weston Financial provides
for the payment of contingent purchase price amounts based on operating results
in each of the years in the three-year earn-out period ending December 31,
2008. Contingent payments are added to goodwill and recorded as
deferred acquisition liabilities at the time the payments are determinable
beyond a reasonable doubt. Deferred acquisition obligations amounted
to $9.8 million at September 30, 2007 compared to $10.4 million
at December 31, 2006. During the third quarter of 2007 the
Corporation recognized a liability of $5.9 million, representing the 2007
portion of the earn-out period. In the first quarter of 2007 the Corporation
paid approximately $6.7 million, which represented the 2006 earn-out
payment.
(9)
Shareholders’ Equity
Stock
Repurchase Plan:
Under
the
Corporation’s 2006 Stock Repurchase Plan, 185,400 shares of stock were
repurchased at a total cost of $4.8 million during the nine months ended
September 30, 2007. In addition, 14,785 shares were acquired in
the same period pursuant to the Nonqualified Deferred Compensation
Plan.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Regulatory
Capital Requirements:
The
following table presents the Corporation’s and the Bank’s actual capital amounts
and ratios at September 30, 2007 and December 31, 2006, 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 September 30, 2007: (As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
163,269
|
|
|
|
10.43 |
% |
|
$ |
125,220
|
|
|
|
8.00 |
% |
|
$ |
156,525
|
|
|
|
10.00 |
% |
Bank
|
|
$ |
170,327
|
|
|
|
10.89 |
% |
|
$ |
125,141
|
|
|
|
8.00 |
% |
|
$ |
156,426
|
|
|
|
10.00 |
% |
Tier
1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
142,621
|
|
|
|
9.11 |
% |
|
$ |
62,610
|
|
|
|
4.00 |
% |
|
$ |
93,915
|
|
|
|
6.00 |
% |
Bank
|
|
$ |
149,691
|
|
|
|
9.57 |
% |
|
$ |
62,570
|
|
|
|
4.00 |
% |
|
$ |
93,856
|
|
|
|
6.00 |
% |
Tier
1 Capital (to Average Assets): (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
142,621
|
|
|
|
6.11 |
% |
|
$ |
93,330
|
|
|
|
4.00 |
% |
|
$ |
116,662
|
|
|
|
5.00 |
% |
Bank
|
|
$ |
149,691
|
|
|
|
6.42 |
% |
|
$ |
93,282
|
|
|
|
4.00 |
% |
|
$ |
116,602
|
|
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
161,076
|
|
|
|
10.96 |
% |
|
$ |
117,538
|
|
|
|
8.00 |
% |
|
$ |
146,922
|
|
|
|
10.00 |
% |
Bank
|
|
$ |
168,235
|
|
|
|
11.46 |
% |
|
$ |
117,465
|
|
|
|
8.00 |
% |
|
$ |
146,832
|
|
|
|
10.00 |
% |
Tier
1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
140,568
|
|
|
|
9.57 |
% |
|
$ |
58,769
|
|
|
|
4.00 |
% |
|
$ |
88,153
|
|
|
|
6.00 |
% |
Bank
|
|
$ |
147,738
|
|
|
|
10.06 |
% |
|
$ |
58,733
|
|
|
|
4.00 |
% |
|
$ |
88,099
|
|
|
|
6.00 |
% |
Tier
1 Capital (to Average Assets): (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
140,568
|
|
|
|
6.01 |
% |
|
$ |
93,487
|
|
|
|
4.00 |
% |
|
$ |
116,858
|
|
|
|
5.00 |
% |
Bank
|
|
$ |
147,738
|
|
|
|
6.32 |
% |
|
$ |
93,437
|
|
|
|
4.00 |
% |
|
$ |
116,797
|
|
|
|
5.00 |
% |
The
Corporation’s capital ratios at September 30, 2007 place the Corporation in
the “well-capitalized” category according to regulatory standards.
(10)
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)
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
Financial
instruments whose contract amounts represent credit risk:
|
|
|
|
|
|
|
Commitments
to extend credit:
|
|
|
|
|
|
|
Commercial
loans
|
|
$ |
151,229
|
|
|
$ |
122,376
|
|
Home
equity lines
|
|
|
179,300
|
|
|
|
185,483
|
|
Other
loans
|
|
|
26,814
|
|
|
|
10,671
|
|
Standby
letters of credit
|
|
|
8,941
|
|
|
|
9,401
|
|
Financial
instruments whose notional amounts exceed the amount of credit
risk:
|
|
|
|
|
|
|
|
|
Forward
loan commitments:
|
|
|
|
|
|
|
|
|
Commitments
to originate fixed rate mortgage loans to be sold
|
|
|
2,870
|
|
|
|
2,924
|
|
Commitments
to sell fixed rate mortgage loans
|
|
|
4,966
|
|
|
|
5,066
|
|
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 September 30, 2007 and December 31, 2006, the
maximum potential amount of undiscounted future payments, not reduced by amounts
that may be recovered, totaled $8.9 million and $9.4 million,
respectively. At September 30, 2007 and December 31, 2006,
there was no liability to beneficiaries resulting from standby letters of
credit. Fee income on standby letters of credit for the nine months
ended September 30, 2007 and 2006 totaled $75 thousand and
$86 thousand, respectively.
At
September 30, 2007, 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
September 30, 2007 and December 31, 2006 and the respective changes in
fair values for the nine months ended September 30, 2007 and 2006 were
insignificant.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(11)
Defined Benefit Pension Plans
Components
of Net Periodic Benefit Costs:
(Dollars
in thousands)
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
Pension
Plan
|
|
|
Retirement
Plans
|
|
Nine
months ended September 30,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$ |
1,508
|
|
|
$ |
1,551
|
|
|
$ |
259
|
|
|
$ |
264
|
|
Interest
cost
|
|
|
1,386
|
|
|
|
1,238
|
|
|
|
389
|
|
|
|
351
|
|
Expected
return on plan assets
|
|
|
(1,488 |
) |
|
|
(1,350 |
) |
|
|
-
|
|
|
|
-
|
|
Amortization
of transition asset
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
-
|
|
|
|
-
|
|
Amortization
of prior service cost
|
|
|
(25 |
) |
|
|
(26 |
) |
|
|
47
|
|
|
|
46
|
|
Recognized
net actuarial loss
|
|
|
140
|
|
|
|
238
|
|
|
|
163
|
|
|
|
160
|
|
Net
periodic benefit cost
|
|
$ |
1,517
|
|
|
$ |
1,647
|
|
|
$ |
858
|
|
|
$ |
821
|
|
Assumptions:
The
measurement date and weighted-average assumptions used to determine net periodic
benefit cost for the nine months ended September 30, 2007 and 2006 were as
follows:
|
|
Qualified
|
|
|
Non-Qualified
|
|
|
|
Pension
Plan
|
|
|
Retirement
Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Measurement
date
|
|
Sept. 30,
2006
|
|
|
Sept. 30,
2005
|
|
|
Sept. 30,
2006
|
|
|
Sept. 30,
2005
|
|
Discount
rate
|
|
|
5.90 |
% |
|
|
5.50 |
% |
|
|
5.90 |
% |
|
|
5.50 |
% |
Expected
long-term return on plan assets
|
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
-
|
|
|
|
-
|
|
Rate
of compensation increase
|
|
|
4.25 |
% |
|
|
4.25 |
% |
|
|
4.25 |
% |
|
|
4.25 |
% |
As
discussed in Note 2, the SFAS No. 158 requirement to measure the
plan’s assets and obligations as of the employer’s fiscal year end is effective
December 31, 2008.
Employer
Contributions:
The
Corporation previously disclosed in its financial statements for the year ended
December 31, 2006 that it expected to contribute $1.3 million to its
qualified pension plan and $369 thousand in benefit payments to its
non-qualified retirement plans in 2007. During the nine month period
ended September 30, 2007, approximately $1.9 million of contributions
were made to the qualified pension plan and no further contributions are
expected for 2007. The increase in the qualified pension plan
contribution over the amount estimated at December 31, 2006 was the result
of further analysis by the Corporation and included an additional discretionary
contribution in excess of statutory requirements. During the nine
month period ended September 30, 2007, $251 thousand in benefit payments
have been made to the non-qualified retirement plans. The Corporation
presently anticipates contributing an additional $84 thousand in benefit
payments to the non-qualified retirement plans in 2007.
