Edgar Filing: WASHINGTON TRUST BANCORP INC

Form 10-Q 2012.03.31

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 MARCH 31, 2012 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: 001-32991

WASHINGTON TRUST BANCORP, INC.

(Exact name of registrant as specified in its charter)



RHODE ISLAND		05-0404671
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



23 BROAD STREET
WESTERLY, RHODE ISLAND		02891
(Address of principal executive offices)		(Zip Code)

(401) 348-1200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xYes oNo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Mark one)



Large accelerated filer o		Accelerated filer x
Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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 May 1, 2012 was 16,359,383.



FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
For the Quarter Ended March 31, 2012

TABLE OF CONTENTS
		Page Number
		Page Number
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011		3
Consolidated Statements of Income for the three months ended March 31, 2012 and 2011		4
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011		5
Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2012 and 2011		6
Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011		7
Condensed Notes to Unaudited Consolidated Financial Statements		8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		44
Item 3. Quantitative and Qualitative Disclosures About Market Risk		68
Item 4. Controls and Procedures		68
PART II. Other Information
Item 1. Legal Proceedings		69
Item 1A. Risk Factors		69
Item 6. Exhibits		69
Signatures		70

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES	(Dollars in thousands,
CONSOLIDATED BALANCE SHEETS (unaudited)	except par value)



	March 31, 2012			December 31, 2011
Assets:
Cash and due from banks		$79,677			$82,238
Short-term investments	4,334			4,782
Mortgage loans held for sale, at fair value; amortized cost $16,099 in 2012 and $19,624 in 2011	16,583			20,340
Securities:
Available for sale, at fair value; amortized cost $491,145 in 2012 and $524,036 in 2011	508,812			541,253
Held to maturity, at cost; fair value $50,042 in 2012 and $52,499 in 2011	49,472			52,139
Total securities	558,284			593,392
Federal Home Loan Bank stock, at cost	40,418			42,008
Loans:
Commercial and other	1,139,400			1,124,628
Residential real estate	696,957			700,414
Consumer	319,002			322,117
Total loans	2,155,359			2,147,159
Less allowance for loan losses	30,045			29,802
Net loans	2,125,314			2,117,357
Premises and equipment, net	26,897			26,028
Investment in bank-owned life insurance	54,268			53,783
Goodwill	58,114			58,114
Identifiable intangible assets, net	6,714			6,901
Other assets	58,087			59,155
Total assets		$3,028,690			$3,064,098
Liabilities:
Deposits:
Demand deposits		$333,833			$339,809
NOW accounts	258,986			257,031
Money market accounts	400,396			406,777
Savings accounts	257,495			243,904
Time deposits	894,852			878,794
Total deposits	2,145,562			2,126,315
Federal Home Loan Bank advances	504,933			540,450
Junior subordinated debentures	32,991			32,991
Other borrowings	819			19,758
Other liabilities	56,450			63,233
Total liabilities	2,740,755			2,782,747
Commitments and contingencies
Shareholders’ Equity:
Common stock of $.0625 par value; authorized 30,000,000 shares; issued 16,354,155 shares in 2012 and 16,292,471 shares in 2011	1,022			1,018
Paid-in capital	89,484			88,030
Retained earnings	198,827			194,198
Accumulated other comprehensive loss	(1,398		)	(1,895		)
Total shareholders’ equity	287,935			281,351
Total liabilities and shareholders’ equity		$3,028,690			$3,064,098

The accompanying notes are an integral part of these unaudited consolidated financial statements.



WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES	(Dollars and shares in thousands
CONSOLIDATED STATEMENTS OF INCOME (unaudited)	except per share amounts)



