form10-q20100930.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
x
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended SEPTEMBER 30, 2010 or
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______.
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Commission file number: 001-32991
WASHINGTON TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)
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RHODE ISLAND
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05-0404671
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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23 BROAD STREET
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|
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WESTERLY, RHODE ISLAND
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02891
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(Address of principal executive offices)
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(Zip Code)
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(401) 348-1200
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(Registrant’s telephone number, including area code)
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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 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).
oYes oNo
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)
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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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 November 4, 2010 was 16,161,774.
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(Dollars in thousands,
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WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
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except par value)
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|
|
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| |
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September 30,
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December 31,
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| |
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2010
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2009
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Assets:
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|
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|
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Cash and noninterest-bearing balances due from banks
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$ |
33,251 |
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$ |
38,167 |
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Interest-bearing balances due from banks
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48,930 |
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13,686 |
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Other short-term investments
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5,479 |
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5,407 |
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Mortgage loans held for sale
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20,974 |
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9,909 |
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Securities available for sale, at fair value;
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amortized cost $556,479 in 2010 and $677,676 in 2009
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577,161 |
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691,484 |
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Federal Home Loan Bank stock, at cost
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42,008 |
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42,008 |
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Loans:
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|
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Commercial and other
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1,049,469 |
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984,550 |
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Residential real estate
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633,568 |
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605,575 |
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Consumer
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328,111 |
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329,543 |
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Total loans
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2,011,148 |
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1,919,668 |
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Less allowance for loan losses
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28,165 |
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27,400 |
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Net loans
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1,982,983 |
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1,892,268 |
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Premises and equipment, net
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26,616 |
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27,524 |
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Accrued interest receivable
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|
9,296 |
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|
9,137 |
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Investment in bank-owned life insurance
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51,357 |
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44,957 |
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Goodwill
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58,114 |
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58,114 |
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Identifiable intangible assets, net
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8,089 |
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8,943 |
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Property acquired through foreclosure or repossession, net
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2,612 |
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1,974 |
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Other assets
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42,133 |
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40,895 |
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Total assets
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$ |
2,909,003 |
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$ |
2,884,473 |
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| |
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Liabilities:
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|
|
|
|
|
|
|
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Deposits:
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Demand deposits
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$ |
242,455 |
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$ |
194,046 |
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NOW accounts
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236,775 |
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202,367 |
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Money market accounts
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408,828 |
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403,333 |
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Savings accounts
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210,271 |
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191,580 |
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Time deposits
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958,425 |
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931,684 |
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Total deposits
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2,056,754 |
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1,923,010 |
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Dividends payable
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3,431 |
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3,369 |
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Federal Home Loan Bank advances
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480,358 |
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607,328 |
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Junior subordinated debentures
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32,991 |
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32,991 |
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Other borrowings
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21,924 |
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21,501 |
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Accrued expenses and other liabilities
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46,436 |
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41,328 |
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Total liabilities
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2,641,894 |
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2,629,527 |
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| |
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|
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Shareholders’ Equity:
|
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Common stock of $.0625 par value; authorized 30,000,000 shares;
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|