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(12)
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 tables present 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 September 30,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
interest income (expense)
|
|
$ |
13,797
|
|
|
$ |
13,371
|
|
|
$ |
(18 |
) |
|
$ |
(23 |
) |
|
$ |
1,531
|
|
|
$ |
2,518
|
|
|
$ |
15,310
|
|
|
$ |
15,866
|
|
Noninterest
income
|
|
|
4,295
|
|
|
|
4,262
|
|
|
|
7,178
|
|
|
|
6,465
|
|
|
|
377
|
|
|
|
56
|
|
|
|
11,850
|
|
|
|
10,783
|
|
Total
income
|
|
|
18,092
|
|
|
|
17,633
|
|
|
|
7,160
|
|
|
|
6,442
|
|
|
|
1,908
|
|
|
|
2,574
|
|
|
|
27,160
|
|
|
|
26,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
300
|
|
|
|
300
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
300
|
|
|
|
300
|
|
Depreciation
and
amortization
expense
|
|
|
618
|
|
|
|
551
|
|
|
|
423
|
|
|
|
416
|
|
|
|
45
|
|
|
|
204
|
|
|
|
1,086
|
|
|
|
1,171
|
|
Other
noninterest expenses
|
|
|
10,076
|
|
|
|
9,461
|
|
|
|
4,420
|
|
|
|
4,204
|
|
|
|
1,730
|
|
|
|
1,775
|
|
|
|
16,226
|
|
|
|
15,440
|
|
Total
noninterest expenses
|
|
|
10,994
|
|
|
|
10,312
|
|
|
|
4,843
|
|
|
|
4,620
|
|
|
|
1,775
|
|
|
|
1,979
|
|
|
|
17,612
|
|
|
|
16,911
|
|
Income
before income taxes
|
|
|
7,098
|
|
|
|
7,321
|
|
|
|
2,317
|
|
|
|
1,822
|
|
|
|
133
|
|
|
|
595
|
|
|
|
9,548
|
|
|
|
9,738
|
|
Income
tax expense (benefit)
|
|
|
2,495
|
|
|
|
2,558
|
|
|
|
898
|
|
|
|
719
|
|
|
|
(401 |
) |
|
|
(117 |
) |
|
|
2,992
|
|
|
|
3,160
|
|
Net
income
|
|
$ |
4,603
|
|
|
$ |
4,763
|
|
|
$ |
1,419
|
|
|
$ |
1,103
|
|
|
$ |
534
|
|
|
$ |
712
|
|
|
$ |
6,556
|
|
|
$ |
6,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at period end
|
|
|
1,587,328
|
|
|
|
1,521,785
|
|
|
|
44,254
|
|
|
|
38,934
|
|
|
|
800,180
|
|
|
|
842,547
|
|
|
|
2,431,762
|
|
|
|
2,403,266
|
|
Expenditures
for
long-lived
assets
|
|
|
123
|
|
|
|
461
|
|
|
|
38
|
|
|
|
72
|
|
|
|
81
|
|
|
|
49
|
|
|
|
242
|
|
|
|
582
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Banking
|
|
|
Wealth
Management Services
|
|
|
Corporate
|
|
|
Consolidated
Total
|
|
Nine
months ended September 30,
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(As
Restated) 2007
|
|
|
2006
|
|
|
(As
Restated) 2007
|
|
|
2006
|
|
Net
interest income (expense)
|
|
$ |
40,411
|
|
|
$ |
40,381
|
|
|
$ |
(46 |
) |
|
$ |
(74 |
) |
|
$ |
4,742
|
|
|
$ |
6,191
|
|
|
$ |
45,107
|
|
|
$ |
46,498
|
|
Noninterest
income
|
|
|
11,058
|
|
|
|
10,586
|
|
|
|
21,541
|
|
|
|
19,642
|
|
|
|
1,622
|
|
|
|
1,522
|
|
|
|
34,221
|
|
|
|
31,750
|
|
Total
income
|
|
|
51,469
|
|
|
|
50,967
|
|
|
|
21,495
|
|
|
|
19,568
|
|
|
|
6,364
|
|
|
|
7,713
|
|
|
|
79,328
|
|
|
|
78,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
900
|
|
|
|
900
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
900
|
|
|
|
900
|
|
Depreciation
and
amortization
expense
|
|
|
1,841
|
|
|
|
1,684
|
|
|
|
1,292
|
|
|
|
1,260
|
|
|
|
133
|
|
|
|
552
|
|
|
|
3,266
|
|
|
|
3,496
|
|
Other
noninterest expenses
|
|
|
28,363
|
|
|
|
27,146
|
|
|
|
13,332
|
|
|
|
12,988
|
|
|
|
7,220
|
|
|
|
5,965
|
|
|
|
48,915
|
|
|
|
46,099
|
|
Total
noninterest expenses
|
|
|
31,104
|
|
|
|
29,730
|
|
|
|
14,624
|
|
|
|
14,248
|
|
|
|
7,353
|
|
|
|
6,517
|
|
|
|
53,081
|
|
|
|
50,495
|
|
Income
before income taxes
|
|
|
20,365
|
|
|
|
21,237
|
|
|
|
6,871
|
|
|
|
5,320
|
|
|
|
(989 |
) |
|
|
1,196
|
|
|
|
26,247
|
|
|
|
27,753
|
|
Income
tax expense (benefit)
|
|
|
7,158
|
|
|
|
7,402
|
|
|
|
2,661
|
|
|
|
2,097
|
|
|
|
(1,585 |
) |
|
|
(574 |
) |
|
|
8,234
|
|
|
|
8,925
|
|
Net
income
|
|
$ |
13,207
|
|
|
$ |
13,835
|
|
|
$ |
4,210
|
|
|
$ |
3,223
|
|
|
$ |
596
|
|
|
$ |
1,770
|
|
|
$ |
18,013
|
|
|
$ |
18,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at period end
|
|
|
1,587,328
|
|
|
|
1,521,785
|
|
|
|
44,254
|
|
|
|
38,934
|
|
|
|
800,180
|
|
|
|
842,547
|
|
|
|
2,431,762
|
|
|
|
2,403,266
|
|
Expenditures
for
long-lived
assets
|
|
|
3,326
|
|
|
|
1,975
|
|
|
|
200
|
|
|
|
432
|
|
|
|
189
|
|
|
|
212
|
|
|
|
3,715
|
|
|
|
2,619
|
|
WASHINGTON
TRUST BANCORP INC. AND SUBSIDIARIES
|
(Continued)
|
CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
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.
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.
(13)
Comprehensive Income
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Nine
months ended September 30,
|
|
(As
Restated) 2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
18,013
|
|
|
$ |
18,828
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding (gains) losses on securities available for sale, net of $1,127
income
|
|
|
|
|
|
|
|
|
tax
benefit in 2007 (as restated) and $170 income tax benefit in
2006
|
|
|
(2,093 |
) |
|
|
740
|
|
Reclassification
adjustments for gains arising during the period, net of $148 income
tax
|
|
|
|
|
|
|
|
|
expense
in 2007 (as restated) and $321 income tax expense in 2006
|
|
|
(188 |
) |
|
|
(137 |
) |
Change
in funded status of defined benefit plans related to the amortization
of
net
|
|
|
|
|
|
|
|
|
actuarial
losses, net prior service credit and net transition asset, net of
$165
income
|
|
|
|
|
|
|
|
|
tax
expense in 2007
|
|
|
209
|
|
|
|
-
|
|
Total
comprehensive income
|
|
$ |
15,941
|
|
|
$ |
19,431
|
|
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, nonvested share units,
non vested share awards 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
|
|
|
Nine
Months
|
|
Periods
ended September 30,
|
|
2007
|
|
|
2006
|
|
|
(As
Restated) 2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
6,556
|
|
|
$ |
6,578
|
|
|
$ |
18,013
|
|
|
$ |
18,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares
|
|
|
13,323.6
|
|
|
|
13,436.6
|
|
|
|
13,358.1
|
|
|
|
13,414.6
|
|
Dilutive
effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
190.2
|
|
|
|
242.1
|
|
|
|
211.1
|
|
|
|
252.5
|
|
Other
|
|
|
50.3
|
|
|
|
47.6
|
|
|
|
43.5
|
|
|
|
41.1
|
|
Weighted
average diluted shares
|
|
|
13,564.1
|
|
|
|
13,726.3
|
|
|
|
13,612.7
|
|
|
|
13,708.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.49
|
|
|
$ |
0.49
|
|
|
$ |
1.35
|
|
|
$ |
1.40
|
|
Diluted
|
|
$ |
0.48
|
|
|
$ |
0.48
|
|
|
$ |
1.32
|
|
|
$ |
1.37
|
|
(15)
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.
With
respect to the unaudited consolidated financial statements of Washington
Trust
Bancorp, Inc. and Subsidiaries at September 30, 2007 and for the three and
nine months ended September 30, 2007 and 2006, 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
November 9, 2007 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 September 30,
2007, the related consolidated statements of income for the three-and nine-month
periods ended September 30, 2007 and 2006, and the related consolidated
statements of cash flows for the nine-month periods ended September 30,
2007 and 2006. 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,
2006, 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 12, 2007, 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, 2006, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
KPMGLLP
Providence,
Rhode Island
November 9,
2007
ITEM
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking
Statements
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 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 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, unanticipated consequences of the
restatement; the review and audit by our independent auditor of our 2007
financial statements; the consequences of the reclassification of the
held-to-maturity securities portfolio to the available-for-sale category;
the
financial impact of the foregoing; 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.