Three months ended March 31,		2012			2011
Interest income:
Interest and fees on loans			$25,363			$24,259
Interest on securities:	Taxable	4,377			4,773
	Nontaxable	693			769
Dividends on corporate stock and Federal Home Loan Bank stock		77			67
Other interest income		20			24
Total interest income		30,530			29,892
Interest expense:
Deposits		3,434			4,202
Federal Home Loan Bank advances		4,085			4,732
Junior subordinated debentures		392			390
Other interest expense		234			241
Total interest expense		8,145			9,565
Net interest income		22,385			20,327
Provision for loan losses		900			1,500
Net interest income after provision for loan losses		21,485			18,827
Noninterest income:
Wealth management services:
Trust and investment advisory fees		5,778			5,676
Mutual fund fees		1,025			1,123
Financial planning, commissions and other service fees		382			281
Wealth management services		7,185			7,080
Service charges on deposit accounts		759			932
Merchant processing fees		1,988			1,944
Card interchange fees		543			487
Income from bank-owned life insurance		486			476
Net gains on loan sales and commissions on loans originated for others		3,097			525
Net realized losses on securities		—			(29		)
Net gains on interest rate swap contracts		28			76
Equity in losses of unconsolidated subsidiaries		(37		)	(144		)
Other income		392			383
Noninterest income, excluding other-than-temporary impairment losses		14,441			11,730
Total other-than-temporary impairment losses on securities		(85		)	(54		)
Portion of loss recognized in other comprehensive income (before tax)		(124		)	21
Net impairment losses recognized in earnings		(209		)	(33		)
Total noninterest income		14,232			11,697
Noninterest expense:
Salaries and employee benefits		14,460			11,828
Net occupancy		1,526			1,321
Equipment		1,107			1,049
Merchant processing costs		1,663			1,669
Outsourced services		920			872
FDIC deposit insurance costs		458			723
Legal, audit and professional fees		482			492
Advertising and promotion		372			353
Amortization of intangibles		187			238
Foreclosed property costs		298			166
Other expenses		1,926			2,029
Total noninterest expense		23,399			20,740
Income before income taxes		12,318			9,784
Income tax expense		3,880			2,984
Net income			$8,438			$6,800

Weighted average common shares outstanding - basic		16,330			16,197
Weighted average common shares outstanding - diluted		16,370			16,230
Per share information:	Basic earnings per common share		$0.51			$0.42
	Diluted earnings per common share		$0.51			$0.42
	Cash dividends declared per share		$0.23			$0.22

The accompanying notes are an integral part of these unaudited consolidated financial statements.



WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES	(Dollars in thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)



Three months ended March 31,	2012			2011
Net income		$8,438			$6,800
Other comprehensive income, net of tax:
Securities available for sale:
Unrealized gains on securities arising during the period	143			89
Reclassification adjustments for net realized losses on securities included in net income	55			53
Net unrealized gains on securities available for sale	198			142
Reclassification adjustment of credit-related OTTI realized losses transferred to net income	80			(13		)
Cash flow hedges:
Unrealized (losses) gains on cash flow hedges arising during the period	(75		)	49
Reclassification adjustments for net realized gains on cash flow hedges included in net income	110			123
Net unrealized gains on cash flow hedges	35			172
Defined benefit plan obligation adjustment	184			60
Total other comprehensive income, net of tax	497			361
Total comprehensive income		$8,935			$7,161

The accompanying notes are an integral part of these unaudited consolidated financial statements.



WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES	(Dollars and shares in thousands)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)



	Common Shares Outstanding	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Total
Balance at January 1, 2011	16,172		$1,011		$84,889		$178,939			$4,025		$268,864
Net income						6,800					6,800
Total other comprehensive income, net of tax									361		361
Cash dividends declared						(3,603		)			(3,603		)
Share-based compensation				327							327
Exercise of stock options, issuance of other compensation-related equity instruments and related tax benefit	51	3		897							900
Shares issued – dividend reinvestment plan	11	1		235							236
Balance at March 31, 2011	16,234		$1,015		$86,348		$182,136			$4,386		$273,885



	Common Shares Outstanding	Common Stock		Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at January 1, 2012	16,292		$1,018		$88,030		$194,198			($1,895	)		$281,351
Net income						8,438						8,438
Total other comprehensive income, net of tax									497			497
Cash dividends declared						(3,809		)				(3,809		)
Share-based compensation				412								412
Deferred compensation plan	10	1		145								146
Exercise of stock options, issuance of other compensation-related equity instruments and related tax benefit	52	3		897								900
Balance at March 31, 2012	16,354		$1,022		$89,484		$198,827			($1,398	)		$287,935

The accompanying notes are an integral part of these unaudited consolidated financial statements.



WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES	(Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)



Three months ended March 31,		2012			2011
Cash flows from operating activities:
Net income			$8,438			$6,800
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		900			1,500
Depreciation of premises and equipment		783			767
Foreclosed and repossessed property valuation adjustments		119			155
Net amortization of premium and discount		522			373
Net amortization of intangibles		187			238
Share-based compensation		412			327
Income from bank-owned life insurance		(486		)	(476		)
Net gains on loan sales and commissions on loans originated for others		(3,097		)	(525		)
Net realized losses on securities		—			29
Net impairment losses recognized in earnings		209			33
Net gains on interest rate swap contracts		(28		)	(76		)
Equity in losses of unconsolidated subsidiaries		37			144
Proceeds from sales of loans		110,632			32,066
Loans originated for sale		(97,682		)	(20,267		)
(Increase) decrease in other assets		(18		)	2,925
Decrease in other liabilities		(6,488		)	(3,103		)
Net cash provided by operating activities		14,440			20,910
Cash flows from investing activities:
Purchases of mortgage-backed securities available for sale		—			(49,675		)
Proceeds from sale of:	Mortgage-backed securities available for sale	—			36,838
	Other investment securities available for sale	2,000			—
Maturities and principal payments of:	Mortgage-backed securities available for sale	29,508			30,519
	Other investment securities available for sale	681			—
	Mortgage-backed securities held to maturity	2,525			—
Sale of Federal Home Loan Bank stock		1,590			—
Net increase in loans		(13,573		)	(33,606		)
Purchases of loans, including purchased interest		(1,278		)	(1,710		)
Proceeds from the sale of property acquired through foreclosure or repossession		517			251
Purchases of premises and equipment		(1,652		)	(713		)
Net cash provided by (used in) investing activities		20,318			(18,096		)
Cash flows from financing activities:
Net increase in deposits		19,247			12,517
Net decrease in other borrowings		(18,939		)	(1,892		)
Proceeds from Federal Home Loan Bank advances		135,429			43,578
Repayment of Federal Home Loan Bank advances		(170,946		)	(73,065		)
Proceeds from the issuance of common stock under dividend reinvestment plan		—			235
Proceeds from the exercise of stock options and issuance of other compensation-related equity instruments		937			819
Tax benefit from stock option exercises and issuance of other compensation-related equity instruments		109			81
Cash dividends paid		(3,604		)	(3,414		)
Net cash used in financing activities		(37,767		)	(21,141		)
Net decrease in cash and cash equivalents		(3,009		)	(18,327		)
Cash and cash equivalents at beginning of period		87,020			92,736
Cash and cash equivalents at end of period			$84,011			$74,409

Noncash Investing and Financing Activities:
Loans charged off			$681			$1,052
Loans transferred to property acquired through foreclosure or repossession		1,519			129

Supplemental Disclosures:
Interest payments			$7,957			$9,190
Income tax payments (refunds)		440			(584		)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(1)	General and Basis of Presentation

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 including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices in Rhode Island, eastern Massachusetts and Connecticut.

The consolidated financial statements include the accounts of the Bancorp and its subsidiaries (collectively, the “Corporation” or “Washington Trust”). All significant intercompany transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current year classification. Such reclassifications have no effect on previously reported net income or shareholders’ equity.

The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices of the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change are the determination of the allowance for loan losses and the review of goodwill, other intangible assets and investments for impairment. The current economic environment has increased the degree of uncertainty inherent in such estimates and assumptions.

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 March 31, 2012 and December 31, 2011, 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 the Annual Report on Form 10-K for the year ended December 31, 2011.


(2)	Recently Issued Accounting Pronouncements

Fair Value Measurement – Topic 820

Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“ASU 2011-04”), was issued in May 2011. The amendments in ASU 2011-04 added language to clarify many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements, as well as prescribed additional disclosures for Level 3 fair value measurements and financial instruments not carried at fair value. For many of the requirements, the Financial Accounting Standards Board (“FASB”) did not intend for ASU 2011-04 to result in a change in the application of the requirements in GAAP. The amendments required by ASU 2011-04 were to be applied prospectively and were effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Corporation adopted ASU 2011-04 in the first quarter of 2012, provided the additional disclosures required and made the election to use the exception permitted with respect to measuring counterparty credit risk on our interest rate derivative contracts. See Note 10 to the Consolidated Financial Statements for additional information. The adoption of ASU 2011-04 did not have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

Comprehensive Income – Topic 220

Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), was issued in June 2011. The FASB issued ASU 2011-05 to improve the comparability and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”), was issued in December 2011. ASU 2011-12 deferred the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

other comprehensive income into net income. All other requirements in ASU 2011-05 were not affected by this amendment. The provisions of ASU 2011-05, exclusive of the provisions pertaining to the reclassification adjustments deferred by ASU 2011-12, were to be applied retrospectively and were effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Corporation adopted these provisions of ASU 2011-05 in the first quarter of 2012 and elected to present comprehensive income in a separate financial statement, the Consolidated Statements of Comprehensive Income. The adoption of these provisions of ASU 2011-05 did not have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

