form10-q20110630.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
 x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended JUNE 30, 2011 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          x No

The number of shares of common stock of the registrant outstanding as of August 5, 2011 was 16,279,449.


 
 

FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
For the Quarter Ended June 30, 2011
     
   
Page
   
Number
     
 
   
 
   
 
 
   
 
 
   
 
 
   
   
   
   
   
 
   
   
   
   
   
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   
   
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  
   
Exhibit 32.1 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  


 
 
-2-

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

   
June 30,
    
December 31,
  
   
2011
    
2010
  
Assets:
            
Cash and due from banks
   $ 64,265     $ 85,971  
Other short-term investments
     7,480       6,765  
Mortgage loans held for sale
     8,825       13,894  
Securities available for sale, at fair value;
                
amortized cost $570,905 in 2011 and $578,897 in 2010
     591,580       594,100  
Federal Home Loan Bank stock, at cost
     42,008       42,008  
Loans:
                
Commercial and other
     1,073,495       1,027,065  
Residential real estate
     658,347       645,020  
Consumer
     325,310       323,553  
Total loans
     2,057,152       1,995,638  
Less allowance for loan losses
     29,353       28,583  
Net loans
     2,027,799       1,967,055  
Premises and equipment, net
     25,265       26,069  
Investment in bank-owned life insurance
     52,802       51,844  
Goodwill
     58,114       58,114  
Identifiable intangible assets, net
     7,377       7,852  
Other assets
     50,791       55,853  
Total assets
   $ 2,936,306     $ 2,909,525  
Liabilities:
                
Deposits:
                
Demand deposits
   $ 261,016     $ 228,437  
NOW accounts
     236,162       241,974  
Money market accounts
     355,096       396,455  
Savings accounts
     227,014       220,888  
Time deposits
     916,755       948,576  
Total deposits
     1,996,043       2,036,330  
Federal Home Loan Bank advances
     558,441       498,722  
Junior subordinated debentures
     32,991       32,991  
Other borrowings
     22,005       23,359  
Other liabilities
     45,401       49,259  
Total liabilities
     2,654,881       2,640,661  
Shareholders’ Equity:
                
Common stock of $.0625 par value; authorized 30,000,000 shares;
                
issued 16,266,483 shares in 2011 and 16,171,618 shares in 2010
     1,017       1,011  
Paid-in capital
     86,838       84,889  
Retained earnings
     186,078       178,939  
Accumulated other comprehensive income
     7,492       4,025  
Total shareholders’ equity
     281,425       268,864  
Total liabilities and shareholders’ equity
   $ 2,936,306     $ 2,909,525  
 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
  


 
 
-3-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Dollars and shares in thousands,
except per share amounts)

   
Three Months
    
Six Months
  
Periods ended June 30,
  
2011
    
2010
    
2011
    
2010
  
Interest income:
                        
Interest and fees on loans
   $ 24,707     $ 24,180     $ 48,966     $ 48,148  
Interest on securities:
Taxable
     4,869       5,837       9,642       11,888  
 
Nontaxable
     758       770       1,527       1,539  
Dividends on corporate stock and Federal Home Loan Bank stock
     66       54       133       109  
Other interest income
     13       13       37       34  
Total interest income
     30,413       30,854       60,305       61,718  
Interest expense:
                                
Deposits
     4,030       5,331       8,232       11,100  
Federal Home Loan Bank advances
     4,685       6,000       9,417       12,219  
Junior subordinated debentures
     392       447       782       1,077  
Other interest expense
     242       243       483       485  
Total interest expense
     9,349       12,021       18,914       24,881  
Net interest income
     21,064       18,833       41,391       36,837  
Provision for loan losses
     1,200       1,500       2,700       3,000  
Net interest income after provision for loan losses
     19,864       17,333       38,691       33,837  
Noninterest income:
                                
Wealth management services:
                                