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 GAAP and conform to
general practices within the banking industry. The preparation of
financial statements in conformity with GAAP 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
2006 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 of investment securities,
defined benefit pension obligations, 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.
Recent
Events
In
June
2007, Washington Trust opened its 17th branch
located in
Cranston, Rhode Island. This branch office is the second location in
Cranston.
Results
of Operations
Overview
As
discussed in Note 1 to the Consolidated Financial Statements, the
Corporation has determined that its interim financial statements for the
period
ended June 30, 2007 should be restated and that the Corporation’s financial
statements for the quarter ended June 30, 2007 should no longer be relied
upon. This restatement was solely related to accounting errors in
connection with sales of certain held-to-maturity investment securities
conducted in the second quarter of 2007
The
Corporation will file an amended Form 10-Q for the quarter ended June 30,
2007 reflecting the necessary adjustments with the SEC as soon as
practicable. The Corporation will also file an amended Form 10-Q for
the quarter ended March 31, 2007 with the SEC as soon as practicable to add
a
subsequent event footnote to disclose the second quarter 2007 transactions
described above.
For
the
quarter ended June 30, 2007, the accounting corrections for these
transactions, including recognition of the realized loss on the sales
transactions and other related changes, result in an after-tax reduction
in net
income of $828 thousand, or 6 cents per diluted share, from
$6.3 million, or 46 cents per diluted share, to $5.5 million, or
40 cents per diluted share. For the six-month period ended
June 30, 2007 the accounting corrections result in a reduction in net
income
from $12.3 million, or 90 cents per diluted share, to
$11.5 million, or 84 cents per diluted share. All
applicable amounts related to this restatement have been reflected herein
and in
our Consolidated Financial Statements included in this
Form 10-Q. See additional discussion regarding the restatement
in Note 1 and Note 3 to the Consolidated Financial
Statements.
Net
income for the third quarter of 2007 was $6.6 million, or 48 cents per
diluted share, substantially the same as the amounts reported for the third
quarter of 2006. The returns on average equity and average assets for
the quarter ended September 30, 2007 were 14.99% and 1.10%, respectively,
compared to 15.62% and 1.09%, respectively, for the same period in
2006.
Including
the effect of the restatement, net income for the nine months ended
September 30, 2007 amounted to $18.0 million, down $815 thousand,
or 4.3%, from the same period in 2006. The Corporation earned $1.32
per share on a diluted basis for the nine months ended September 30, 2007,
compared to $1.37 per diluted share for the same period a year
ago. See Note 1 to the Consolidated Financial Statements for
further information regarding the restatement.
For
the
nine months ended September 30, 2007, the returns on average equity and
average assets were 13.74% and 1.01%, respectively, compared to 15.33% and
1.04%, respectively, for the comparable period in 2006.
Selected
financial highlights are presented in the table below.
(Dollars
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
Periods
ended September 30,
|
|
2007
|
|
|
2006
|
|
|
(As
Restated) 2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
6,556
|
|
|
$ |
6,578
|
|
|
$ |
18,013
|
|
|
$ |
18,828
|
|
Diluted
earnings per share
|
|
|
0.48
|
|
|
|
0.48
|
|
|
|
1.32
|
|
|
|
1.37
|
|
Dividends
declared per common share
|
|
|
0.20
|
|
|
|
0.19
|
|
|
|
0.60
|
|
|
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Select
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
1.10 |
% |
|
|
1.09 |
% |
|
|
1.01 |
% |
|
|
1.04 |
% |
Return
on average shareholders equity
|
|
|
14.99 |
% |
|
|
15.62 |
% |
|
|
13.74 |
% |
|
|
15.33 |
% |
Interest
rate spread (taxable equivalent basis)
|
|
|
2.42 |
% |
|
|
2.51 |
% |
|
|
2.42 |
% |
|
|
2.49 |
% |
Net
interest margin (taxable equivalent basis)
|
|
|
2.81 |
% |
|
|
2.86 |
% |
|
|
2.79 |
% |
|
|
2.82 |
% |
Net
Interest Income
Net
interest income is the difference between interest earned on loans and
securities and interest paid on deposits and other borrowings, and continues
to
be the primary source of Washington Trust’s operating income. 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. Included in interest income are loan
prepayment fees and certain other fees, such as late charges.
Net
interest income for the third quarter of 2007 amounted to $15.3 million,
down $556 thousand, or 3.5%, from the same quarter a year
ago. Net interest income for the three months ended
September 30, 2006 included a catch-up for the delayed second quarter 2006
dividend on the Corporation’s investment in Federal Home Loan Bank of Boston
(“FHLBB”) stock of approximately $450 thousand. Excluding the
impact of the additional FHLBB dividend, net interest income for the third
quarter of 2007 was down 0.7% from the same quarter in 2006. For the
nine months ended September 30, 2007, net interest income declined
$1.4 million, or 3.0%, from the same period in 2006. The decline
in net interest income was due to the fact that rates paid on deposits and
borrowings have risen faster than earning asset yields and a higher rate of
growth was experienced in higher cost deposit categories. In
addition, the average balance of total interest-earnings assets have declined
somewhat in 2007 compared to 2006.
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 quarter ended September 30, 2007 decreased
$431 thousand, or 2.7%, from the third quarter of 2006, and for the nine
months ended September 30, 2007, declined $1.0 million, or 2.2%, from
the same period a year earlier. The net interest margin (FTE net
interest income as a percentage of average interest–earnings assets) for the
three months ended September 30, 2007 was 2.81%, down 5 basis points
from the same period a year earlier. Excluding the 8 basis point
impact of the additional FHLBB dividend recorded in the third quarter of 2006,
net interest margin for the third quarter of 2007 was 3 basis points higher
than the same period a year earlier. Net interest margin for the nine
months ended September 30, 2007 was 2.79%, down 3 basis points from
2.82% for the same period a year ago. Included in net interest income
in 2007 was interest recovery of $322 thousand received in the first
quarter on a previously charged off loan. This interest recovery
accounted for 3 basis points of the net interest margin for the nine months
ended September 30, 2007.
Average
interest-earning assets for the three and nine months ended September 30,
2007 decreased $21.4 million and $31.6 million, respectively, from the
amounts reported for the same periods last year. This decrease was
mainly due to reductions in the securities portfolio, offset in part by growth
in the loan portfolio. Total average loans for the three and nine
months ended September 30, 2007 increased $70.0 million and
$58.0 million, respectively, from the comparable 2006
periods. The yield on total loans for the three and nine months ended
September 30, 2007 increased 11 and 19 basis points, respectively,
from the comparable 2006 periods. Loan prepayment and other fees
included in interest income for the three and nine months ended
September 30, 2007 were $61 thousand and $253 thousand,
respectively, compared to $119 thousand and $579 thousand for the same
periods in 2006, respectively. Total average securities for the three
and nine months ended September 30, 2007 decreased $91.3 million and
$89.6 million, respectively. The relatively flat yield curve
made reinvestment of maturing balances unattractive relative to funding costs
during these periods. The FTE rate of return on securities for the
three and nine months ended September 30, 2007 increased 14 and
44 basis points from the comparable 2006 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, sale or runoff
of
lower yielding securities and higher marginal rates on reinvestment of cash
flows relative to the prior year. The Corporation continues to
consider appropriate strategies to manage rising funding costs and more slowly
increasing investment yields given the relatively flat yield curve.