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issued 16,136,030 shares in 2010 and 16,061,748 shares in 2009
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|
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1,009 |
|
|
|
1,004 |
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Paid-in capital
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84,157 |
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82,592 |
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Retained earnings
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175,145 |
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168,514 |
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Accumulated other comprehensive income
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6,810 |
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3,337 |
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Treasury stock, at cost; 670 shares in 2010 and 19,185 shares in 2009
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(12 |
) |
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(501 |
) |
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Total shareholders’ equity
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267,109 |
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254,946 |
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Total liabilities and shareholders’ equity
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$ |
2,909,003 |
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$ |
2,884,473 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
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WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
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(Dollars and shares in thousands,
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except per share amounts)
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| |
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Three Months
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Nine Months
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Periods ended September 30,
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2010
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2009
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2010
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2009
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Interest income:
|
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|
|
|
|
|
|
|
|
|
|
|
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Interest and fees on loans
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$ |
25,076 |
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$ |
24,303 |
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$ |
73,224 |
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$ |
72,589 |
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Interest on securities:
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Taxable
|
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|
5,227 |
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|
7,028 |
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17,115 |
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23,065 |
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| |
Nontaxable
|
|
|
769 |
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|
|
781 |
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2,308 |
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|
|
2,339 |
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Dividends on corporate stock and Federal Home Loan Bank stock
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|
55 |
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|
|
63 |
|
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|
164 |
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|
190 |
|
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Other interest income
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25 |
|
|
|
13 |
|
|
|
59 |
|
|
|
39 |
|
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Total interest income
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31,152 |
|
|
|
32,188 |
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|
|
92,870 |
|
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|
98,222 |
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|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Deposits
|
|
|
4,747 |
|
|
|
7,577 |
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|
|
15,847 |
|
|
|
25,605 |
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Federal Home Loan Bank advances
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|
|
5,574 |
|
|
|
7,094 |
|
|
|
17,793 |
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|
|
21,433 |
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Junior subordinated debentures
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|
|
484 |
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|
|
545 |
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|
1,561 |
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|
|
1,503 |
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Other interest expense
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|
|
246 |
|
|
|
246 |
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|
|
731 |
|
|
|
735 |
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|
Total interest expense
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|
|
11,051 |
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|
|
15,462 |
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|
|
35,932 |
|
|
|
49,276 |
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|
Net interest income
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|
|
20,101 |
|
|
|
16,726 |
|
|
|
56,938 |
|
|
|
48,946 |
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|
Provision for loan losses
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|
|
1,500 |
|
|
|
1,800 |
|
|
|
4,500 |
|
|
|
6,500 |
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Net interest income after provision for loan losses
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|
|
18,601 |
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|
|
14,926 |
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|
|
52,438 |
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|
|
42,446 |
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Wealth management services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Trust and investment advisory fees
|
|
|
5,052 |
|
|
|
4,717 |
|
|
|
15,222 |
|
|
|
13,241 |
|
|
Mutual fund fees
|
|
|
1,084 |
|
|
|
1,089 |
|
|
|
3,299 |
|
|
|
2,997 |
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|
Financial planning, commissions and other service fees
|
|
|
349 |
|
|
|
243 |
|
|
|
1,033 |
|
|
|
1,178 |
|
|
Wealth management services
|
|
|
6,485 |
|
|
|
6,049 |
|
|
|
19,554 |
|
|
|
17,416 |
|
|
Service charges on deposit accounts
|
|
|
1,411 |
|
|
|
1,257 |
|
|
|
3,964 |
|
|
|
3,571 |
|
|
Merchant processing fees
|
|
|
3,050 |
|
|
|
2,619 |
|
|
|
7,062 |
|
|
|
6,054 |
|
|
Income from bank-owned life insurance
|
|
|
486 |
|
|
|
451 |
|
|
|
1,399 |
|
|
|
1,342 |
|
|
Net gains on loan sales and commissions on loans originated for others
|
|
|
1,011 |
|
|
|
591 |
|
|
|
1,889 |
|
|
|
3,187 |
|
|
Net realized gains on securities
|
|
|
737 |
|
|
|
– |
|
|
|
737 |
|
|
|
314 |
|
|
Net (losses) gains on interest rate swap contracts
|
|
|
(60 |
) |
|
|
92 |
|
|
|
(113 |
) |
|
|
493 |
|
|
Other income
|
|
|
319 |
|
|
|
445 |
|
|
|
905 |
|
|
|
1,329 |
|
|
Noninterest income, excluding other-than-temporary impairment losses
|
|
|
13,439 |
|
|
|
11,504 |
|
|
|
35,397 |
|
|
|
33,706 |
|
|
Total other-than-temporary impairment losses on securities
|
|
|
– |
|
|
|
(2,293 |
) |
|
|
(245 |
) |
|
|
(6,537 |
) |
|
Portion of loss recognized in other comprehensive income (before taxes)
|
|
|
– |
|
|
|
1,826 |
|
|
|
(172 |
) |
|
|
4,079 |
|
|
Net impairment losses recognized in earnings
|
|
|
– |
|
|
|
(467 |
) |
|
|
(417 |
) |
|
|
(2,458 |
) |
|
Total noninterest income
|
|
|
13,439 |
|
|
|
11,037 |
|
|
|
34,980 |
|
|
|
31,248 |
|
|
Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
12,067 |
|
|
|
10,416 |
|
|
|
35,294 |
|
|
|
31,250 |
|
|
Net occupancy
|
|
|
1,202 |
|
|
|
1,232 |
|
|
|
3,663 |
|
|
|
3,580 |
|
|
Equipment
|
|
|
1,037 |
|
|
|
916 |
|
|
|
3,048 |
|
|
|
2,927 |
|
|
Merchant processing costs
|
|
|
2,606 |
|
|
|
2,213 |
|
|
|
6,020 |
|
|
|
5,136 |
|
|
Outsourced services
|
|
|
769 |
|
|
|
683 |
|
|
|
2,379 |
|
|
|
2,037 |
|
|
FDIC deposit insurance costs
|
|
|
861 |
|
|
|
808 |
|
|
|
2,439 |
|
|
|
3,602 |
|
|
Legal, audit and professional fees
|
|
|
438 |
|
|
|
546 |
|
|
|
1,364 |
|
|
|
1,885 |
|
|
Advertising and promotion
|
|
|
467 |
|
|
|
422 |
|
|
|
1,250 |
|
|
|
1,214 |
|
|
Amortization of intangibles
|
|
|
273 |
|
|
|
303 |
|
|
|
854 |
|
|
|
919 |
|
|
Debt prepayment penalties
|
|
|
752 |
|
|
|
– |
|
|
|
752 |
|
|
|
– |
|
|
Other expenses
|
|
|
2,383 |
|
|
|
1,653 |
|
|
|
6,367 |
|
|
|
5,361 |
|
|
Total noninterest expense
|
|
|
22,855 |
|
|
|
19,192 |
|
|
|
63,430 |
|
|
|
57,911 |
|
|
Income before income taxes
|
|
|
9,185 |
|
|
|
6,771 |
|
|
|
23,988 |
|
|
|
15,783 |
|
|
Income tax expense
|
|
|
2,815 |
|
|
|
1,858 |
|
|
|
7,148 |
|
|
|
4,435 |
|
|
Net income
|
|
$ |
6,370 |
|
|
$ |
4,913 |
|
|
$ |
16,840 |
|
|
$ |
11,348 |
|
|
Weighted average common shares outstanding – basic
|
|
|
16,131.4 |
|
|
|
16,016.8 |
|
|
|
16,098.2 |
|
|
|
15,981.3 |
|
|
Weighted average common shares outstanding – diluted
|
|
|
16,170.6 |
|
|
|
16,074.5 |
|
|
|
16,130.4 |
|
|
|
16,029.5 |
|
|
Per share information:
|
Basic earnings per common share
|
|
$ |
0.39 |
|
|
$ |
0.31 |
|
|
$ |
1.04 |
|
|
$ |
0.71 |
|
| |