Intangibles-Goodwill and Other – Topic 350

Accounting Standards Update No. 2011-08, “Testing for Goodwill Impairment” (“ASU 2011-08”), was issued in September 2011. The objective of ASU 2011-08 was to simplify the testing of goodwill for impairment by allowing entities to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative test. There will no longer be a requirement to calculate the fair value of a reporting unit unless it is determined, based on a qualitative assessment, that it is more-likely-than-not that its fair value is less than its carrying amount. The more-likely-than-not threshold was defined as having a likelihood of more than 50 percent. The provisions of ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

Balance Sheet - Topic 210

Accounting Standards Update No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”), was issued in December 2011 and was intended to enhance current disclosure requirements on offsetting financial assets and liabilities. The requirements in ASU 2011-11 enables users to compare balance sheets prepared under U.S. GAAP and International Financial Reporting Standards (“IFRS”), which are subject to different offsetting models. The requirements affect all entities that have financial instruments that are either offset in the balance sheet or subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 will be effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The required disclosures shall be provided retrospectively for all comparative periods presented. The adoption of ASU 2011-11 is not expected to have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.


(3)	Cash and Due from Banks

The Bank is required to maintain certain average reserve balances with the Board of Governors of the Federal Reserve System. Such reserve balances amounted to $4.0 million at both March 31, 2012 and December 31, 2011 and are included in cash and due from banks in the Consolidated Statements of Condition.

As of March 31, 2012 and December 31, 2011, cash and due from banks included interest-bearing deposits in other banks of $33.2 million and $41.6 million, respectively.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)


(4)	Securities

The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of securities by major security type and class of security at March 31, 2012 and December 31, 2011.



(Dollars in thousands)
March 31, 2012	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value
Securities Available for Sale:
Obligations of U.S. government-sponsored enterprises		$29,437		$3,182		$—			$32,619
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	339,934		19,290		—			359,224
States and political subdivisions	71,344		5,011		—			76,355
Trust preferred securities:
Individual name issuers	30,648		—		(7,476		)	23,172
Collateralized debt obligations	4,047		—		(3,298		)	749
Corporate bonds	13,880		784		(28		)	14,636
Perpetual preferred stocks (2)	1,855		202		—			2,057
Total securities available for sale		$491,145		$28,469		($10,802	)		$508,812
Held to Maturity:
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises		$49,472		$570		$—			$50,042
Total securities held to maturity		$49,472		$570		$—			$50,042
Total securities		$540,617		$29,039		($10,802	)		$558,854



(Dollars in thousands)
December 31, 2011	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value
Securities Available for Sale:
Obligations of U.S. government-sponsored enterprises		$29,429		$3,404		$—			$32,833
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	369,946		19,712		—			389,658
States and political subdivisions	74,040		5,453		—			79,493
Trust preferred securities:
Individual name issuers	30,639		—		(8,243		)	22,396
Collateralized debt obligations	4,256		—		(3,369		)	887
Corporate bonds	13,872		813		(403		)	14,282
Perpetual preferred stocks (2)	1,854		—		(150		)	1,704
Total securities available for sale		$524,036		$29,382		($12,165	)		$541,253
Held to Maturity:
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises		$52,139		$360		$—			$52,499
Total securities held to maturity		$52,139		$360		$—			$52,499
Total securities		$576,175		$29,742		($12,165	)		$593,752

(1) Net of other-than-temporary impairment losses.

(2) Callable at the discretion of the issuer.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

Securities available for sale (“AFS”) and held to maturity (“HTM”) with a fair value of $492.0 million and $516.8 million were pledged in compliance with state regulations concerning trust powers and to secure borrowings, certain public deposits and certain interest rate swap agreements at March 31, 2012 and December 31, 2011, respectively. See Note 7 for additional disclosure regarding Federal Home Loan Bank of Boston (“FHLBB”) borrowings. Securities available for sale with a fair value of $28.3 million and $20.6 million were pledged for potential use at the Federal Reserve Bank discount window at March 31, 2012 and December 31, 2011. There were no borrowings with the Federal Reserve Bank at either date. As of March 31, 2012 and December 31, 2011, securities available for sale with a fair value of $7.0 million and $7.5 million, respectively, were designated in rabbi trusts for nonqualified retirement plans. In addition, securities available for sale with a fair value of $13.4 million were pledged to secure Treasury Tax and Loan deposits at December 31, 2011.