For
the
three and nine months ended September 30, 2007, average interest-bearing
liabilities declined $31.0 million and $35.0 million, respectively,
from the amounts reported for the comparable periods last year. The
Corporation experienced growth in money market and other borrowed funds, and
declines in NOW accounts, time deposits and FHLB advances. The
decline in time deposits resulted from decreases in average brokered
certificates of deposit, which are utilized by the Corporation as part of its
overall funding program along with FHLB advances and other
sources. Average brokered certificates of deposit for the three and
nine months ended September 30, 2007 decreased $64.3 million and
$55.6 million, respectively. The average rate paid on brokered
certificates of deposit for the three and nine months ended September 30,
2007 was relatively unchanged from the comparable periods in
2006. The average balance of FHLB advances for the three and nine
months ended September 30, 2007 decreased $11.6 million and
$58.2 million, respectively, while the average rate paid on FHLB advances
increased 30 and 28 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 September 30,
|
|
2007
|
|
|
2006
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
(Dollars
in thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
$ |
584,223
|
|
|
$ |
7,886
|
|
|
|
5.35 |
% |
|
$ |
588,488
|
|
|
$ |
7,596
|
|
|
|
5.12 |
% |
Commercial
and other loans
|
|
|
635,435
|
|
|
|
12,203
|
|
|
|
7.62 |
% |
|
|
564,804
|
|
|
|
10,990
|
|
|
|
7.72 |
% |
Consumer
loans
|
|
|
282,472
|
|
|
|
4,988
|
|
|
|
7.01 |
% |
|
|
278,864
|
|
|
|
4,898
|
|
|
|
6.97 |
% |
Total
loans
|
|
|
1,502,130
|
|
|
|
25,077
|
|
|
|
6.62 |
% |
|
|
1,432,156
|
|
|
|
23,484
|
|
|
|
6.51 |
% |
Federal
funds sold and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
short-term investments
|
|
|
21,375
|
|
|
|
275
|
|
|
|
5.10 |
% |
|
|
20,132
|
|
|
|
252
|
|
|
|
4.96 |
% |
Taxable
debt securities
|
|
|
582,152
|
|
|
|
7,565
|
|
|
|
5.16 |
% |
|
|
706,319
|
|
|
|
8,493
|
|
|
|
4.77 |
% |
Nontaxable
debt securities
|
|
|
80,998
|
|
|
|
1,145
|
|
|
|
5.61 |
% |
|
|
42,842
|
|
|
|
622
|
|
|
|
5.76 |
% |
Corporate
stocks and FHLB stock
|
|
|
42,129
|
|
|
|
748
|
|
|
|
7.03 |
% |
|
|
48,704
|
|
|
|
1,289
|
|
|
|
10.50 |
% |
Total
securities
|
|
|
726,654
|
|
|
|
9,733
|
|
|
|
5.31 |
% |
|
|
817,997
|
|
|
|
10,656
|
|
|
|
5.17 |
% |
Total
interest-earning assets
|
|
|
2,228,784
|
|
|
|
34,810
|
|
|
|
6.20 |
% |
|
|
2,250,153
|
|
|
|
34,140
|
|
|
|
6.02 |
% |
Non
interest-earning assets
|
|
|
161,578
|
|
|
|
|
|
|
|
|
|
|
|
160,883
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,390,362
|
|
|
|
|
|
|
|
|
|
|
$ |
2,411,036
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
$ |
166,271
|
|
|
$ |
70
|
|
|
|
0.17 |
% |
|
$ |
174,740
|
|
|
$ |
78
|
|
|
|
0.18 |
% |
Money
market accounts
|
|
|
300,329
|
|
|
|
2,950
|
|
|
|
3.90 |
% |
|
|
281,559
|
|
|
|
2,584
|
|
|
|
3.64 |
% |
Savings
deposits
|
|
|
194,439
|
|
|
|
646
|
|
|
|
1.32 |
% |
|
|
191,232
|
|
|
|
327
|
|
|
|
0.68 |
% |
Time
deposits
|
|
|
817,379
|
|
|
|
9,474
|
|
|
|
4.60 |
% |
|
|
868,487
|
|
|
|
9,484
|
|
|
|
4.33 |
% |
FHLB
advances
|
|
|
468,384
|
|
|
|
5,243
|
|
|
|
4.44 |
% |
|
|
480,033
|
|
|
|
5,011
|
|
|
|
4.14 |
% |
Junior
subordinated debentures
|
|
|
22,681
|
|
|
|
338
|
|
|
|
5.91 |
% |
|
|
22,681
|
|
|
|
338
|
|
|
|
5.91 |
% |
Other
borrowed funds
|
|
|
25,857
|
|
|
|
291
|
|
|
|
4.47 |
% |
|
|
7,624
|
|
|
|
89
|
|
|
|
4.66 |
% |
Total
interest-bearing liabilities
|
|
|
1,995,340
|
|
|
|
19,012
|
|
|
|
3.78 |
% |
|
|
2,026,356
|
|
|
|
17,911
|
|
|
|
3.51 |
% |
Demand
deposits
|
|
|
188,495
|
|
|
|
|
|
|
|
|
|
|
|
192,626
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
31,640
|
|
|
|
|
|
|
|
|
|
|
|
23,589
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
174,887
|
|
|
|
|
|
|
|
|
|
|
|
168,465
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
2,390,362
|
|
|
|
|
|
|
|
|
|
|
$ |
2,411,036
|
|
|
|
|
|
|
|
|
|
Net
interest income (FTE)
|
|
|
|
|
|
$ |
15,798
|
|
|
|
|
|
|
|
|
|
|
$ |
16,229
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
2.42 |
% |
|
|
|
|
|
|
|
|
|
|
2.51 |
% |
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
2.81 |
% |
|
|
|
|
|
|
|
|
|
|
2.86 |
% |
Interest
income amounts presented in the preceding table include the following
adjustments for taxable equivalency:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
2007
|
|
|
2006
|
|
Commercial
and other loans
|
|
$ |
45
|
|
|
$ |
54
|
|
Nontaxable
debt securities
|
|
|
364
|
|
|
|
217
|
|
Corporate
stocks
|
|
|
79
|
|
|
|
92
|
|
Nine
months ended September 30,
|
|
2007
|
|
|
2006
|
|
|
|
(As
Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
(Dollars
in thousands)
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
$ |
588,808
|
|
|
$ |
23,471
|
|
|
|
5.33 |
% |
|
$ |
589,635
|
|
|
$ |
22,505
|
|
|
|
5.10 |
% |
Commercial
and other loans
|
|
|
612,886
|
|
|
|
35,306
|
|
|
|
7.70 |
% |
|
|
563,284
|
|
|
|
32,294
|
|
|
|
7.67 |
% |
Consumer
loans
|
|
|
282,154
|
|
|
|
14,724
|
|
|
|
6.98 |
% |
|
|
272,960
|
|
|
|
13,819
|
|
|
|
6.77 |
% |
Total
loans
|
|
|
1,483,848
|
|
|
|
73,501
|
|
|
|
6.62 |
% |
|
|
1,425,879
|
|
|
|
68,618
|
|
|
|
6.43 |
% |
Federal
funds sold and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
short-term investments
|
|
|
17,302
|
|
|
|
650
|
|
|
|
5.03 |
% |
|
|
14,416
|
|
|
|
517
|
|
|
|
4.79 |
% |
Taxable
debt securities
|
|
|
604,303
|
|
|
|
23,196
|
|
|
|
5.13 |
% |
|
|
727,175
|
|
|
|
25,553
|
|
|
|
4.70 |
% |
Nontaxable
debt securities
|
|
|
76,578
|
|
|
|
3,238
|
|
|
|
5.65 |
% |
|
|
39,254
|
|
|
|
1,697
|
|
|
|
5.78 |
% |
Corporate
stocks and FHLB stock
|
|
|
42,796
|
|
|
|
2,310
|
|
|
|
7.21 |
% |
|
|
49,723
|
|
|
|
2,393
|
|
|
|
6.44 |
% |
Total
securities
|
|
|
740,979
|
|
|
|
29,394
|
|
|
|
5.30 |
% |
|
|
830,568
|
|
|
|
30,160
|
|
|
|
4.86 |
% |
Total
interest-earning assets
|
|
|
2,224,827
|
|
|
|
102,895
|
|
|
|
6.18 |
% |
|
|
2,256,447
|
|
|
|
98,778
|
|
|
|
5.85 |
% |
Non
interest-earning assets
|
|
|
163,803
|
|
|
|
|
|
|
|
|
|
|
|
155,006
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,388,630
|
|
|
|
|
|
|
|
|
|
|
$ |
2,411,453
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
$ |
168,217
|
|
|
$ |
202
|
|
|
|
0.16 |
% |
|
$ |
174,156
|
|
|
$ |
225
|
|
|
|
0.17 |
% |
Money
market accounts
|
|
|
295,876
|
|
|
|
8,630
|
|
|
|
3.90 |
% |
|
|
247,979
|
|
|
|
6,026
|
|
|
|
3.25 |
% |
Savings
deposits
|
|
|
198,845
|
|
|
|
2,017
|
|
|
|
1.36 |
% |
|
|
197,035
|
|
|
|
888
|
|
|
|
0.60 |
% |
Time
deposits
|
|
|
828,976
|
|
|
|
28,483
|
|
|
|
4.59 |
% |
|
|
863,831
|
|
|
|
26,733
|
|
|
|
4.14 |
% |
FHLB
advances
|
|
|
468,956
|
|
|
|
15,323
|
|
|
|
4.37 |
% |
|
|
527,108
|
|
|
|
16,115
|
|
|
|
4.09 |
% |
Junior
subordinated debentures
|
|
|
22,681
|
|
|
|
1,014
|
|
|
|
5.98 |
% |
|
|
22,681
|
|
|
|
1,014
|
|
|
|
5.98 |
% |
Other
borrowed funds