Trust and investment advisory fees
     5,822       5,153       11,498       10,170  
Mutual fund fees
     1,135       1,105       2,258       2,215  
Financial planning, commissions and other service fees
     553       505       834       684  
Wealth management services
     7,510       6,763       14,590       13,069  
Service charges on deposit accounts
     909       913       1,841       1,762  
Merchant processing fees
     2,682       2,406       4,626       4,012  
Card interchange fees
     581       487       1,068       876  
Income from bank-owned life insurance
     482       474       958       913  
Net gains on loan sales and commissions on loans originated for others
     537       318       1,062       878  
Net realized gains on securities
     226       –       197       –  
Net (losses) gains on interest rate swap contracts
     (35 )     (121 )     41       (53 )
Equity in losses of unconsolidated subsidiaries
     (145 )     (50 )     (289 )     (102 )
Other income
     538       323       921       688  
Noninterest income, excluding other-than-temporary impairment losses
     13,285       11,513       25,015       22,043  
Total other-than-temporary impairment losses on securities
     –       (243 )     (54 )     (245 )
Portion of loss recognized in other comprehensive income (before tax)
     –       (111 )     21       (172 )
Net impairment losses recognized in earnings
     –       (354 )     (33 )     (417 )
Total noninterest income
     13,285       11,159       24,982       21,626  
Noninterest expense:
                                
Salaries and employee benefits
     12,398       11,726       24,226       23,227  
Net occupancy
     1,236       1,237       2,557       2,461  
Equipment
     1,070       1,014       2,119       2,011  
Merchant processing costs
     2,345       2,057       4,014       3,414  
Outsourced services
     875       855       1,747       1,695  
FDIC deposit insurance costs
     464       784       1,187       1,578  
Legal, audit and professional fees
     467       408       959       926  
Advertising and promotion
     427       419       780       783  
Amortization of intangibles
     237       290       475       581  
Foreclosed property costs
     338       87       504       123  
Debt prepayment penalties
     221       –       221       –  
Other expenses
     2,186       2,106       4,215       3,861  
Total noninterest expense
     22,264       20,983       43,004       40,660  
Income before income taxes
     10,885       7,509       20,669       14,803  
Income tax expense
     3,320       2,211       6,304       4,333  
Net income
   $ 7,565     $ 5,298     $ 14,365     $ 10,470  
Weighted average common shares outstanding - basic
     16,251.6       16,104.6       16,224.5       16,081.3  
Weighted average common shares outstanding - diluted
     16,284.3       16,111.3       16,257.0       16,116.3  
Per share information:
Basic earnings per common share
   $ 0.46     $ 0.33     $ 0.88     $ 0.65  
 
Diluted earnings per common share
   $ 0.46     $ 0.33     $ 0.88     $ 0.65  
 
Cash dividends declared per share
   $ 0.22     $ 0.21     $ 0.44     $ 0.42  
The accompanying notes are an integral part of these unaudited consolidated financial statements
  
 
 
-4-
 WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
  
(Dollars in thousands)
  
     
       
Six months ended June 30,
  
2011
    
2010
  
Cash Flows from Operating Activities:
            
Net income
   $ 14,365     $ 10,470  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Provision for loan losses
     2,700       3,000  
Depreciation of premises and equipment
     1,540       1,540  
Foreclosed and repossessed property valuation adjustments
     392       50  
Net gain on sale of premises
     (203 )     –  
Net amortization of premium and discount
     664       207  
Net amortization of intangibles
     475       581  
Share-based compensation
     680       395  
Earnings from bank-owned life insurance
     (958 )     (913 )
Net gains on loan sales and commissions on loans originated for others
     (1,062 )     (878 )
Net realized gains on securities
     (197 )     –  
Net impairment losses recognized in earnings
     33       417  
Net (gains) losses on interest rate swap contracts
     (41 )     53  
Equity in losses of unconsolidated subsidiaries
     289       102  
Proceeds from sales of loans
     52,714       59,487  
Loans originated for sale
     (46,587 )     (57,518 )
Decrease in other assets
     2,291       2,279  
Decrease in other liabilities
     (5,888 )     (3,140 )
Net cash provided by operating activities
     21,207       16,132  
Cash Flows from Investing Activities:
                