Diluted earnings per common share
|
|
$ |
0.39 |
|
|
$ |
0.31 |
|
|
$ |
1.04 |
|
|
$ |
0.71 |
|
| |
Cash dividends declared per share
|
|
$ |
0.21 |
|
|
$ |
0.21 |
|
|
$ |
0.63 |
|
|
$ |
0.63 |
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
|
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
| |
|
|
|
|
Nine months ended September 30,
|
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income
|
|
$ |
16,840 |
|
|
$ |
11,348 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
4,500 |
|
|
|
6,500 |
|
|
Depreciation of premises and equipment
|
|
|
2,316 |
|
|
|
2,344 |
|
|
Net amortization of premium and discount
|
|
|
384 |
|
|
|
291 |
|
|
Net amortization of intangibles
|
|
|
854 |
|
|
|
919 |
|
|
Share-based compensation
|
|
|
666 |
|
|
|
543 |
|
|
Earnings from bank-owned life insurance
|
|
|
(1,399 |
) |
|
|
(1,342 |
) |
|
Net gains on loan sales and commissions on loans originated for others
|
|
|
(1,889 |
) |
|
|
(3,187 |
) |
|
Net realized gains on securities
|
|
|
(737 |
) |
|
|
(314 |
) |
|
Net impairment losses recognized in earnings
|
|
|
417 |
|
|
|
2,458 |
|
|
Net losses (gains) on interest rate swap contracts
|
|
|
113 |
|
|
|
(493 |
) |
|
Proceeds from sales of loans
|
|
|
114,423 |
|
|
|
205,588 |
|
|
Loans originated for sale
|
|
|
(123,680 |
) |
|
|
(206,457 |
) |
|
(Increase) decrease in accrued interest receivable, excluding purchased interest
|
|
|
(61 |
) |
|
|
1,293 |
|
|
Decrease (increase) in other assets
|
|
|
1,244 |
|
|
|
(4,040 |
) |
|
(Decrease) increase in accrued expenses and other liabilities
|
|
|
(1,148 |
) |
|
|
944 |
|
|
Other, net
|
|
|
(1 |
) |
|
|
1 |
|
|
Net cash provided by operating activities
|
|
|
12,842 |
|
|
|
16,396 |
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of:
|
Mortgage-backed securities available for sale
|
|
|
(65,423 |
) |
|
|
– |
|
| |
Other investment securities available for sale
|
|
|
(15,609 |
) |
|
|
(304 |
) |
|
Proceeds from sale of:
|
Mortgage-backed securities available for sale
|
|
|
64,052 |
|
|
|
- |
|
| |
Other investment securities available for sale
|
|
|
9,851 |
|
|
|
1,604 |
|
|
Maturities and principal payments of:
|
Mortgage-backed securities available for sale
|
|
|
116,017 |
|
|
|
133,932 |
|
| |
Other investment securities available for sale
|
|
|
12,000 |
|
|
|
17,000 |
|
|
Net increase in loans
|
|
|
(93,626 |
) |
|
|
(66,797 |
) |
|
Purchases of loans, including purchased interest
|
|
|
(1,429 |
) |
|
|
(4,716 |
) |
|
Proceeds from the sale of property acquired through foreclosure or repossession
|
|
|
598 |
|
|
|
607 |
|
|
Purchases of premises and equipment
|
|
|
(1,408 |
) |
|
|
(3,454 |
) |
|
Purchases of bank-owned life insurance
|
|
|
(5,000 |
) |
|
|
– |
|
|
Equity investment in real estate limited partnership
|
|
|
(881 |
) |
|
|
– |
|
|
Payment of deferred acquisition obligation
|
|
|
– |
|
|
|
(2,509 |
) |
|
Net cash provided by investing activities
|
|
|
19,142 |
|
|
|
75,363 |
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
133,744 |
|
|
|
103,302 |
|
|
Net increase (decrease) in other borrowings
|
|
|
423 |
|
|
|
(3,606 |
) |
|
Proceeds from Federal Home Loan Bank advances
|
|
|
184,540 |
|
|
|
261,670 |
|
|
Repayment of Federal Home Loan Bank advances
|
|
|
(311,507 |
) |
|
|
(454,628 |
) |
|
Issuance of treasury stock, including deferred compensation plan activity
|
|
|
44 |
|
|
|
52 |
|
|
Net proceeds from the issuance of common stock under dividend reinvestment plan
|
|
|
762 |
|
|
|
833 |
|
|
Net proceeds from the exercise of stock options and issuance of other
|
|
|
|
|
|
|
|
|
|
compensation-related equity instruments
|
|
|
531 |
|
|
|
141 |
|
|
Tax benefit from stock option exercises and issuance of other compensation-related equity instruments
|
|
|
41 |
|
|
|
363 |
|
|
Cash dividends paid
|
|
|
(10,162 |
) |
|
|
(10,070 |
) |
|
Net cash used in financing activities
|
|
|
(1,584 |
) |
|
|
(101,943 |
) |
|
Net increase (decrease) in cash and cash equivalents
|
|
|
30,400 |
|
|
|
(10,184 |
) |
|
Cash and cash equivalents at beginning of period
|
|
|
57,260 |
|
|
|
58,190 |
|
|
Cash and cash equivalents at end of period
|
|
$ |
87,660 |
|
|
$ |
48,006 |
|
|
Noncash Investing and Financing Activities:
|
Loans charged off
|
|
$ |
4,006 |
|
|
$ |
3,947 |
|
| |
Net transfer from loans to property acquired through
|
|
|
|
|
|
|
|
|
| |
foreclosure or repossession
|
|
|
1,555 |
|
|
|
1,423 |
|
| |
Reclassification of other-than-temporary
|
|
|
|
|
|
|
|
|
| |
impairment charge effective January 1, 2009
|
|
|
– |
|
|
|
1,859 |
|
|
Supplemental Disclosures:
|
Interest payments
|
|
|
34,229 |
|
|
|
47,367 |
|
| |
Income tax payments
|
|
|
8,143 |
|
|
|
7,225 |
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
|
|
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
General
Washington Trust Bancorp, Inc. (the “Bancorp”) is a publicly-owned and registered bank holding company that has elected financial holding company status. 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 southeastern Connecticut, ATMs, and its Internet website (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 period amounts have been reclassified to conform to the current period’s 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 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 September 30, 2010 and December 31, 2009, 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, 2009.
(2) Recently Issued Accounting Pronouncements
Accounting Standards Codification (“ASC”) 860, “Transfers and Servicing,” incorporates former SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140” which was issued in June 2009 and was effective for interim and annual periods beginning after January 1, 2010. These pending provisions of ASC 860 will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to the transferred financial assets. Among other things, the concept of a “qualifying special-purpose entity” is eliminated under these pending provisions of ASC 860, which also changes the requirements for derecognizing financial assets and requires additional disclosures. The adoption of these provisions of ASC 860 did not have a material impact on the Corporation’s consolidated financial statements.
ASC 810, “Consolidations,” incorporates former SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” which was issued in June 2009 and was effective for interim and annual periods beginning after January 1, 2010. These provisions of ASC 810 revise former FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” and change how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) and therefore should be consolidated. Consolidation of variable interest entities would be based on the target entity’s purpose and design as well as the reporting entity’s ability to direct the target’s activities, among other criteria. The adoption of these provisions of ASC 810 did not have an impact on the Corporation’s consolidated financial statements.
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
Accounting Standards Update No. 2010-06 “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”) was issued in January 2010 to update ASC 820 “Fair Value Measurements and Disclosures”. ASU 2010-06 requires new disclosures (1) for significant transfers in and out of Level 1 and Level 2 including a description of the reason for the transfers and (2) in the reconciliation of Level 3 presenting sales, issuances and settlements gross rather than one net number. ASU 2010-06 also requires clarification of existing disclosures requiring (1) measurement disclosures for each “class” of assets and liabilities (a class being a subset of assets and liabilities within one line item in the statement of financial position) using judgment in determining the appropriate classes and (2) disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 and Level 3. The new disclosures and clarifications of existing disclosures were effective for interim and reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity Level 3 which will be effective for interim and annual periods beginning after December 15, 2010. See Note 10 for the Corporation’s Fair Value Measurements disclosure. The adoption of ASU-2010-06 is not expected to have a material impact on the Corporation’s consolidated financial statements.
Accounting Standards Update No. 2010-11, “Scope Exception Related to Embedded Credit Derivatives” (“ASU 2010-11”) was issued in March 2010 and is effective for interim and annual periods beginning after June 30, 2010. ASU 2010-11 updates ASC 815 “Derivatives and Hedging” to clarify scope exceptions for embedded credit derivatives features related to the transfer of credit risk in the form of subordination of one financial instrument to another. The adoption of ASU-2010-11 did not have an impact on the Corporation’s consolidated financial statements.
Accounting Standards Update No. 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”) was issued in July 2010. ASU 2010-20 will significantly enhance disclosures that entities must make about the credit quality of financing receivables and the allowance for credit losses. The FASB issued the ASU to give financial statement users greater transparency about entities’ credit-risk exposures and the allowance for credit losses. The disclosures will provide financial statement users with additional information about the nature of credit risks inherent in entities’ financing receivables, how credit risk is analyzed and assessed when determining the allowance for credit losses, and the reasons for the change in the allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in this ASU encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. The adoption of ASU-2010-20 is not expected to have a material impact on the Corporation’s consolidated financial statements.