|
|
|
21,521
|
|
|
|
730
|
|
|
|
4.53 |
% |
|
|
7,331
|
|
|
|
256
|
|
|
|
4.67 |
% |
Total
interest-bearing liabilities
|
|
|
2,005,072
|
|
|
|
56,399
|
|
|
|
3.76 |
% |
|
|
2,040,121
|
|
|
|
51,257
|
|
|
|
3.36 |
% |
Demand
deposits
|
|
|
177,713
|
|
|
|
|
|
|
|
|
|
|
|
185,088
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
31,072
|
|
|
|
|
|
|
|
|
|
|
|
22,517
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
174,773
|
|
|
|
|
|
|
|
|
|
|
|
163,727
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$ |
2,388,630
|
|
|
|
|
|
|
|
|
|
|
$ |
2,411,453
|
|
|
|
|
|
|
|
|
|
Net
interest income (FTE)
|
|
|
|
|
|
$ |
46,496
|
|
|
|
|
|
|
|
|
|
|
$ |
47,521
|
|
|
|
|
|
Interest
rate spread
|
|
|
|
|
|
|
|
|
|
|
2.42 |
% |
|
|
|
|
|
|
|
|
|
|
2.49 |
% |
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
2.79 |
% |
|
|
|
|
|
|
|
|
|
|
2.82 |
% |
Interest
income amounts presented in the preceding table include the following
adjustments for taxable equivalency:
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30,
|
|
2007
|
|
|
2006
|
|
Commercial
and other loans
|
|
$ |
121
|
|
|
$ |
161
|
|
Nontaxable
debt securities
|
|
|
1,030
|
|
|
|
593
|
|
Corporate
stocks
|
|
|
238
|
|
|
|
269
|
|
The
following table presents certain information on a FTE 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
|
|
|
(As
Restated)
Nine
months ended
|
|
|
|
September 30,
2007 vs. 2006
|
|
|
September 30,
2007 vs. 2006
|
|
|
|
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
|
|
$ |
(55 |
) |
|
$ |
345
|
|
|
$ |
290
|
|
|
$ |
(32 |
) |
|
$ |
998
|
|
|
$ |
966
|
|
Commercial
and other loans
|
|
|
1,358
|
|
|
|
(145 |
) |
|
|
1,213
|
|
|
|
2,884
|
|
|
|
128
|
|
|
|
3,012
|
|
Consumer
loans
|
|
|
62
|
|
|
|
28
|
|
|
|
90
|
|
|
|
471
|
|
|
|
434
|
|
|
|
905
|
|
Federal
funds sold and other short-term investments
|
|
|
16
|
|
|
|
7
|
|
|
|
23
|
|
|
|
107
|
|
|
|
26
|
|
|
|
133
|
|
Taxable
debt securities
|
|
|
(1,581 |
) |
|
|
653
|
|
|
|
(928 |
) |
|
|
(4,563 |
) |
|
|
2,206
|
|
|
|
(2,357 |
) |
Nontaxable
debt securities
|
|
|
539
|
|
|
|
(16 |
) |
|
|
523
|
|
|
|
1,580
|
|
|
|
(39 |
) |
|
|
1,541
|
|
Corporate
stocks and FHLB stock
|
|
|
(157 |
) |
|
|
(384 |
) |
|
|
(541 |
) |
|
|
(354 |
) |
|
|
271
|
|
|
|
(83 |
) |
Total
interest income
|
|
|
182
|
|
|
|
488
|
|
|
|
670
|
|
|
|
93
|
|
|
|
4,024
|
|
|
|
4,117
|
|
Interest
on interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
accounts
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
(8 |
) |
|
|
(9 |
) |
|
|
(14 |
) |
|
|
(23 |
) |
Money
market accounts
|
|
|
177
|
|
|
|
189
|
|
|
|
366
|
|
|
|
1,279
|
|
|
|
1,325
|
|
|
|
2,604
|
|
Savings
deposits
|
|
|
5
|
|
|
|
314
|
|
|
|
319
|
|
|
|
9
|
|
|
|
1,120
|
|
|
|
1,129
|
|
Time
deposits
|
|
|
(579 |
) |
|
|
569
|
|
|
|
(10 |
) |
|
|
(1,101 |
) |
|
|
2,851
|
|
|
|
1,750
|
|
FHLB
advances
|
|
|
(124 |
) |
|
|
356
|
|
|
|
232
|
|
|
|
(1,851 |
) |
|
|
1,059
|
|
|
|
(792 |
) |
Junior
subordinated debentures
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Other
borrowed funds
|
|
|
206
|
|
|
|
(4 |
) |
|
|
202
|
|
|
|
482
|
|
|
|
(8 |
) |
|
|
474
|
|
Total
interest expense
|
|
|
(319 |
) |
|
|
1,420
|
|
|
|
1,101
|
|
|
|
(1,191 |
) |
|
|
6,333
|
|
|
|
5,142
|
|
Net
interest income
|
|
$ |
501
|
|
|
$ |
(932 |
) |
|
$ |
(431 |
) |
|
$ |
1,284
|
|
|
$ |
(2,309 |
) |
|
$ |
(1,025 |
) |
Provision
and Allowance for Loan Losses
The
Corporation’s loan loss provision charged to earnings amounted to
$300 thousand and $900 thousand for the three and nine months ended
September 30, 2007, respectively, consistent with the amounts recorded in
2006. The allowance for loan losses was $19.5 million, or 1.29%
of total loans, at September 30, 2007, compared to $18.6 million, or
1.31%, at September 30, 2006. See additional discussion under
the caption “Asset Quality” for further information on the Allowance for Loan
Losses.
Noninterest
Income
Noninterest
income is an important source of revenue for Washington
Trust. Noninterest income as a percent of total revenues (net
interest income plus noninterest income) increased from 40.5% in the third
quarter of 2006 to 43.6% in the third quarter of 2007. Total
noninterest income for the third quarter of 2007 increased $1.1 million, or
9.9%, from the same quarter a year ago. For the nine months ended
September 30, 2007, total noninterest income increased $2.5 million,
or 7.8%, from the comparable 2006 period.
The
following table presents a noninterest income comparison for the three and
nine
months ended September 30, 2007 and 2006:
(Dollars
in thousands)
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
$
|
|
|
|
%
|
|
Periods
ended September 30
|
|
2007
|
|
|
2006
|
|
|
Chg
|
|
|
Chg
|
|
|
2007
|
|
|
2006
|
|
|
Chg
|
|
|
Chg
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth
management services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust
and investment advisory fees
|
|
$ |
5,336
|
|
|
$ |
4,727
|
|
|
$ |
609
|
|
|
|
13 |
% |
|
$ |
15,626
|
|
|
$ |
14,036
|
|
|
$ |
1,590
|
|
|
|
11 |
% |
Mutual
fund fees
|
|
|
1,386
|
|
|
|
1,229
|
|
|
|
157
|
|
|
|
13 |
% |
|
|
4,000
|
|
|
|
3,573
|
|
|
|
427
|
|
|
|
12 |
% |
Financial
planning, commissions and other service fees
|
|
|
456
|
|
|
|
509
|
|
|
|
(53 |
) |
|
|
(10 |
%) |
|
|
1,915
|
|
|
|
2,033
|
|
|
|
(118 |
) |
|
|
(6 |
%) |
Wealth
management services
|
|
|
7,178
|
|
|
|
6,465
|
|
|
|
713
|
|
|
|
11 |
% |
|
|
21,541
|
|
|
|
19,642
|
|
|
|
1,899
|
|
|
|
10 |
% |
Service
charges on deposit accounts
|
|
|
1,214
|
|
|
|
1,312
|
|
|
|
(98 |
) |
|
|
(8 |
%) |
|
|
3,559
|
|
|
|
3,667
|
|
|
|
(108 |
) |
|
|
(3 |
%) |
Merchant
processing fees
|
|
|
2,252
|
|
|
|
2,125
|
|
|
|
127
|
|
|
|
6 |
% |
|
|
5,285
|
|
|
|
4,828
|
|
|
|
457
|
|
|
|
10 |
% |
Income
from BOLI
|
|
|
376
|
|
|
|
389
|
|
|
|
(13 |
) |
|
|
(3 |
%) |
|
|
1,166
|
|
|
|
1,014
|
|
|
|
152
|
|
|
|
15 |
% |
Net
gains on loan sales and commissions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
loans originated for others
|
|
|
431
|
|
|
|
417
|
|
|
|
14
|
|
|
|
3 |
% |
|
|
1,205
|
|
|
|
1,029
|
|
|
|
176
|
|
|
|
17 |
% |
Other
income
|
|
|
399
|
|
|
|
440
|
|
|
|
(41 |
) |
|
|
(9 |
%) |
|
|
1,129
|
|
|
|
1,111
|
|
|
|
18
|
|
|
|
2 |
% |
Subtotal
|
|
|
11,850
|
|
|
|
11,148
|
|
|
|
702
|
|
|
|
6 |
% |
|
|
33,885
|
|
|
|
31,291
|
|
|
|
2,594
|
|
|
|
8 |
% |
Net
realized (losses) gains on securities (1)
|
|
|
–
|
|
|
|
(365 |
) |
|
|
365
|
|
|
|
(100 |
%) |
|
|
336
|
|
|
|
459
|
|
|
|
(123 |
) |
|
|
(27 |
%) |
Total
noninterest income (1)
|
|
$ |
11,850
|
|
|
$ |
10,783
|
|
|
$ |
1,067
|
|
|
|
10 |
% |
|
$ |
34,221
|
|
|
$ |
31,750
|
|
|
$ |
2,471
|
|
|
|
8 |
% |
(1)
|
Net
realized (losses) gains on sales of securities and total noninterest
income for the nine months ended September 30, 2007 reflects the
restatement of second quarter 2007 results. Reference is made
to Note 1 and Note 3 of the Consolidated Financial
Statements.