Purchases of:
Mortgage-backed securities available for sale
     (90,855 )     (44,479 )
 
Other investment securities available for sale
     -       (15,000 )
Proceeds from sale of:
Mortgage-backed securities available for sale
     42,783       -  
 
Other investment securities available for sale
     1,000       711  
Maturities and principal payments of mortgage-backed securities available for sale
     54,494       82,301  
Net increase in loans
     (60,274 )     (54,553 )
Purchases of loans, including purchased interest
     (3,116 )     (558 )
Proceeds from the sale of property acquired through foreclosure or repossession
     1,675       219  
Purchases of premises and equipment
     (1,239 )     (1,266 )
Purchases of bank-owned life insurance
     -       (5,000 )
Net proceeds from the sale of premises
     1,279       -  
Equity investments in real estate limited partnerships
     (294 )     (414 )
Net cash used in investing activities
     (54,547 )     (38,039 )
Cash Flows from Financing Activities:
                
Net (decrease) increase in deposits
     (40,287 )     26,895  
Net decrease in other borrowings
     (1,354 )     (587 )
Proceeds from Federal Home Loan Bank advances
     248,078       164,500  
Repayment of Federal Home Loan Bank advances
     (188,360 )     (156,679 )
Issuance of treasury stock, including deferred compensation plan activity
     -       44  
Net proceeds from the issuance of common stock under dividend reinvestment plan
     484       517  
Net proceeds from the exercise of stock options and issuance of other
                
compensation-related equity instruments
     725       558  
Tax benefit from stock option exercises and issuance of other compensation-related equity instruments
     68       47  
Cash dividends paid
     (7,005 )     (6,759 )
Net cash provided by financing activities
     12,349       28,536  
Net (decrease) increase in cash and cash equivalents
     (20,991 )     6,629  
Cash and cash equivalents at beginning of period
     92,736       57,260  
Cash and cash equivalents at end of period
   $ 71,745     $ 63,889  
                 
Noncash Investing and Financing Activities:
Loans charged off
   $ 2,096     $ 2,538  
 
Net transfers from loans to property acquired through
                
 
foreclosure or repossession
     801       630  
                   
Supplemental Disclosures:
Interest payments
     18,710       24,148  
 
Income tax payments
     5,836       4,513  
The accompanying notes are an integral part of these unaudited consolidated financial statements.
  
 
-5-
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
 
 

(1) General and Basis of Presentation
Washington Trust Bancorp, Inc. (the “Bancorp”) is a publicly-owned registered bank holding company that has elected to be a 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 southeastern 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 June 30, 2011 and December 31, 2010, 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, 2010.

(2) Recently Issued Accounting Pronouncements
Receivables – Topic 310
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 significantly enhances disclosures that entities must make about the credit quality of financing receivables and the allowance for credit losses.  The Financial Accounting Standards Board (“FASB”) issued the ASU to give financial statement users greater transparency about entities’ credit-risk exposures and the allowance for credit losses.  The disclosures 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.  Accounting Standards Update No. 2011-01 “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update 2010-20” (“ASU 2011-01”) was issued in January 2011 and delayed the effective date of the ASU 2010-20 disclosures pertaining to troubled debt restructurings.  The disclosures required by ASU 2011-01 are effective for interim and annual periods beginning after June 15, 2011.  Effective December 31, 2010, we adopted the provisions of ASU 2010-20 requiring end of period disclosures about credit quality of financing receivables and the allowance for credit losses.  ASU 2010-20 provisions encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption.  The adoption of the remaining provisions of ASU 2010-20 and ASU 2011-01 is not expected to have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