(3) Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan Bank of Boston (“FHLBB”). The FHLBB is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by the FHLBB or its regulator, the Federal Housing Finance Agency, to maintain capital adequacy of the FHLBB. While the Corporation currently has no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions imposed by the FHLBB. In 2008, the FHLBB announced to its members that it is focusing on preserving capital in response to ongoing market volatility including the extension of a moratorium on excess stock repurchases and in 2009 announced the suspension of its quarterly dividends. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment related to the carrying amount of the Corporation’s FHLBB stock as of September 30, 2010. Further deterioration of the FHLBB’s capital levels may require the Corporation to deem its restricted investment in FHLBB stock to be other-than-temporarily impaired. If evidence of impairment exists in the future, the FHLBB stock would reflect fair value using either observable or unobservable inputs. The Corporation will continue to monitor its investment in FHLBB stock.
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
(4) Securities
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 September 30, 2010 and December 31, 2009 were as follows:
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
September 30, 2010
|
|
Cost (1)
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
|
$ |
36,894 |
|
|
$ |
4,619 |
|
|
$ |
− |
|
|
$ |
41,513 |
|
|
Mortgage-backed securities issued by U.S. government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies and U.S. government-sponsored enterprises
|
|
|
388,664 |
|
|
|
21,007 |
|
|
|
(119 |
) |
|
|
409,552 |
|
|
States and political subdivisions
|
|
|
79,459 |
|
|
|
4,536 |
|
|
|
(23 |
) |
|
|
83,972 |
|
|
Trust preferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual name issuers
|
|
|
30,591 |
|
|
|
− |
|
|
|
(7,761 |
) |
|
|
22,830 |
|
|
Collateralized debt obligations
|
|
|
4,483 |
|
|
|
− |
|
|
|
(3,642 |
) |
|
|
841 |
|
|
Corporate bonds
|
|
|
13,876 |
|
|
|
1,583 |
|
|
|
− |
|
|
|
15,459 |
|
|
Common stocks
|
|
|
658 |
|
|
|
168 |
|
|
|
− |
|
|
|
826 |
|
|
Perpetual preferred stocks
|
|
|
1,854 |
|
|
|
314 |
|
|
|
− |
|
|
|
2,168 |
|
|
Total securities available for sale
|
|
$ |
556,479 |
|
|
$ |
32,227 |
|
|
$ |
(11,545 |
) |
|
$ |
577,161 |
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
December 31, 2009
|
|
Cost (1)
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government-sponsored enterprises
|
|
$ |
41,565 |
|
|
$ |
3,675 |
|
|
$ |
− |
|
|
$ |
45,240 |
|
|
Mortgage-backed securities issued by U.S. government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies and U.S. government-sponsored enterprises
|
|
|
503,115 |
|
|
|
20,808 |
|
|
|
(477 |
) |
|
|
523,446 |
|
|
States and political subdivisions
|
|
|
80,183 |
|
|
|
2,093 |
|
|
|
(214 |
) |
|
|
82,062 |
|
|
Trust preferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual name issuers
|
|
|
30,563 |
|
|
|
− |
|
|
|
(9,977 |
) |
|
|
20,586 |
|
|
Collateralized debt obligations
|
|
|
4,966 |
|
|
|
− |
|
|
|
(3,901 |
) |
|
|
1,065 |
|
|
Corporate bonds
|
|
|
13,272 |
|
|
|
1,434 |
|
|
|
− |
|
|
|
14,706 |
|
|
Common stocks
|
|
|
658 |
|
|
|
111 |
|
|
|
− |
|
|
|
769 |
|
|
Perpetual preferred stocks
|
|
|
3,354 |
|
|
|
396 |
|
|
|
(140 |
) |
|
|
3,610 |
|
|
Total securities available for sale
|
|
$ |
677,676 |
|
|
$ |
28,517 |
|
|
$ |
(14,709 |
) |
|
$ |
691,484 |
|
(1) Net of other-than-temporary impairment losses recognized in earnings.
Securities available for sale with a fair value of $496 million and $558 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, 2010 and December 31, 2009, respectively. (See Note 7 to the Consolidated Financial Statements for additional discussion of FHLBB borrowings.) In addition, securities available for sale with a fair value of $21.6 million and $22.2 million were pledged for potential use at the Federal Reserve Bank discount window at September 30, 2010 and December 31, 2009, respectively. There were no borrowings with the Federal Reserve Bank at either date. Securities available for sale with a fair value of $6.1 million and $7.2 million were designated in rabbi trusts for nonqualified retirement plans at September 30, 2010 and December 31, 2009, respectively. Securities available for sale with a fair value of $4.1 million and $2.6 million were pledged as collateral to secure certain interest rate swap agreements at September 30, 2010 and December 31, 2009, respectively.
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
The following table presents a roll forward of the balance of credit-related impairment losses on debt securities held at September 30, 2010 for which a portion of an other-than-temporary impairment was recognized in other comprehensive income:
|
(Dollars in thousands)
|
|
| |
|
Three Months
|
|
|
Nine Months
|
|
|
Periods ended September 30,
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Balance at beginning of period
|
|
$ |
2,913 |
|
|
$ |
1,350 |
|
|
$ |
2,496 |
|
|
$ |
– |
|
|
Credit-related impairment loss on debt securities for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
which an other-than-temporary impairment was not
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
previously recognized
|
|
|
– |
|
|
|
467 |
|
|
|
– |
|
|
|
1,817 |
|
|
Additional increases to the amount of credit-related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment loss on debt securities for which an other-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
than-temporary impairment was previously recognized
|
|
|
– |
|
|
|
– |
|
|
|
417 |
|
|
|
– |
|
|
Balance at end of period
|
|
$ |
2,913 |
|
|
$ |
1,817 |
|
|
$ |
2,913 |
|
|
$ |
1,817 |
|
During the third quarter of 2010, there were no credit-related impairment losses recognized in earnings. In the nine months ended September 30, 2010, credit-related impairment losses of $417 thousand were recognized in earnings on pooled trust preferred debt securities. 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 deferrals, 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 deferral, 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 as of September 30, 2010, 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
|
|
| |
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
At September 30, 2010
|
|
|
# |
|
|
Value
|
|
|
Losses
|
|
|
|
# |
|
|
Value
|
|
|
Losses
|
|
|
|
# |
|
|
Value
|
|
|
Losses
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued by U.S. government agencies and U.S. government-sponsored enterprises
|
|
|
1 |
|
|
$ |
20,653 |
|
|
$ |
81 |
|
|
|
4 |
|
|
$ |
17,678 |
|
|
$ |
38 |
|
|
|
5 |
|
|
$ |
38,331 |
|
|
$ |
119 |
|
|
States and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political subdivisions
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2 |
|
|
|
1,306 |
|
|
|
23 |
|
|
|
2 |
|
|
|
1,306 |
|
|
|
23 |
|
|
Trust preferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual name issuers
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
11 |
|
|
|
22,831 |
|
|
|
7,761 |
|
|
|
11 |
|
|
|
22,831 |
|
|
|
7,761 |
|
|
Collateralized debt obligations
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2 |
|
|
|
841 |
|
|
|
3,642 |
|
|
|
2 |
|
|
|
841 |
|
|
|
3,642 |
|
|
Total temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities
|
|
|
1 |
|
|
$ |
20,653 |
|
|
$ |
81 |
|
|
|
19 |
|
|
$ |
42,656 |
|
|
$ |
11,464 |
|
|
|
20 |
|
|
$ |
63,309 |
|
|
$ |
11,545 |
|
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
The following table summarizes temporarily impaired securities as of December 31, 2009, 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
|
|
| |
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
At December 31, 2009
|
|
|
# |
|
|
Value
|
|
|
Losses
|
|
|
|
# |
|
|
Value
|
|
|
Losses
|
|
|
|
# |
|
|
Value
|
|
|
Losses
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued by U.S. government agencies and U.S. government-sponsored enterprises
|
|
|
3 |
|
|
$ |
2,218 |
|
|
$ |
5 |
|
|
|
25 |
|
|
$ |
38,023 |
|
|
$ |
472 |
|
|
|
28 |
|
|
$ |
40,241 |
|
|
$ |
477 |
|
|
States and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
political subdivisions
|
|
|
4 |
|
|
|
3,836 |
|
|
|
45 |
|
|
|
3 |
|
|
|
2,097 |
|
|
|
169 |
|
|
|
7 |
|
|
|
5,933 |
|
|
|
214 |
|
|
Trust preferred securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual name issuers
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
11 |
|
|
|
20,586 |
|
|
|
9,977 |
|
|
|
11 |
|
|
|
20,586 |
|
|
|
9,977 |
|
|
Collateralized debt obligations
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
2 |
|
|
|
1,065 |
|
|
|
3,901 |
|
|
|
2 |
|
|
|
1,065 |
|
|
|
3,901 |
|
|
Subtotal, debt securities
|
|
|
7 |
|
|
|
6,054 |
|
|
|
50 |
|
|
|
41 |
|
|
|
61,771 |
|
|
|
14,519 |
|
|
|
48 |
|
|
|
67,825 |
|
|
|
14,569 |
|
|
Perpetual preferred stocks
|
|
|
1 |
|
|
|
427 |
|
|
|
73 |
|
|
|
3 |
|
|
|
933 |
|
|
|
67 |
|
|
|
4 |
|
|
|
1,360 |
|
|
|
140 |
|
|
Total temporarily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impaired securities
|
|
|
8 |
|
|
$ |
6,481 |
|
|
$ |
123 |
|
|
|
44 |
|
|
$ |
62,704 |
|
|
$ |
14,586 |
|
|
|
52 |
|
|
$ |
69,185 |
|
|
$ |
14,709 |
|
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 from 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 September 30, 2010 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 $7.8 million at September 30, 2010. 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 September 30, 2010, trust preferred debt securities with a carrying value of $8.4 million and unrealized losses of $3.5 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 quarterly 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 September 30, 2010.
Trust preferred debt securities in the form of collateralized debt obligations:
At September 30, 2010, Washington Trust had two pooled trust preferred holdings in the form of collateralized debt obligations with unrealized losses of $3.6 million. These pooled trust preferred holdings consist of trust preferred
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
obligations of banking industry companies and, to a lesser extent, insurance industry companies. For both 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 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.
In the first quarter of 2009, an adverse change occurred in the expected cash flows for one of the trust preferred collateralized debt obligation securities indicating that, based on cash flow forecasts with regard to timing of deferrals and potential future recovery of deferred payments, default rates, and other matters, the Corporation would not receive all contractual amounts due under the instrument and would not recover the entire cost basis of this security. In the first quarter of 2009, the Corporation recognized a $1.4 million credit-related impairment loss in earnings for this trust preferred collateralized debt security, with a commensurate adjustment to reduce the amortized cost of this security. This security was downgraded to a below investment grade rating of “Caa3” by Moody’s Investors Service Inc. (“Moody’s”) on March 27, 2009 and was placed on nonaccrual status as of March 31, 2009. On October 30, 2009, Moody’s downgraded this security to a rating of “Ca.” 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. In April 2010, this investment security began deferring a portion of interest payments. During the second quarter of 2010, an adverse change occurred in the expected cash flows for this security and additional credit-related impairment loss of $354 thousand was recognized in earnings in the second quarter of 2010. The analysis of the expected cash flows for this security as of September 30, 2010 did not result in further credit-related impairment loss for the quarter ended September 30, 2010.
During the fourth quarter of 2008, the Corporation’s other trust preferred collateralized debt obligation security began deferring interest payments until future periods and the Corporation recognized an other-than-temporary impairment charge in the fourth quarter of 2008 on this security in the amount of $1.9 million. This investment security was also placed on nonaccrual status as of December 31, 2008. In connection with the first quarter 2009 early adoption of the provisions of ASC 320, “Investments – Debt and Equity Securities” and based on Washington Trust’s assessment of the facts associated with this instrument, the Corporation concluded that there was no credit loss portion of the other-than-temporary impairment charge as of December 31, 2008. Washington Trust reclassified the noncredit-related other-than-temporary impairment loss for this security previously recognized in earnings in the fourth quarter of 2008 as a cumulative effect adjustment as of January 1, 2009 in the amount of $1.2 million after taxes ($1.9 million before taxes) with an increase in retained earnings and a decrease in accumulated other comprehensive loss. In addition, the amortized cost basis of this security was increased by $1.9 million, the amount of the cumulative effect adjustment before taxes. This security was downgraded to a below investment grade rating of “Ca” by Moody’s on March 27, 2009. During the third quarter of 2009, an adverse change occurred in the expected cash flows for this instrument indicating that, based on cash flow forecasts with regard to timing of deferrals and potential future recovery of deferred payments, default rates, and other matters, the Corporation would not receive all contractual amounts due under the instrument and would not recover the entire cost basis of the security. The Corporation concluded that these conditions warranted a conclusion of other-than-temporary impairment for this holding as of September 30, 2009 and recognized a $467 thousand credit-related impairment loss in earnings, with a commensurate adjustment to reduce the amortized cost of this security in the third quarter of 2009. The analysis of the expected cash flows for this security as of December 31, 2009 resulted in an additional credit-related impairment loss of $679 thousand being recognized in earnings in the fourth quarter of 2009. An additional credit-related impairment loss of $63 thousand was recognized in earnings in the first quarter of 2010 based on the analysis of the expected cash flows for this security as of March 31, 2010. This security was downgraded to a rating of “C” by Moody’s on June 24, 2010. 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. The analysis of the expected cash flows for this security as of September 30, 2010 did not result in further credit-related impairment loss for the quarter ended September 30, 2010.