The following table presents a roll forward of the balance of credit-related impairment losses on debt securities, for which a portion of an other-than-temporary impairment was recognized in other comprehensive income:



(Dollars in thousands)
Three months ended March 31,	2012		2011
Balance at beginning of period		$3,104		$2,913
Credit-related impairment loss on debt securities for which an other-than-temporary impairment was not previously recognized	—		—
Additional increases to the amount of credit-related impairment loss on debt securities for which an other-than-temporary impairment was previously recognized	209		33
Balance at end of period		$3,313		$2,946

For the three months ended March 31, 2012 and 2011, credit-related impairment losses recognized in earnings on a pooled trust preferred debt security totaled $209 thousand and $33 thousand, respectively. The anticipated cash flows expected to be collected from these debt securities were discounted at the rate equal to the yield used to accrete the current and prospective beneficial interest for each security. Significant inputs included estimated cash flows and prospective defaults and recoveries. Estimated cash flows are generated based on the underlying seniority status and subordination structure of the pooled trust preferred debt tranche at the time of measurement. Prospective default and recovery estimates affecting projected cash flows were based on analysis of the underlying financial condition of individual issuers, and took into account capital adequacy, credit quality, lending concentrations, and other factors.

All cash flow estimates were based on the underlying security’s tranche structure and contractual rate and maturity terms. The present value of the expected cash flows was compared to the current outstanding balance of the tranche to determine the ratio of the estimated present value of expected cash flows to the total current balance for the tranche. This ratio was then multiplied by the principal balance of Washington Trust’s holding to determine the credit-related impairment loss. The estimates used in the determination of the present value of the expected cash flows are susceptible to changes in future periods, which could result in additional credit-related impairment losses.

The following table summarizes temporarily impaired securities at March 31, 2012, segregated by length of time the securities have been in a continuous unrealized loss position:



(Dollars in thousands)	Less than 12 Months					12 Months or Longer					Total
March 31, 2012	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Trust preferred securities:
Individual name issuers	—		$—		$—	11		$23,172		$7,476	11		$23,172		$7,476
Collateralized debt obligations	—	—		—		2	749		3,298		2	749		3,298
Corporate bonds	2	4,972		28		—	—		—		2	4,972		28
Total temporarily impaired securities	2		$4,972		$28	13		$23,921		$10,774	15		$28,893		$10,802

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

The following table summarizes temporarily impaired securities at December 31, 2011, segregated by length of time the securities have been in a continuous unrealized loss position:



(Dollars in thousands)	Less than 12 Months					12 Months or Longer					Total
December 31, 2011	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Trust preferred securities:
Individual name issuers	—		$—		$—	11		$22,396		$8,243	11		$22,396		$8,243
Collateralized debt obligations	—	—		—		2	887		3,369		2	887		3,369
Corporate bonds	3	5,203		403		—	—		—		3	5,203		403
Subtotal, debt securities	3	5,203		403		13	23,283		11,612		16	28,486		12,015
Perpetual preferred stocks	2	1,704		150		—	—		—		2	1,704		150
Total temporarily impaired securities	5		$6,907		$553	13		$23,283		$11,612	18		$30,190		$12,165

Unrealized losses on debt securities generally occur as a result of increases in interest rates since the time of purchase, a structural change in an investment or deterioration in credit quality of the issuer. Management evaluates impairments in value whether caused by adverse interest rates or credit movements to determine if they are other-than-temporary.

Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, a continuation or worsening of the current economic downturn, or additional declines in real estate values, among other things, may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods, and the Corporation may incur additional write-downs.

Trust Preferred Debt Securities of Individual Name Issuers

Included in debt securities in an unrealized loss position at March 31, 2012 were 11 trust preferred security holdings issued by seven individual companies in the financial services/banking industry. The aggregate unrealized losses on these debt securities amounted to $7.5 million at March 31, 2012. Management believes the decline in fair value of these trust preferred securities primarily reflects investor concerns about global economic growth and how it will affect the recent and potential future losses in the financial services industry. These concerns resulted in increased risk premiums for securities in this sector. Based on the information available through the filing date of this report, all individual name trust preferred debt securities held in our portfolio continue to accrue and make payments as expected with no payment deferrals or defaults on the part of the issuers. As of March 31, 2012, trust preferred debt securities with an amortized cost of $11.8 million and unrealized losses of $3.3 million were rated below investment grade by Standard & Poors, Inc. (“S&P”). Management reviewed the collectibility of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings including ratings in effect as of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report and other information. We noted no additional downgrades to below investment grade between the reporting period date and the filing date of this report. Based on these analyses, management concluded that it expects to recover the entire amortized cost basis of these securities. Furthermore, Washington Trust does not intend to sell these securities and it is not more likely than not that Washington Trust will be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, management does not consider these investments to be other-than-temporarily impaired at March 31, 2012.