|
Wealth
management revenues for the three and nine months ended September 30, 2007
increased by 11.0% and 9.7%, respectively, over the same periods in
2006. Revenue from wealth management 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
$4.113 billion at September 30, 2007, up $418.1 million, or
11.3%, during the nine months ended September 30, 2007 and up
$562.0 million, or 15.8%, from September 30,
2006. Financial market appreciation as well as successful business
development efforts and customer cash flows contributed to the
growth. The following table presents the changes in wealth management
assets under administration for the three and nine month periods ended
September 30, 2007:
(Dollars
in thousands)
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
Periods
ended September 30,
|
|
2007
|
|
|
2007
|
|
Balance
at the beginning of period
|
|
$ |
3,948,390
|
|
|
$ |
3,694,813
|
|
Net
market appreciation and income
|
|
|
122,424
|
|
|
|
284,149
|
|
Net
customer cash flows
|
|
|
42,104
|
|
|
|
133,956
|
|
Balance
at the end of period
|
|
$ |
4,112,918
|
|
|
$ |
4,112,918
|
|
Merchant
processing fees for the three and nine months ended September 30, 2007
increased 6.0% and 9.5%, 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.
Included
in noninterest income were net realized gains on sales of securities of
$336 thousand and $459 thousand, respectively, for the nine month
periods ended September 30, 2007 and 2006. These amounts
included $397 thousand and $381 thousand of gains recognized in the
second quarter of 2007 and 2006, respectively, resulting from the Corporation’s
annual contribution of appreciated equity securities to the Corporation’s
charitable foundation in 2007 and 2006, respectively. The cost of the
annual contributions, which was included in noninterest expenses, amounted
to
$520 thousand and $513 thousand for the second quarter of 2007 and
2006, respectively. Net realized securities gains of
$195 thousand were recognized in the second quarter of 2007 from certain
debt and equity securities that were called prior to maturity by the
issuers. In addition, sales of debt and equity securities in the
second quarter of 2007 resulted in net
realized
losses of $256 thousand. See Note 1 and Note 3 to the
Consolidated Financial Statements for additional discussion on sales of
securities and the restatement.
Noninterest
Expense
Noninterest
expenses amounted to $17.3 million for the third quarter of 2007, up
$701 thousand, or 4.2%, from the same quarter a year ago. For
the nine months ended September 30, 2007, noninterest expense totaled
$52.2 million, up $2.6 million,
or 5.2%. During the first quarter of 2007, the Corporation prepaid
$26.5 million in higher cost advances from FHLBB, resulting in a debt
prepayment penalty charge, recorded in noninterest expense, of
$1.1 million. The source of funds for the paydowns was
maturities of investments as well as other borrowings. Excluding debt
prepayment penalty expense, noninterest expenses increased $1.5 million, or
3.1%, over the same nine-month period last year.
The
following table presents a noninterest expense comparison for the three and
nine
months ended September 30, 2007 and 2006:
(Dollars
in thousands)
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
$
|
|
|
|
%
|
|
Periods
ended September 30,
|
|
2007
|
|
|
2006
|
|
|
Chg
|
|
|
Chg
|
|
|
2007
|
|
|
2006
|
|
|
Chg
|
|
|
Chg
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
$ |
10,098
|
|
|
$ |
9,651
|
|
|
$ |
447
|
|
|
|
5 |
% |
|
$ |
30,195
|
|
|
$ |
29,100
|
|
|
$ |
1,095
|
|
|
|
4 |
% |
Net
occupancy
|
|
|
1,021
|
|
|
|
934
|
|
|
|
87
|
|
|
|
9 |
% |
|
|
3,076
|
|
|
|
2,906
|
|
|
|
170
|
|
|
|
6 |
% |
Equipment
|
|
|
871
|
|
|
|
872
|
|
|
|
(1 |
) |
|
|
–
|
|
|
|
2,564
|
|
|
|
2,552
|
|
|
|
12
|
|
|
|
1 |
% |
Merchant
processing costs
|
|
|
1,916
|
|
|
|
1,796
|
|
|
|
120
|
|
|
|
7 |
% |
|
|
4,493
|
|
|
|
4,090
|
|
|
|
403
|
|
|
|
10 |
% |
Outsourced
services
|
|
|
556
|
|
|
|
490
|
|
|
|
66
|
|
|
|
14 |
% |
|
|
1,610
|
|
|
|
1,504
|
|
|
|
106
|
|
|
|
7 |
% |
Advertising
and promotion
|
|
|
466
|
|
|
|
371
|
|
|
|
95
|
|
|
|
26 |
% |
|
|
1,467
|
|
|
|
1,489
|
|
|
|
(22 |
) |
|
|
(2 |
%) |
Legal,
audit and professional fees
|
|
|
444
|
|
|
|
563
|
|
|
|
(119 |
) |
|
|
(21 |
%) |
|
|
1,298
|
|
|
|
1,342
|
|
|
|
(44 |
) |
|
|
(3 |
%) |
Amortization
of intangibles
|
|
|
341
|
|
|
|
398
|
|
|
|
(57 |
) |
|
|
(14 |
%) |
|
|
1,057
|
|
|
|
1,209
|
|
|
|
(152 |
) |
|
|
(13 |
%) |
Debt
prepayment penalties
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,067
|
|
|
|
–
|
|
|
|
1,067
|
|
|
|
100 |
% |
Other
(1)
|
|
|
1,599
|
|
|
|
1,536
|
|
|
|
63
|
|
|
|
4 |
% |
|
|
5,354
|
|
|
|
5,403
|
|
|
|
(49 |
) |
|
|
(1 |
%) |
Total
noninterest expense (1)
|
|
$ |
17,312
|
|
|
$ |
16,611
|
|
|
$ |
701
|
|
|
|
4 |
% |
|
$ |
52,181
|
|
|
$ |
49,595
|
|
|
$ |
2,586
|
|
|
|
5 |
% |
(1)
|
Other
and total noninterest expense for the nine months ended September 30,
2007 reflects the restatement of second quarter 2007
results. Reference is made to Note 1 and Note 3 of
the Consolidated Financial
Statements.
|
Salaries
and employee benefit expense, the largest component of noninterest expense,
totaled $10.1 million and $30.2 million, respectively, for the three
and nine months ended September 30, 2007, up $447 thousand and
$1.1 million, respectively, from the same periods in
2006. The increase was primarily attributable to increases in
salaries and wages and performance-based compensation plans.
Merchant
processing costs for the three and nine months ended September 30, 2007
increased $120 thousand and $403 thousand from the comparable periods
in 2006 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.
Legal,
audit and professional fees for the three months ended September 30, 2007
decreased $119 thousand, or 21.1%, from the same period last year primarily
due to decreased consulting expenses.
Debt
prepayment penalty expense, resulting from the first quarter 2007 prepayment
of
$26.5 million in higher cost advances from the FHLBB, amounted to
$1.1 million for the nine months ended September 30,
2007.
Income
Taxes
Income
tax expense amounted to $3.0 million and $8.2 million, respectively,
for
the three and nine months ended September 30, 2007 as compared to
$3.2 million and $8.9 million, respectively for the same periods in
2006. The Corporation’s effective tax rate for the three and nine
months ended September 30, 2007 was 31.3% and 31.4%, respectively, down
slightly from 32.5% and 32.2%, respectively, for the same periods in 2006,
primarily due to higher average balances in nontaxable state and municipal
debt
obligations. 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
Total
assets amounted to $2.432 billion at September 30, 2007, up
$32.6 million from December 31, 2006, with total loans increasing by
$54.5 million and the investment securities portfolio decreasing by
$15.1 million. Total liabilities were up $27.8 million
during the nine months ended September 30, 2007, with other borrowings
increasing by $21.7 million, FHLB advances increasing by $27.7 million
and total deposits decreasing by $22.1 million. Shareholders’
equity totaled $177.9 million at September 30, 2007, compared to
$173.1 million at December 31, 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
September 30, 2007 the securities portfolio totaled $688.7 million,
down $15.1 million from December 31, 2006 due to sales and
maturities. Included in the investment securities portfolio at
September 30, 2007 were mortgage-backed securities with a fair value of
$366.0 million. All of the Corporation’s mortgage-backed
securities are issued by U.S. Government sponsored agencies. See
Note 1 and Note 3 to the Consolidated Financial Statements for
additional discussion on sales of securities and the
restatement.
The
net
unrealized losses on securities available for sale amounted to $3.1 million
at September 30, 2007. At December 31, 2006 net unrealized
losses on securities available for sale and held to maturity amounted to
$1.7 million. The increase in unrealized losses for the nine
months ended September 30, 2007 was primarily attributable to the effect an
increase in the intermediate to long term rates had on the Corporation’s
securities portfolio. See Note 3 to the Consolidated Financial
Statements for detail of unrealized gains and losses on securities.
Federal
Home Loan Bank Stock
The
Corporation is required to maintain a level of investment in FHLB stock that
currently is based on the level of its FHLB advances. As of
September 30, 2007 and 2006, the Corporation’s investment in FHLB stock
totaled $28.7 million.
Loans
Total
loans grew by $54.5 million, or 3.7%, in the nine months ended
September 30, 2007 and amounted to $1.5 billion. Commercial
loans increased $62.6 million, or 10.7%, during the first nine months of
2007. Consumer loan demand continued to be very modest increasing by
$1.7 million, or 0.6%, from the balance at December 31,
2006. Residential loans have declined by $9.9 million, or 1.7%,
during the nine months ended September 30, 2007.
Asset
Quality
Allowance
for Loan Losses
Establishing
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,
2006.
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
September 30, 2007, the allowance for loan losses was $19.5 million,
or 1.29% of total loans, and 728% of total nonaccrual loans. This
compares with an allowance of $18.9 million, or 1.29% of total loans, and
694% of nonaccrual loans at December 31, 2006. Loan charge-offs,
net of recoveries, amounted to $322 thousand and $173 thousand,
respectively, for the nine months ended September 30, 2007 and
2006.
Nonperforming
Assets
Nonperforming
assets are summarized in the following table:
(Dollars
in thousands)
|
|
September 30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Nonaccrual
loans 90 days or more past due
|
|
$ |
1,725
|
|
|
$ |
1,470
|
|
Nonaccrual
loans less than 90 days past due
|
|
|
948
|
|
|
|
1,253
|
|
Total
nonaccrual loans
|
|
|
2,673
|
|
|
|
2,723
|
|
Other
real estate owned, net
|
|
|
–
|
|
|
|
–
|
|
Total
nonperforming assets
|
|
$ |
2,673
|
|
|
$ |
2,723
|
|
Nonaccrual
loans as a percentage of total loans
|
|
|
0.18 |
% |
|
|
0.19 |
% |
Nonperforming
assets as a percentage of total assets
|
|
|
0.11 |
% |
|
|
0.11 |
% |
Allowance
for loan losses to nonaccrual loans
|
|
|
728.47 |
% |
|
|
693.87 |
% |
Allowance
for loan losses to total loans
|
|
|
1.29 |
% |
|
|
1.29 |
% |
There
were no accruing loans 90 days or more past due at September 30, 2007 or
December 31, 2006.
Impaired
loans consist of all nonaccrual commercial loans. At
September 30, 2007, the recorded investment in impaired loans was
$1.7 million, which had a related allowance of
$9 thousand. Also during the nine months ended
September 30, 2007, interest income recognized on impaired loans amounted
to approximately $374 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)
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
|
|
Residential
real estate
|
|
$ |
731
|
|
|
$ |
721
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Mortgages
|
|
|
1,099
|
|
|
|
981
|
|
Construction
and development
|
|
|
–
|
|
|
|
–
|
|
Other
|
|
|
581
|
|
|
|
831
|
|
Consumer
|
|
|
262
|
|
|
|
190
|
|
Total
nonaccrual loans
|
|
$ |
2,673
|
|
|
$ |
2,723
|
|
Total
30
day+ delinquencies amounted to $5.9 million, or 0.39% of total loans, at
September 30, 2007, compared to $7.2 million, or 0.49% of total
loans, at December 31, 2006, and $4.0 million, or 0.28% of total
loans, at September 30, 2006. The Corporation has never
offered a sub-prime or Alt-A residential mortgage loan program. Total
residential mortgage and consumer loan 30 day+ delinquencies amounted to
$3.6 million, or 0.42% of these loans, at September 30, 2007,
compared to $1.4 million, or 0.16% of these loans, at December 31,
2006. Total 90 day+ delinquencies in the residential mortgage and
consumer loans portfolios amounted to $302 thousand (one loan) and $76 thousand
(two loans), respectively, as of September 30, 2007.
Deposits
Deposits
totaled $1.656 billion at September 30, 2007, down $22.1 million,
or 1.3%, from December 31, 2006. Excluding brokered certificates
of deposit, in-market deposits were up $23.5 million, or 1.6%, during the
nine months ended September 30, 2007.
In
the
first nine months of 2007, demand deposits decreased $3.7 million, or 2.0%,
NOW account balances were down $3.1 million, or 1.8%, savings deposits
declined $16.8 million, or 8.2%, and money market account balances
increased $25.3 million, or 8.8%. Time deposits (including
brokered certificates of deposit) were down $23.7 million, or 2.9%, from
the balance at December 31, 2006. The Corporation utilizes
brokered time deposits as part of its overall funding program along with other
sources. Brokered time deposits amounted to $130.0 million at
September 30, 2007, down $45.6 million, or 26.0%, from
December 31, 2006. Excluding the brokered
time deposits, time deposits rose $21.9 million, or 3.4%, in the first nine
months of 2007 due mainly 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. FHLB advances increased $27.7 million during the
nine months ended September 30, 2007. See Note 8 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 70% of total average assets in the first nine
months of 2007. 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
nine
months of 2007.
For
the
nine months ended September 30, 2007, net cash provided by financing
activities amounted to $16.7 million. In the first quarter of
2007, $19.5 million in securities sold under repurchase agreements were
executed and $26.5 million in FHLB advances were prepaid. See
additional discussion on borrowings in the Condensed Notes to Consolidated
Financial Statements. Net cash used in investing activities totaled
$53.9 million for the nine months ended September 30, 2007 and was
used primarily to fund loan growth. Net cash provided by operating
activities amounted to $20.3 million for the nine months ended
September 30, 2007, and was 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 $177.9 million at September 30, 2007,
up $4.8 million since December 31, 2006. The increase in
retained earnings reflects the Corporation’s net income of $18.0 million
offset in part by dividends declared of $8.0 million. The
dividend represented a $0.20 per share dividend, an increase from the $0.19
per
share rate paid throughout 2006, making 2007 the fifteenth consecutive year
with
a dividend increase. Under the Corporation’s 2006 Stock Repurchase
Plan, 185,400 shares were repurchased at a total cost of $4.8 million
during the nine months ended September 30, 2007.
The
ratio
of total equity to total assets amounted to 7.3% at September 30, 2007, up
from 7.2% at December 31, 2006. Book value per share as of
September 30, 2007 and December 31, 2006 amounted to $13.33 and
$12.89, respectively. The tangible book value per share was $8.66 at
September 30, 2007, compared to $8.61 at the end of 2006.
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 September 30, 2007.
(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)
|
|
$ |
502,265
|
|
|
$ |
147,282
|
|
|
$ |
175,822
|
|
|
$ |
116,699
|
|
|
$ |
62,462
|
|
Junior
subordinated debentures
|
|
|
22,681
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
22,681
|
|
Operating
lease obligations
|
|
|
5,231
|
|
|
|
1,068
|
|
|
|
1,817
|
|
|
|
1,001
|
|
|
|
1,345
|
|
Software
licensing arrangements
|
|
|
1,405
|
|
|
|
947
|
|
|
|
362
|
|
|
|
96
|
|
|
|
–
|
|
Treasury,
tax and loan demand note
|
|
|
6,742
|
|
|
|
6,742
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Deferred
acquisition obligations
|
|
|
9,772
|
|
|
|
7,887
|
|
|
|
1,885
|
|
|
|
–
|
|
|
|
–
|
|
Other
borrowed funds
|
|
|
19,889
|
|
|
|
27
|
|
|
|
61
|
|
|
|
19,572
|
|
|
|
229
|
|
Total
contractual obligations
|
|
$ |
567,985
|
|
|
$ |
163,953
|
|
|
$ |
179,947
|
|
|
$ |
137,368
|
|
|
$ |
86,717
|
|
(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
|
|
$ |
151,229
|
|
|
$ |
82,182
|
|
|
$ |
31,831
|
|
|
$ |
8,087
|
|
|
$ |
29,129
|
|
Home
equity lines
|
|
|
179,300
|
|
|
|
425
|
|
|
|
4,394
|
|
|
|
6,769
|
|
|
|
167,712
|
|
Other
loans
|
|
|
26,814
|
|
|
|
24,338
|
|
|
|
1,784
|
|
|
|
692
|
|
|
|
–
|
|
Standby
letters of credit
|
|
|
8,941
|
|
|
|
8,841
|
|
|
|
100
|
|
|
|
–
|
|
|
|
–
|
|
Forward
loan commitments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originate
loans
|
|
|
2,870
|
|
|
|
2,870
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Sell
loans
|
|
|
4,966
|
|
|
|
4,966
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total
commitments
|
|
$ |
374,120
|
|
|
$ |
123,622
|
|
|
$ |
38,109
|
|
|
$ |
15,548
|
|
|
$ |
196,841
|
|
See
additional discussion in Note 10 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.
Off-Balance
Sheet Arrangements
For
the
nine months ended September 30, 2007, Washington Trust engaged in no
off-balance sheet transactions reasonably likely to have a material effect
on
the consolidated financial condition.
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, with the exception
of
certain deposit mix shifts from low-cost core savings to higher-cost time
deposits in selected interest rate scenarios. Additionally, the
simulations take into account the specific repricing, maturity, call options,
and prepayment characteristics of differing financial instruments that may
vary
under different interest rate scenarios. The characteristics of
financial instrument classes are reviewed periodically by the ALCO to ensure
their accuracy and consistency.
The
ALCO
reviews simulation results to determine whether the Corporation’s exposure to a
decline in net interest income remains within established tolerance levels
over
the simulation horizons and to develop appropriate strategies to manage this
exposure. As of September 30, 2007 and December 31, 2006,
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 September 30, 2007 and December 31,
2006. 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 relative historical insensitivity to market interest rate
movements. Further, deposits are assumed to have certain minimum rate
levels below which they will not fall. It should be noted that the
rate scenarios shown do not necessarily reflect the ALCO’s view of the “most
likely” change in interest rates over the periods indicated.
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
|
|
Months
1 - 12
|
|
|
Months
13 - 24
|
|
|
Months
1 - 12
|
|
|
Months
13 - 24
|
|
100
basis point rate decrease
|
|
|
-2.53 |
% |
|
|
-2.83 |
% |
|
|
-1.63 |
% |
|
|
-2.47 |
% |
100
basis point rate increase
|
|
|
-1.67 |
% |
|
|
-5.42 |
% |
|
|
-1.18 |
% |
|
|
-5.03 |
% |
200
basis point rate increase
|
|
|
-1.12 |
% |
|
|
-8.63 |
% |
|
|
-0.78 |
% |
|
|
-8.01 |
% |
The
ALCO
estimates that the exposure of net interest income to falling rates as compared
to an unchanged rate scenario results from a more rapid decline in earning
asset
yields compared to rates paid in deposits. If rates were to fall and
remain low for a sustained period, certain core savings and time deposit rates
could decline more slowly and by a lesser amount than other market
rates. Asset yields would likely decline more rapidly than deposit
costs as current asset holdings mature or reprice, since cash flow from
mortgage-related prepayments and redemption of callable securities would
increase as market rates fall.
The
moderately neutral exposure of net interest income to rising rates in Year
1 as
compared to an unchanged rate scenario results from a relative balance between
anticipated increases in asset yields and funding costs over the near
term. For simulation purposes, core savings deposit rate changes are
anticipated to lag other market rates in both timing and
magnitude. The ALCO’s estimate of interest rate risk exposure to
rising rate environments, including those involving changes to the shape of
the
yield curve, incorporates certain assumptions regarding the shift in mix from
low-cost core savings deposits to higher-cost deposit categories, which has
characterized a shift in funding mix during the most recent rising interest
rate
cycle. This shift begins to affect net interest income exposure to
rising rates in Year 1 and continues into Year 2 of rising
simulations.
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. Increases in interest
rates have created greater growth in rate-sensitive money market and time
deposits than growth in other lower-cost deposit categories. The ALCO
remodeling process assumes that this shift in deposit mix towards higher cost
deposit categories would continue if interest rates were to increase, and that
this assumption accurately reflects historical operating conditions in rising
rate cycles. Although asset yields would also increase in a rising
interest rate environment, the cumulative impact of relative growth in the
rate-sensitive higher cost 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 and back-tests simulation results 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. Over time, the repricing, maturity and prepayment
characteristics of financial instruments and the composition of the
Corporation’s balance sheet may change to a different degree than
estimated. Simulation modeling assumes a static balance sheet, with
the exception of certain modeled deposit mix shifts from low-cost core savings
deposits to higher-cost money market and 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 September 30, 2007
and December 31, 2006 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)
(as
restated)
|
|
$ |
2,467
|
|
|
$ |
(4,543 |
) |
U.S.
government-sponsored agency securities (callable) (as
restated)
|
|
|
466
|
|
|
|
(4,689 |
) |
States
and political subdivision (as restated)
|
|
|
5,287
|
|
|
|
(12,615 |
) |
Mortgage-backed
securities (as restated)
|
|
|
8,318
|
|
|
|
(23,300 |
) |
Corporate
securities
|
|
|
252
|
|
|
|
(514 |
) |
Total
change in market value as of September 30, 2007 (as
restated)
|
|
$ |
16,790
|
|
|
$ |
(45,661 |
) |
|
|
|
|
|
|
|
|
|
Total
change in market value as of December 31, 2006
|
|
$ |
11,567
|
|
|
$ |
(29,447 |
) |
See
additional discussion in Note 10 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 principal executive officer and principal financial
and accounting 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 September 30, 2007. Based upon that evaluation, the
Corporation’s principal executive officer and principal financial and accounting
officer concluded that the Corporation’s disclosure controls and procedures are
effective 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 September 30, 2007 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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, 2006.
The
following table provides information as of and for the quarter ended
September 30, 2007 regarding shares of common stock of the Corporation that
were repurchased under the Deferred Compensation Plan, the 2006 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
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
7/1/2007
to 7/31/2007
|
|
|
627
|
|
|
$ |
24.27
|
|
|
|
627
|
|
|
N/A
|
|
8/1/2007
to 8/31/2007
|
|
|
216
|
|
|
|
26.03
|
|
|
|
216
|
|
|
N/A
|
|
9/1/2007
to 9/30/2007
|
|
|
225
|
|
|
|
26.33
|
|
|
|
225
|
|
|
N/A
|
|
Total
Deferred Compensation Plan
|
|
|
1,068
|
|
|
$ |
25.06
|
|
|
|
1,068
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Stock Repurchase Plan (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,300
|
|
7/1/2007
to 7/31/2007
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
250,300
|
|
8/1/2007
to 8/31/2007
|
|
|
21,200
|
|
|
$ |
25.93
|
|
|
|
21,200
|
|
|
|
229,100
|
|
9/1/2007
to 9/30/2007
|
|
|
14,500
|
|
|
|
25.61
|
|
|
|
14,500
|
|
|
|
214,600
|
|
Total
2006 Stock Repurchase Plan
|
|
|
35,700
|
|
|
$ |
25.80
|
|
|
|
35,700
|
|
|
|
214,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
7/1/2007
to 7/31/2007
|
|
|
23
|
|
|
$ |
18.25
|
|
|
|
23
|
|
|
N/A
|
|
8/1/2007
to 8/31/2007
|
|
|
6,204
|
|
|
|
18.92
|
|
|
|
6,204
|
|
|
N/A
|
|
9/1/2007
to 9/30/2007
|
|
|
5,081
|
|
|
|
18.25
|
|
|
|
5,081
|
|
|
N/A
|
|
Total
Other
|
|
|
11,308
|
|
|
$ |
18.62
|
|
|
|
11,308
|
|
|
N/A
|
|
Total
Purchases of Equity Securities
|
|
|
48,076
|
|
|
$ |
24.09
|
|
|
|
48,076
|
|
|
|
|
|
(1)
|
The
Deferred Compensation Plan was established on January 1,
1999. 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. The plan
authorizes Bancorp to acquire shares of Bancorp’s common stock to satisfy
its obligation under this plan. All shares are purchased in the
open market.
|
(2)
|
The
2006 Stock Repurchase Plan was established in December 2006. A
maximum of 400,000 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.
|
Item
6. Exhibits
(a)
Exhibits. The following exhibits are included as part of this Form
10-Q:
Exhibit
Number
|
|
3.1
|
Amended
and Restated By-Laws of Washington Trust Bancorp Inc. - Filed as
Exhibit
3.1 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as
filed with the Securities and Exchange Commission on September 24,
2007 (1)
|
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. (2)
|
|
|
(1)
|
Not
filed herewith. In accordance with Rule12b-32 promulgated
pursuant to the Exchange Act, reference is made to the documents
previously filed with the SEC, which are incorporated by reference
herein.
|
(2)
|
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: November 9,
2007
|
|
By:
|
/s/
John C. Warren
|
|
|
|
John
C. Warren
|
|
|
|
Chairman
and Chief Executive Officer
|
|
|
|
(principal
executive officer)
|
|
|
|
|
|
|
|
|
Date: November 9,
2007
|
|
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
|
|
3.1
|
Amended
and Restated By-Laws of Washington Trust Bancorp Inc. - Filed as
Exhibit
3.1 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as
filed with the Securities and Exchange Commission on September 24,
2007 (1)
|
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. (2)
|
|
|
(1)
|
Not
filed herewith. In accordance with Rule12b-32 promulgated
pursuant to the Exchange Act, reference is made to the documents
previously filed with the SEC, which are incorporated by reference
herein.
|
(2)
|
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.
|