Accounting Standards Update No. 2011-02 “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” (“ASU 2011-02”) was issued in April 2011.  ASU 2011-02 provides additional guidance to assist creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial
 
 
 
-6-
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Continued)
 

difficulties for purposes of determining whether a restructuring constitutes a trouble debt restructuring.  ASU 2011-02 will be effective for interim and reporting periods beginning after June 15, 2011 and should be applied retrospectively to the beginning of the 2011 annual period.  The adoption of ASU 2011-02 is not expected to have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

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 change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements.  For many of the requirements, the FASB does 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 should be applied prospectively and are effective for fiscal years and interim periods within those years, beginning after December 15, 2011.  The adoption of ASU 2011-04 is not expected to 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.  The provisions of ASU 2011-05 should be applied retrospectively and are effective for fiscal years and interim periods within those years, beginning after December 15, 2011.  The adoption of ASU 2011-05 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 June 30, 2011 and December 31, 2010 and are included in cash and due from banks in the Consolidated Statements of Condition.

As of June 30, 2011 and December 31, 2010, cash and due from banks included interest-bearing deposits in other banks of $24.4 million and $50.5 million, respectively.

(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 June 30, 2011 and December 31, 2010 were as follows:

(Dollars in thousands)
                        
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
June 30, 2011
  
Cost (1)
    
Gains
    
Losses
    
Value
  
Securities Available for Sale:
                        
Obligations of U.S. government-sponsored enterprises
   $ 29,415     $ 3,834     $ −     $ 33,249  
Mortgage-backed securities issued by U.S. government
                                
agencies and U.S. government-sponsored enterprises
     411,629       20,098       (35 )     431,692  
States and political subdivisions
     78,445       3,595       (65 )     81,975  
Trust preferred securities:
                                
Individual name issuers
     30,620       −       (5,009 )     25,611  
Collateralized debt obligations
     4,414       −       (3,480 )     934  
Corporate bonds
     13,870       1,098       −       14,968  
Common stocks
     658       224       −       882  
Perpetual preferred stocks (2)
     1,854       415       −       2,269  
Total securities available for sale
   $ 570,905     $ 29,264     $ (8,589 )   $ 591,580  
 
 
-7-
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Continued)
 

(Dollars in thousands)
                        
   
Amortized
    
Unrealized
    
Unrealized
    
Fair
  
December 31, 2010
  
Cost (1)
    
Gains
    
Losses
    
Value
  
Securities Available for Sale:
                        
Obligations of U.S. government-sponsored enterprises
   $ 36,900     $ 4,094     $ −     $ 40,994  
Mortgage-backed securities issued by U.S. government
                                
agencies and U.S. government-sponsored enterprises
     411,087       19,068       (384 )     429,771  
States and political subdivisions
     79,455       1,975       (375 )     81,055  
Trust preferred securities:
                                
Individual name issuers
     30,601       −       (7,326 )     23,275  
Collateralized debt obligations
     4,466       −       (3,660 )     806  
Corporate bonds
     13,874       1,338       −       15,212  
Common stocks
     660       149       −       809  
Perpetual preferred stocks (2)
     1,854       324       −       2,178  
Total securities available for sale
   $ 578,897     $ 26,948     $ (11,745 )   $ 594,100  

(1)      Net of other-than-temporary impairment losses.
(2)      Callable at the discretion of the issuer.

Securities available for sale with a fair value of $499 million and $507 million were pledged in compliance with state regulations concerning trust powers and to secure Treasury Tax and Loan deposits, borrowings, certain public deposits and certain interest rate swap agreements at June 30, 2011 and December 31, 2010, respectively.  See Note 7 for additional disclosure regarding Federal Home Loan Bank of Boston (“FHLBB”) borrowings.  In addition, securities available for sale with a fair value of $23.0 million and $22.0 million were pledged for potential use at the Federal Reserve Bank discount window at June 30, 2011 and December 31, 2010, respectively.  There were no borrowings with the Federal Reserve Bank at either date.  As of June 30, 2011 and December 31, 2010, securities available for sale with a fair value of $4.8 million and $5.5 million, respectively, were designated in rabbi trusts for nonqualified retirement plans.