Trust Preferred Debt Securities in the Form of Collateralized Debt Obligations

Washington Trust has two pooled trust preferred holdings in the form of collateralized debt obligations with a total amortized cost of $4.0 million and aggregate unrealized losses of $3.3 million at March 31, 2012. These pooled trust preferred holdings consist of trust preferred obligations of banking industry companies and, to a lesser extent, insurance industry companies. For both of these pooled trust preferred securities, Washington Trust’s investment is senior to one or more subordinated tranches which have first loss exposure. Valuations of the pooled trust preferred holdings are dependent in part on cash flows from underlying issuers. Unexpected cash flow disruptions could have an adverse impact on the fair value and performance of pooled trust preferred securities. Management believes the unrealized losses on these pooled trust preferred securities primarily reflect investor concerns about global economic growth and how it will affect the recent and potential future losses in the financial services industry and the possibility of further incremental deferrals of or defaults on interest payments on trust preferred debentures by financial institutions participating in these pools. These concerns have resulted in a substantial decrease in market

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

liquidity and increased risk premiums for securities in this sector. Credit spreads for issuers in this sector have remained wide during recent months, causing prices for these securities holdings to remain at low levels.

As of March 31, 2012, one of the pooled trust preferred securities had an amortized cost of $2.8 million. This security was placed on nonaccrual status in March 2009. The tranche instrument held by Washington Trust has been deferring a portion of interest payments since April 2010. The March 31, 2012 amortized cost was net of $2.1 million of credit-related impairment losses previously recognized in earnings, reflective of payment deferrals and credit deterioration of the underlying collateral. Included in the $2.1 million were credit-related impairment losses of $209 thousand recorded in 2012, reflecting adverse changes in the expected cash flows for this security. As of March 31, 2012, this security has unrealized losses of $2.2 million and a below investment grade rating of “Ca” by Moody’s Investors Service Inc. (“Moody’s”). Through the filing date of this report, there have been no further rating changes on this security. This credit rating status has been considered by management in its assessment of the impairment status of this security.

As of March 31, 2012, the second pooled trust preferred security held by Washington Trust had an amortized cost of $1.3 million. This security was placed on nonaccrual status in December 2008. The tranche instrument held by Washington Trust has been deferring interest payments since December 2008. The March 31, 2012 amortized cost was net of $1.2 million of credit-related impairment losses previously recognized in earnings reflective of payment deferrals and credit deterioration of the underlying collateral. As of March 31, 2012, this security has unrealized losses of $1.1 million and a below investment grade rating of “C” by Moody’s. Through the filing date of this report, there have been no rating changes on this security. This credit rating status has been considered by management in its assessment of the impairment status of this security. The analysis of the expected cash flows for this security as of March 31, 2012 did not negatively affect the amount of credit-related impairment losses previously recognized on this security.

Based on information available through the filing date of this report, there have been no further adverse changes in the deferral or default status of the underlying issuer institutions within either of these trust preferred collateralized debt obligations. Based on cash flow forecasts for these securities, management expects to recover the remaining amortized cost of these securities. Furthermore, Washington Trust does not intend to sell these securities and it is not more likely than not that Washington Trust will be required to sell these securities before recovery of their cost basis, which may be at maturity. Therefore, management does not consider the unrealized losses on these investments to be other-than-temporary.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

As of March 31, 2012, the amortized cost of debt securities by maturity is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments. All other securities are included based on contractual maturities. Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties. Yields on tax exempt obligations are not computed on a tax equivalent basis. Included in the securities portfolio at March 31, 2012 were debt securities with an amortized cost balance of $94.2 million and a fair value of $89.3 million that are callable at the discretion of the issuers. Final maturities of the callable securities range from four to twenty-six years, with call features ranging from one month to six years.