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
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 at September 30, 2010.
(5) Loans
The following is a summary of loans:
|
(Dollars in thousands)
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
| |
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Commercial:
|
Mortgages (1)
|
|
$ |
522,355 |
|
|
|
26 |
% |
|
$ |
496,996 |
|
|
|
26 |
% |
| |
Construction and development (2)
|
|
|
62,820 |
|
|
|
3 |
% |
|
|
72,293 |
|
|
|
4 |
% |
| |
Other (3)
|
|
|
464,294 |
|
|
|
23 |
% |
|
|
415,261 |
|
|
|
21 |
% |
| |
Total commercial
|
|
|
1,049,469 |
|
|
|
52 |
% |
|
|
984,550 |
|
|
|
51 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate:
|
Mortgages (4)
|
|
|
622,975 |
|
|
|
31 |
% |
|
|
593,981 |
|
|
|
31 |
% |
| |
Homeowner construction
|
|
|
10,593 |
|
|
|
1 |
% |
|
|
11,594 |
|
|
|
1 |
% |
| |
Total residential real estate
|
|
|
633,568 |
|
|
|
32 |
% |
|
|
605,575 |
|
|
|
32 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
Home equity lines (5)
|
|
|
218,898 |
|
|
|
11 |
% |
|
|
209,801 |
|
|
|
11 |
% |
| |
Home equity loans (5)
|
|
|
54,923 |
|
|
|
3 |
% |
|
|
62,430 |
|
|
|
3 |
% |
| |
Other (6)
|
|
|
54,290 |
|
|
|
2 |
% |
|
|
57,312 |
|
|
|
3 |
% |
| |
Total consumer
|
|
|
328,111 |
|
|
|
16 |
% |
|
|
329,543 |
|
|
|
17 |
% |
|
Total loans (7)
|
|
$ |
2,011,148 |
|
|
|
100 |
% |
|
$ |
1,919,668 |
|
|
|
100 |
% |
|
(1)
|
Amortizing mortgages and lines of credit, primarily secured by income producing property. $127 million of these loans at September 30, 2010 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. At September 30, 2010, $36 million of these loans were pledged as collateral for FHLBB borrowings and $66 million of these loans were collateralized for the discount window at the Federal Reserve Bank (see Note 7).
|
|
(4)
|
A substantial portion of these loans was pledged as collateral for FHLBB borrowings (see Note 7).
|
|
(5)
|
A significant portion of these loans was pledged as collateral for FHLBB borrowings (see Note 7).
|
|
(6)
|
Fixed rate consumer installment loans.
|
|
(7)
|
Includes unamortized loan origination costs, net of fees, totaling $267 thousand and $103 thousand at September 30, 2010 and December 31, 2009, respectively. Also includes $18 thousand and $140 thousand of net discounts on purchased loans at September 30, 2010 and December 31, 2009, respectively.
|
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 homogenous 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:
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30,
2010
|
|
|
December 31,
2009
|
|
|
Nonaccrual commercial loans, excluding troubled debt restructured loans:
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
$ |
4,953 |
|
|
$ |
11,588 |
|
|
Other commercial
|
|
|
6,043 |
|
|
|
8,847 |
|
|
Total nonaccrual commercial loans, excluding troubled debt restructured loans
|
|
|
10,996 |
|
|
|
20,435 |
|
|
Nonaccrual troubled debt restructured loans:
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
1,473 |
|
|
|
– |
|
|
Other commercial
|
|
|
213 |
|
|
|
228 |
|
|
Residential real estate mortgages
|
|
|
823 |
|
|
|
336 |
|
|
Consumer
|
|
|
43 |
|
|
|
45 |
|
|
Nonaccrual troubled debt restructured loans
|
|
|
2,552 |
|
|
|
609 |
|
|
Accruing troubled debt restructured loans:
|
|
|
|
|
|
|
|
|
|
Commercial mortgages
|
|
|
11,812 |
|
|
|
5,566 |
|
|
Other commercial
|
|
|
2,498 |
|
|
|
540 |
|
|
Residential real estate mortgages
|
|
|
2,870 |
|
|
|
2,736 |
|
|
Consumer
|
|
|
817 |
|
|
|
858 |
|
|
Accruing troubled debt restructured loans
|
|
|
17,997 |
|
|
|
9,700 |
|
|
Total troubled debt restructured loans
|
|
|
20,549 |
|
|
|
10,309 |
|
|
Other loans classified as impaired:
|
|
|
|
|
|
|
|
|
|
Nonaccrual residential real estate mortgages
|
|
|
1,750 |
|
|
|
772 |
|
|
Nonaccrual consumer
|
|
|
410 |
|
|
|
– |
|
|
Accruing consumer
|
|
|
36 |
|
|
|
38 |
|
|
Total other
|
|
|
2,196 |
|
|
|
810 |
|
|
Total recorded investment in impaired loans
|
|
$ |
33,741 |
|
|
$ |
31,554 |
|
|
(Dollars in thousands)
|
|
September 30,
2010
|
|
|
December 31,
2009
|
|
|
Impaired loans requiring an allowance
|
|
$ |
23,694 |
|
|
$ |
19,480 |
|
|
Impaired loans not requiring an allowance
|
|
|
10,047 |
|
|
|
12,074 |
|
|
Total recorded investment in impaired loans
|
|
$ |
33,741 |
|
|
$ |
31,554 |
|
|
Loss allocation on impaired loans
|
|
$ |
2,765 |
|
|
$ |
2,459 |
|
|
(Dollars in thousands)
|
|
| |
|
Three Months
|
|
|
Nine Months
|
|
|
Periods ended September 30,
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Average recorded investment in impaired loans
|
|
$ |
30,898 |
|
|
$ |
23,060 |
|
|
$ |
31,157 |
|
|
$ |
16,311 |
|
|
Interest income recognized on impaired loans
|
|
$ |
500 |
|
|
$ |
183 |
|
|
$ |
1,274 |
|
|
$ |
329 |
|
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
(6) 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,
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Balance at beginning of period
|
|
$ |
27,985 |
|
|
$ |
26,051 |
|
|
$ |
27,400 |
|
|
$ |
23,725 |
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
Mortgages
|
|
|
(25 |
) |
|
|
(27 |
) |
|
|
(1,051 |
) |
|
|
(1,282 |
) |
| |
Construction and development
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Other
|
|
|
(1,049 |
) |
|
|
(1,166 |
) |
|
|
(2,145 |
) |
|
|
(2,122 |
) |
|
Residential real estate:
|
Mortgages
|
|
|
(301 |
) |
|
|
(206 |
) |
|
|
(588 |
) |
|
|
(365 |
) |
| |
Homeowner construction
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Consumer
|
|
|
(93 |
) |
|
|
(39 |
) |
|
|
(222 |
) |
|
|
(178 |
) |
|
Total charge-offs
|
|
|
(1,468 |
) |
|
|
(1,438 |
) |
|
|
(4,006 |
) |
|
|
(3,947 |
) |
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
Mortgages
|
|
|
121 |
|
|
|
9 |
|
|
|
125 |
|
|
|
36 |
|
| |
Construction and development
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
Other
|
|
|
22 |
|
|
|
1 |
|
|
|
52 |
|
|
|
93 |
|
|
Residential real estate:
|
Mortgages
|
|
|
– |
|
|
|
5 |
|
|
|
76 |
|
|
|
5 |
|
| |
Homeowner construction
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Consumer
|
|
|
5 |
|
|
|
3 |
|
|
|
18 |
|
|
|
19 |
|
|
Total recoveries
|
|
|
148 |
|
|
|
18 |
|
|
|
271 |
|
|
|
153 |
|
|
Net charge-offs
|
|
|
(1,320 |
) |
|
|
(1,420 |
) |
|
|
(3,735 |
) |
|
|
(3,794 |
) |
|
Provision charged to expense
|
|
|
1,500 |
|
|
|
1,800 |
|
|
|
4,500 |
|
|
|
6,500 |
|
|
Balance at end of period
|
|
$ |
28,165 |
|
|
$ |
26,431 |
|
|
$ |
28,165 |
|
|
$ |
26,431 |
|
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
(7) Borrowings
Federal Home Loan Bank Advances
Advances payable to the FHLBB amounted to $480 million at September 30, 2010 and $607 million at December 31, 2009. In connection with the Corporation’s ongoing interest rate risk management efforts, in January 2010, the Corporation modified the terms to extend the maturity dates of $50 million of its FHLBB advances with original maturity dates in 2011 and 2012. In April 2010, the Corporation modified the terms to extend the maturity dates of an additional $38.5 million of its FHLBB advances with original maturity dated in 2010 and 2011.
During the third quarter of 2010, the Corporation prepaid $65 million in advances payable to the FHLBB resulting in a debt prepayment penalty charge, recorded in noninterest expense, of $752 thousand.
In October 2010, the Corporation modified the terms to extend the maturity dates of $62.5 million of its FHLBB advances with original maturity dates in 2012. The following table presents maturities and weighted average interest rates paid on FHLBB advances outstanding at September 30, 2010 on a pro forma basis reflecting the October 2010 modification:
|
(Dollars in thousands)
|
|
Scheduled
|
|
|
Redeemed at
|
|
|
Weighted
|
|
| |
|
Maturity
|
|
|
Call Date (1)
|
|
|
Average Rate (2)
|
|
|
October 1, 2010 through December 31, 2010
|
|
$ |
1,636 |
|
|
$ |
14,636 |
|
|
|
4.62 |
% |
|
2011
|
|
|
34,039 |
|
|
|
26,039 |
|
|
|
4.65 |
% |
|
2012
|
|
|
122,365 |
|
|
|
122,365 |
|
|
|
3.68 |
% |
|
2013
|
|
|
162,034 |
|
|
|
157,034 |
|
|
|
3.90 |
% |
|
2014
|
|
|
68,562 |
|
|
|
68,562 |
|
|
|
3.99 |
% |
|
2015
|
|
|
27,810 |
|
|
|
27,810 |
|
|
|
4.07 |
% |
|
2016 and after
|
|
|
63,912 |
|
|
|
63,912 |
|
|
|
5.07 |
% |
|
Balance at September 30, 2010
|
|
$ |
480,358 |
|
|
$ |
480,358 |
|
|
|
4.08 |
% |
|
(1)
|
Callable FHLBB advances are shown in the respective periods assuming that the callable debt is redeemed at the call date while all other advances are shown in the periods corresponding to their scheduled maturity date.
|
(2) Weighted average rate based on scheduled maturity dates.
In addition to the outstanding advances, the Bank also has access to an unused line of credit with the FHLBB amounting to $8.0 million at September 30, 2010. Under agreement with the FHLBB, the Bank is required to maintain qualified collateral, free and clear of liens, pledges, or encumbrances that, based on certain percentages of book and fair values, has a value equal to the aggregate amount of the line of credit and outstanding advances. The FHLBB maintains a security interest in various assets of the Corporation including, but not limited to, residential mortgage loans, commercial mortgages and other commercial loans, U.S. government agency securities, U.S. government-sponsored enterprise securities, and amounts maintained on deposit at the FHLBB. The Corporation maintained qualified collateral in excess of the amount required to collateralize the line of credit and outstanding advances at September 30, 2010. Included in the collateral were securities available for sale with a fair value of $256 million and $370 million that were specifically pledged to secure FHLBB borrowings at September 30, 2010 and December 31, 2009, respectively. Unless there is an event of default under the agreement, the Corporation may use, encumber or dispose any portion of the collateral in excess of the amount required to secure FHLBB borrowings, except for that collateral which has been specifically pledged.
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
(8) Shareholders’ Equity
Regulatory Capital Requirements:
The following table presents the Corporation’s and the Bank’s actual capital amounts and ratios at September 30, 2010 and December 31, 2009, as well as the corresponding minimum and well capitalized 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, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
254,530 |
|
|
|
12.50 |
% |
|
$ |
162,841 |
|
|
|
8.00 |
% |
|
$ |
203,551 |
|
|
|
10.00 |
% |
|
Bank
|
|
$ |
250,937 |
|
|
|
12.35 |
% |
|
$ |
162,614 |
|
|
|
8.00 |
% |
|
$ |
203,267 |
|
|
|
10.00 |
% |
|
Tier 1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
228,834 |
|
|
|
11.24 |
% |
|
$ |
81,420 |
|
|
|
4.00 |
% |
|
$ |
122,130 |
|
|
|
6.00 |
% |
|
Bank
|
|
$ |
225,276 |
|
|
|
11.08 |
% |
|
$ |
81,307 |
|
|
|
4.00 |
% |
|
$ |
121,960 |
|
|
|
6.00 |
% |
|
Tier 1 Capital (to Average Assets): (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
228,834 |
|
|
|
8.04 |
% |
|
$ |
113,817 |
|
|
|
4.00 |
% |
|
$ |
142,271 |
|
|
|
5.00 |
% |
|
Bank
|
|
$ |
225,276 |
|
|
|
7.93 |
% |
|
$ |
113,659 |
|
|
|
4.00 |
% |
|
$ |
142,074 |
|
|
|
5.00 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
244,382 |
|
|
|
12.40 |
% |
|
$ |
157,615 |
|
|
|
8.00 |
% |
|
$ |
197,019 |
|
|
|
10.00 |
% |
|
Bank
|
|
$ |
242,536 |
|
|
|
12.32 |
% |
|
$ |
157,470 |
|
|
|
8.00 |
% |
|
$ |
196,838 |
|
|
|
10.00 |
% |
|
Tier 1 Capital (to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
219,552 |
|
|
|
11.14 |
% |
|
$ |
78,808 |
|
|
|
4.00 |
% |
|
$ |
118,212 |
|
|
|
6.00 |
% |
|
Bank
|
|
$ |
217,729 |
|
|
|
11.06 |
% |
|
$ |
78,735 |
|
|
|
4.00 |
% |
|
$ |
118,103 |
|
|
|
6.00 |
% |
|
Tier 1 Capital (to Average Assets): (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$ |
219,552 |
|
|
|
7.82 |
% |
|
$ |
112,269 |
|
|
|
4.00 |
% |
|
$ |
140,336 |
|
|
|
5.00 |
% |
|
Bank
|
|
$ |
217,729 |
|
|
|
7.76 |
% |
|
$ |
112,165 |
|
|
|
4.00 |
% |
|
$ |
140,206 |
|
|
|
5.00 |
% |
(1) Leverage ratio
(9) 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, equity commitments to affordable housing partnerships, interest rate swap agreements 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’s credit policies with respect to interest rate swap agreements with commercial borrowers, commitments to extend credit, and financial guarantees are similar to those used for loans. The interest rate swaps with other counterparties are generally subject to bilateral collateralization terms. The contractual and notional amounts of financial instruments with off-balance sheet risk are as follows:
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
|
(Dollars in thousands)
|
|
September 30,
2010
|
|
|
December 31,
2009
|
|
|
Financial instruments whose contract amounts represent credit risk:
|
|
|
|
|
|
|
|
Commitments to extend credit:
|
|
|
|
|
|
|
|
Commercial loans
|
|
$ |
172,833 |
|
|
$ |
186,943 |
|
|
Home equity lines
|
|
|
179,613 |
|
|
|
185,892 |
|
|
Other loans
|
|
|
18,894 |
|
|
|
25,691 |
|
|
Standby letters of credit
|
|
|
9,164 |
|
|
|
8,712 |
|
|
Equity commitments to affordable housing partnerships
|
|
|
1,228 |
|
|
|
690 |
|
|
Financial instruments whose notional amounts exceed the amount of credit risk:
|
|
|
|
|
|
|
|
|
|
Forward loan commitments:
|
|
|
|
|
|
|
|
|
|
Commitments to originate fixed rate mortgage loans to be sold
|
|
|
42,481 |
|
|
|
15,898 |
|
|
Commitments to sell fixed rate mortgage loans
|
|
|
63,431 |
|
|
|
25,791 |
|
|
Customer related derivative contracts:
|
|
|
|
|
|
|
|
|
|
Interest rate swaps with customers
|
|
|
60,056 |
|
|
|
53,725 |
|
|
Mirror swaps with counterparties
|
|
|
60,056 |
|
|
|
53,725 |
|
|
Interest rate risk management contracts:
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts
|
|
|
32,991 |
|
|
|
10,000 |
|
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 a standby letter of credit, the Corporation is required to make payments to the beneficiary of the letter 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, 2010 and December 31, 2009, the maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $9.2 million and $8.7 million, respectively. At September 30, 2010 and December 31, 2009, there was no liability to beneficiaries resulting from standby letters of credit. Fee income on standby letters of credit for the three and nine months ended September 30, 2010 and 2009 was insignificant.
At September 30, 2010, a substantial portion of the standby letters of credit was 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.
Equity Commitments
Equity commitments to affordable housing partnerships represent funding commitments by Washington Trust to limited partnerships. These partnerships were created for the purpose of renovating and operating a low-income housing project. The funding of these commitments is generally contingent upon substantial completion of the project.
Forward Loan Commitments
Interest rate lock commitments are extended to borrowers that relate to the origination of readily marketable mortgage loans held for sale. To mitigate the interest rate risk inherent in these rate locks, as well as closed mortgage loans held for sale, best efforts forward commitments are established to sell individual mortgage loans. Commitments to originate and commitments to sell fixed rate mortgage loans are derivative financial instruments and, therefore, changes in fair value of these commitments are recognized in earnings.
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
Interest Rate Risk Management Agreements
Interest rate swaps are used from time to time as part of the Corporation’s interest rate risk management strategy. Swaps are agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments) computed on a notional principal amount. The credit risk associated with swap transactions is the risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the potential loss exposure.
As of December 31, 2009, the Bancorp had an interest rate swap contract designated as a cash flow hedge to hedge the interest rate risk associated with $10 million of variable rate junior subordinated debentures. The interest rate swap contract had a notional amount of $10 million and was to mature in 2013. In March 2010, this swap was terminated. At the time of termination, the unrealized losses were immaterial.
During April 2010, the Bancorp entered into an interest rate swap contract with a total notional amount of $10.3 million. The interest rate swap contract was designated as a cash flow hedge with the objective of converting the floating rate on its junior subordinated debentures issued in April 2008 to a fixed rate of interest.
During May 2010, the Bancorp entered into two forward-starting interest rate swap contracts with an aggregate notional amount of $22.7 million. These interest rate swap contracts were designated as cash flow hedges and were entered into to hedge the interest rate risk associated with $8.3 million and $14.4 million in junior subordinated debentures that were both issued in August of 2005 with a fixed rate of interest until September 15, 2010 and November 23, 2010, respectively.
The effective portion of the changes in fair value of derivatives designated as cash flow hedges is recorded in other comprehensive income and subsequently reclassified to earnings when gains or losses are realized. The ineffective portion of changes in fair value of the derivatives is recognized directly in earnings as interest expense.
The Bancorp pledged collateral to derivative counterparties in the form of cash totaling $1.8 million as of September 30, 2010. No collateral was posted from the counterparties to the Bancorp as of September 30, 2010. The Bancorp may need to post additional collateral in the future in proportion to potential increases in unrealized loss positions.
The Bank has entered into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk. The interest rate swap contracts with commercial loan borrowers allow them to convert floating rate loan payments to fixed rate loan payments. When we enter into an interest rate swap contract with a commercial loan borrower, we simultaneously enter into a “mirror” swap contract with a third party. The third party exchanges the client’s fixed rate loan payments for floating rate loan payments. We retain the risk that is associated with the potential failure of counterparties and inherent in making loans. At September 30, 2010 and December 31, 2009, Washington Trust had interest rate swap contracts with commercial loan borrowers with notional amounts of $60.1 million and $53.7 million, respectively, and equal amounts of “mirror” swap contracts with third-party financial institutions. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.
|
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
|
|
|
|
|
The following table presents the fair values of derivative instruments in the Corporation’s Consolidated Balance Sheets as of the dates indicated.
|
(Dollars in thousands)
|
Asset Derivatives
|
|
Liability Derivatives
|
|
| |
|
|
Fair Value
|
|
|
|
|