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
    
Six Months
  
Periods ended June 30,
  
2011
    
2010
    
2011
    
2010
  
Balance at beginning of period
   $ 2,946     $ 2,559     $ 2,913     $ 2,496  
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
     –       354       33       417  
Balance at end of period
   $ 2,946     $ 2,913     $ 2,946     $ 2,913  

During the second quarter of 2011, there were no credit-related impairment losses recognized in earnings, compared to $354 thousand of credit-related impairment losses in the same quarter a year earlier.  For the six months ended June 30, 2011 and 2010, credit-related impairment losses recognized in earnings on pooled trust preferred debt securities totaled $33 thousand and $417 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 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.  
 
 
-8-
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Continued)
 
 
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 June 30, 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
  
         
Fair
    
Unrealized
          
Fair
    
Unrealized
          
Fair
    
Unrealized
  
June 30, 2011
     #    
Value
    
Losses
       #    
Value
    
Losses
       #    
Value
    
Losses
  
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
     2     $ 30,685     $ 35       –     $ –     $ –       2     $ 30,685     $ 35  
States and
                                                                        
political subdivisions
     1       783       4       2       1,269       61       3       2,052       65  
Trust preferred securities:
                                                                        
Individual name issuers
     –       –       –       11       25,611       5,009       11       25,611       5,009  
    Collateralized debt obligations
     –       –       –       2       934       3,480       2       934       3,480  
Total temporarily impaired securities
     3     $ 31,468     $ 39       15     $ 27,814     $ 8,550       18     $ 59,282     $ 8,589  

The following table summarizes temporarily impaired securities as of December 31, 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
  
December 31, 2010
     #    
Value
    
Losses
       #    
Value
    
Losses
       #    
Value
    
Losses
  
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
     6     $ 76,382     $ 369       3     $ 5,208     $ 15       9     $ 81,590     $ 384  
States and
                                                                        
political subdivisions
     15       14,209       273       2       1,228       102       17       15,437       375  
Trust preferred securities:
                                                                        
Individual name issuers
     –       –       –       11       23,275       7,326       11       23,275       7,326  
    Collateralized debt obligations
     –       –       –       2       806       3,660       2       806       3,660  
Total temporarily impaired securities
     21     $ 90,591     $ 642       18     $ 30,517     $ 11,103       39     $ 121,108     $ 11,745  

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.

 
-9-
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Continued)
 
 
Trust Preferred Debt Securities of Individual Name Issuers
Included in debt securities in an unrealized loss position at June 30, 2011 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 $5.0 million at June 30, 2011.  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 June 30, 2011, trust preferred debt securities with a carrying value of $9.6 million and unrealized losses of $2.2 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 June 30, 2011.

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 $4.4 million and aggregate unrealized losses of $3.5 million at June 30, 2011.  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 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 June 30, 2011, one of the pooled trust preferred securities had an amortized cost of $3.2 million.  This amortized cost was net of $1.7 million of credit-related impairment losses previously recognized in earnings reflective of payment deferrals and credit deterioration of the underlying collateral.  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.  As of June 30, 2011, this security has unrealized losses of $2.3 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.  The analysis of the expected cash flows for this security as of June 30, 2011 did not negatively affect the amount of credit-related impairment losses previously recognized on this security.

As of June 30, 2011, the second pooled trust preferred security held by Washington Trust had an amortized cost of $1.3 million.  This 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.  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.  As of June 30, 2011, 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 material 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 June 30, 2011 did not negatively affect the amount of credit-related impairment losses previously recognized on this security.
 
 
-10-
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Continued)
 

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.

As of June 30, 2011, 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 June 30, 2011 were debt securities with an amortized cost balance of $100 million and a fair value of $94 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)
  
Due in
    
After 1 Year
    
After 5 Years
              
   
1 Year
    
but within
    
but within
    
After
        
   
or Less
    
5 Years
    
10 Years
    
10 Years
    
Totals
  
Securities Available for Sale:
                              
Obligations of U.S. government-sponsored
                              
  enterprises:
                              
Amortized cost
   $ –     $ 29,415     $ –     $ –     $ 29,415  
Weighted average yield
     – %     5.41 %     – %     – %     5.41 %
Mortgage-backed securities issued by U.S.
                                        
  government agencies & U.S.
                                        
   government-sponsored enterprises:
                                        
Amortized cost
     86,992       204,993       92,680       26,964       411,629  
Weighted average yield
     4.39 %     4.12 %     2.89 %     2.84 %     3.82 %
State and political subdivisions:
                                        
Amortized cost
     9,495       45,057       23,893       –       78,445  
Weighted average yield
     3.88 %     3.85 %     3.96 %     – %     3.88 %
Trust preferred securities:
                                        
Amortized cost (1)
     –       –       –       35,034       35,034  
Weighted average yield
     – %     – %     – %     1.46 %     1.46 %
Corporate bonds:
                                        
Amortized cost
     4,989       8,881       –       –       13,870  
Weighted average yield
     6.50 %     6.30 %     – %     – %     6.37 %
Total debt securities:
                                        
Amortized cost
   $ 101,476     $ 288,346     $ 116,573     $ 61,998     $ 568,393  
Weighted average yield
     4.44 %     4.28 %     3.11 %     2.06 %     3.83 %
Fair value
   $ 103,486     $ 299,466     $ 122,165     $ 63,312     $ 588,429  

(1)
 Net of other-than-temporary impairment losses.
 
 
 
-11-
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Continued)
 

(5) Loans
The following is a summary of loans:

(Dollars in thousands)
  
June 30, 2011
    
December 31, 2010
  
   
Amount
    
%
    
Amount
    
%
  
Commercial:
                        
Mortgages (1)
   $ 562,976       27 %   $ 518,623       26 %
Construction and development (2)
     19,448       1       47,335       2  
Other (3)
     491,071       24       461,107       23  
Total commercial
     1,073,495       52       1,027,065       51  
Residential real estate:
                                
Mortgages (4)
     644,210       31       634,739       31  
Homeowner construction
     14,137       1       10,281       1  
Total residential real estate
     658,347       32       645,020       32  
Consumer:
                                
Home equity lines (5)
     223,284       11       218,288       11  
Home equity loans (5)
     46,797       2       50,624       3  
Other (6)
     55,229       3       54,641       3  
Total consumer
     325,310       16       323,553       17  
Total loans (7)
   $ 2,057,152       100 %   $ 1,995,638       100 %

(1)
Amortizing mortgages and lines of credit, primarily secured by income producing property. As of June 30, 2011 and December 31, 2010, $111 million and $122 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 June 30, 2011, $29 million and $48 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, 2010 were $30 million and $61 million, respectively (see Note 7).
(4)
As of June 30, 2011 and December 31, 2010, $579 million and $570 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 7).
(5)
As of June 30, 2011 and December 31, 2010, $206 million and $203 million, respectively, of these loans were 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 $218 thousand and $271 thousand at June 30, 2011 and December 31, 2010, respectively.  Also includes $54 thousand and $39 thousand of net premiums on purchased loans at June 30, 2011 and December 31, 2010, respectively.
 
 
-12-
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(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 cash receipts 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)
  
June 30,
 2011
    
December 31,
 2010
  
Commercial:
            
Mortgages
   $ 7,476     $ 6,624  
Construction and development
     –       –  
Other
     3,152       5,259  
Residential real estate:
                
Mortgages
     9,570       6,414  
Homeowner construction
     –       –  
Consumer:
                
Home equity lines
     390       152  
Home equity loans
     199       53  
Other
     191       8  
Total nonaccrual loans
   $ 20,978     $ 18,510  
                 
Accruing loans 90 days or more past due
   $ –     $ –  
 
 
-13-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Continued)
 

Past Due Loans
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
                    
June 30, 2011
     30-59       60-89    
Over 90
    
Total Past
Due
    
Current
    
Total
Loans
  
Commercial:
                                        
Mortgages
   $ 1,507     $ 1,013     $ 5,553     $ 8,073     $ 554,903     $ 562,976  
Construction and development
     −       −       −       −       19,448       19,448  
Other
     1,783       80       1,378       3,241       487,830       491,071  
Residential real estate:
                                                
Mortgages
     3,355       992       6,549       10,896       633,314       644,210  
Homeowner construction
     −       −       −       −       14,137       14,137  
Consumer:
                                                
Home equity lines
     1,539       21       75       1,635       221,649       223,284  
Home equity loans
     429       –       77       506       46,291       46,797  
Other
     11       99       93       203       55,026       55,229  
Total loans
   $ 8,624     $ 2,205     $ 13,725     $ 24,554     $ 2,032,598     $ 2,057,152  


(Dollars in thousands)
  
Days Past Due
                    
December 31, 2010
     30-59       60-89    
Over 90
    
Total Past
Due
    
Current
    
Total
Loans
  
Commercial:
                                        
Mortgages
   $ 2,185     $ 514     $ 5,322     $ 8,021     $ 510,602     $ 518,623  
Construction and development
     −       −       −       −       47,335       47,335  
Other
     1,862       953       3,376       6,191       454,916       461,107  
Residential real estate:
                                                
Mortgages
     3,073       1,477       4,041       8,591       626,148       634,739  
Homeowner construction
     −       −       −       −       10,281       10,281  
Consumer:
                                                
Home equity lines
     1,255       170       −       1,425       216,863       218,288  
Home equity loans
     529       180       11       720       49,904       50,624  
Other
     221       98       −       319       54,322       54,641  
Total loans
   $ 9,125     $ 3,392     $ 12,750     $ 25,267     $ 1,970,371     $ 1,995,638  

Included in past due loans as of June 30, 2011 and December 31, 2010, were nonaccrual loans of $16.7 million and $14.9 million, respectively.
 
 
-14-

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(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 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, as of the dates indicated:

(Dollars in thousands)
  
Recorded
    
Unpaid
    
Related
  
   
Investment (1)
    
Principal
    
Allowance
  
   
Jun. 30,
 2011
    
Dec. 31,
 2010
    
Jun. 30,
 2011
    
Dec. 31,
 2010
    
Jun. 30,
 2011
    
Dec. 31,
 2010
  
No Related Allowance Recorded:
                                    
Commercial:
                                    
Mortgages
   $ 1,773     $ 3,113     $ 1,771     $ 3,128     $ −     $ −  
Construction and development
     −       −       −       −       −       −  
Other
     2,114       3,237       2,249       3,834       −       −  
Residential real estate:
                                                
Mortgages
     2,472       928       2,542       937       −       −  
Homeowner construction
     −       −       −       −       −       −  
Consumer:
                                                
Home equity lines
     −       −       −       −       −       −  
Home equity loans
     −       163       −       159       −       −  
Other
     −       −       −       −       −       −  
Subtotal
   $ 6,359     $ 7,441     $ 6,562     $ 8,058     $ −     $ −  
                                                 
With Related Allowance Recorded:
                                                
Commercial:
                                                
Mortgages
   $ 12,273     $ 15,287     $ 13,374     $ 15,930     $ 708     $ 629  
Construction and development
     −       −       −       −       −       −  
Other
     5,085       6,632       6,784       9,311       547       1,245  
Residential real estate:
                                                
Mortgages
     3,899       3,773       4,245       3,971       474       258  
Homeowner construction
     −       −       −       −       −       −  
Consumer:
                                                
Home equity lines
     105       105