(Dollars in thousands)	Within 1 Year			1-5 Years			5-10 Years			After 10 Years			Totals
Securities Available for Sale:
Obligations of U.S. government-sponsored enterprises:
Amortized cost		$—			$29,437			$—			$—			$29,437
Weighted average yield	—		%	5.41		%	—		%	—		%	5.41		%
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
Amortized cost	106,392			176,342			46,382			10,818			339,934
Weighted average yield	4.30		%	3.86		%	2.48		%	2.24		%	3.76		%
State and political subdivisions:
Amortized cost	3,823			65,282			2,239			—			71,344
Weighted average yield	3.68		%	3.90		%	3.90		%	—		%	3.89		%
Trust preferred securities:
Amortized cost (1)	—			—			—			34,695			34,695
Weighted average yield	—		%	—		%	—		%	1.84		%	1.84		%
Corporate bonds:
Amortized cost	—			13,880			—			—			13,880
Weighted average yield	—		%	5.10		%	—		%	—		%	5.10		%
Total debt securities available for sale:
Amortized cost		$110,215			$284,941			$48,621			$45,513			$489,290
Weighted average yield	4.28		%	4.09		%	2.55		%	1.93		%	3.78		%
Fair value		$116,521			$292,697			$51,410			$46,127			$506,755
Securities Held to Maturity:
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
Amortized cost		$11,225			$25,018			$10,213			$3,016			$49,472
Weighted average yield	2.55		%	2.44		%	2.32		%	1.52		%	2.38		%
Fair value		$11,795			$25,018			$10,213			$3,016			$50,042


(1)	Net of other-than-temporary impairment losses.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)


(5)	Loans

The following is a summary of loans:



(Dollars in thousands)	Mar 31, 2012				Dec 31, 2011
	Amount		%		Amount		%
Commercial:
Mortgages (1)		$642,012	30	%		$624,813	29	%
Construction and development (2)	11,130		1		10,955		1
Other (3)	486,258		22		488,860		22
Total commercial	1,139,400		53		1,124,628		52
Residential real estate:
Mortgages (4)	675,249		31		678,582		32
Homeowner construction	21,708		1		21,832		1
Total residential real estate	696,957		32		700,414		33
Consumer:
Home equity lines (5)	223,311		10		223,430		10
Home equity loans (5)	40,793		2		43,121		2
Other (6)	54,898		3		55,566		3
Total consumer	319,002		15		322,117		15
Total loans (7)		$2,155,359	100	%		$2,147,159	100	%


(1)	Amortizing mortgages and lines of credit, primarily secured by income producing property. As of March 31, 2012 and December 31, 2011, $106.2 million and $107.1 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 7).


(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. As of March 31, 2012, $25.8 million and $37.9 million, respectively, of these loans were pledged as collateral for FHLBB borrowings and were collateralized for the discount window at the Federal Reserve Bank. Comparable amounts for December 31, 2011 were $27.2 million and $42.1 million, respectively (see Note 7).


(4)	As of March 31, 2012 and December 31, 2011, $598.3 million and $611.8 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 7).


(5)	As of March 31, 2012 and December 31, 2011, $191.2 million and $165.4 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 7).


(6)	Fixed rate consumer installment loans.


(7)	Includes net unamortized loan origination costs of $83 thousand and $31 thousand, respectively, and net unamortized premiums on purchased loans of $77 thousand and $67 thousand, respectively, at March 31, 2012 and December 31, 2011, respectively.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

Nonaccrual Loans

Loans, with the exception of certain well-secured residential mortgage loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest or sooner if considered appropriate by management. Well-secured residential mortgage loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously accrued but not collected on such loans is reversed against current period income. Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management's assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management's opinion, the loans are considered to be fully collectible.

The following is a summary of nonaccrual loans, segregated by class of loans, as of the dates indicated:



(Dollars in thousands)	Mar 31, 2012		Dec 31, 2011
Commercial:
Mortgages		$5,099		$5,709
Construction and development	—		—
Other	4,200		3,708
Residential real estate:
Mortgages	9,031		10,614
Homeowner construction	—		—
Consumer:
Home equity lines	783		718
Home equity loans	203		335
Other	83		153
Total nonaccrual loans		$19,399		$21,237
Accruing loans 90 days or more past due		$—		$—

As of March 31, 2012 and December 31, 2011, nonaccrual loans of $4.7 million and $3.6 million, respectively, were current as to the payment of principal and interest.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

Past Due Loans

Past due status is based on the contractual payment terms of the loan. The following tables present an age analysis of past due loans, segregated by class of loans, as of the dates indicated:



(Dollars in thousands)	Days Past Due
March 31, 2012	30-59		60-89		Over 90		Total Past Due		Current		Total Loans
Commercial:
Mortgages		$104		$—		$4,676		$4,780		$637,232		$642,012
Construction and development	—		—		—		—		11,130		11,130
Other	1,031		33		2,521		3,585		482,673		486,258
Residential real estate:
Mortgages	4,468		488		4,843		9,799		665,450		675,249
Homeowner construction	—		—		—		—		21,708		21,708
Consumer:
Home equity lines	1,793		48		191		2,032		221,279		223,311
Home equity loans	452		171		53		676		40,117		40,793
Other	159		—		82		241		54,657		54,898
Total loans		$8,007		$740		$12,366		$21,113		$2,134,246		$2,155,359



(Dollars in thousands)	Days Past Due
December 31, 2011	30-59		60-89		Over 90		Total Past Due		Current		Total Loans
Commercial:
Mortgages		$1,621		$315		$4,995		$6,931		$617,882		$624,813
Construction and development	—		—		—		—		10,955		10,955
Other	3,760		982		633		5,375		483,485		488,860
Residential real estate:
Mortgages	3,969		1,505		6,283		11,757		666,825		678,582
Homeowner construction	—		—		—		—		21,832		21,832
Consumer:
Home equity lines	645		210		525		1,380		222,050		223,430
Home equity loans	362		46		202		610		42,511		43,121
Other	66		7		147		220		55,346		55,566
Total loans		$10,423		$3,065		$12,785		$26,273		$2,120,886		$2,147,159

Included in past due loans as of March 31, 2012 and December 31, 2011, were nonaccrual loans of $14.7 million and $17.6 million, respectively.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

Impaired Loans

Impaired loans are loans for which it is probable that the Corporation will not be able to collect all amounts due according to the contractual terms of the loan agreements and loans restructured in a troubled debt restructuring. Impaired loans do not include large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, which consist of most residential mortgage loans and consumer loans. The following is a summary of impaired loans, as of the dates indicated:



(Dollars in thousands)	Recorded Investment (1)				Unpaid Principal				Related Allowance
	Mar 31, 2012		Dec 31, 2011		Mar 31, 2012		Dec 31, 2011		Mar 31, 2012		Dec 31, 2011
No Related Allowance Recorded:
Commercial:
Mortgages		$1,514		$7,093		$1,963		$7,076		$—		$—
Construction and development	—		—		—		—		—		—
Other	2,823		1,622		2,816		1,620		—		—
Residential real estate:
Mortgages	2,321		2,383		2,701		2,471		—		—
Homeowner construction	—		—		—		—		—		—
Consumer:
Home equity lines	—		—		—		—		—		—
Home equity loans	—		—		—		—		—		—
Other	—		—		—		—		—		—
Subtotal		$6,658		$11,098		$7,480		$11,167		$—		$—
With Related Allowance Recorded:
Commercial:
Mortgages		$4,647		$5,023		$5,852		$6,760		$149		$329
Construction and development	—		—		—		—		—		—
Other	8,733		8,739		9,430		9,740		1,021		839
Residential real estate:
Mortgages	2,785		3,606		3,049		4,138		379		495
Homeowner construction	—		—		—		—		—		—
Consumer:
Home equity lines	172		278		247		373		34		82
Home equity loans	127		130		150		153		1		1
Other	144		205		142		227		2		69
Subtotal		$16,608		$17,981		$18,870		$21,391		$1,586		$1,815
Total impaired loans		$23,266		$29,079		$26,350		$32,558		$1,586		$1,815
Total:
Commercial		$17,717		$22,477		$20,061		$25,196		$1,170		$1,168
Residential real estate	5,106		5,989		5,750		6,609		379		495
Consumer	443		613		539		753		37		152
Total impaired loans		$23,266		$29,079		$26,350		$32,558		$1,586		$1,815

(1)

The recorded investment in impaired loans consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs. For impaired accruing loans (those troubled debt restructurings for which management has concluded that the collectibility of the loan is not in doubt), the recorded investment also includes accrued interest. As of March 31, 2012 and December 31, 2011, recorded investment in impaired loans included accrued interest of $36 thousand and $46 thousand, respectively.

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES


CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	(Continued)

The following table presents the average recorded investment and interest income recognized on impaired loans segregated by loan class for the periods indicated:



(Dollars in thousands)	Average Recorded Investment				Interest Income Recognized
Three months ended March 31,	2012		2011		2012		2011
Commercial:
Mortgages		$10,991		$18,150		$70		$173
Construction and development	—		—		—		—
Other	10,841		11,480		74		94
Residential real estate: