10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
 x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended SEPTEMBER 30, 2015 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. x Yes o No

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). x Yes 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).
o Yes x No

The number of shares of common stock of the registrant outstanding as of October 31, 2015 was 17,001,557.


FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
For the Quarter Ended September 30, 2015
 
 
TABLE OF CONTENTS
 
Page Number
 
 
 
 
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds



- 2-

PART I.  Financial Information
Item 1.  Financial Statements
Consolidated Balance Sheets (unaudited)
(Dollars in thousands, except par value)
 
September 30,
2015
 
December 31,
2014
Assets:
 
 
 
Cash and due from banks

$106,445

 

$76,386

Short-term investments
3,629

 
3,964

Mortgage loans held for sale (including $21,136 at September 30, 2015 and $30,321 at December 31, 2014 measured at fair value)
31,805

 
45,693

Securities:
 
 
 
Available for sale, at fair value
323,795

 
357,662

Held to maturity, at amortized cost (fair value $21,820 at September 30, 2015 and $26,008 at December 31, 2014)
21,140

 
25,222

Total securities
344,935

 
382,884

Federal Home Loan Bank stock, at cost
37,730

 
37,730

Loans:
 
 
 
Commercial
1,579,854

 
1,535,488

Residential real estate
1,024,214

 
985,415

Consumer
345,850

 
338,373

Total loans
2,949,918

 
2,859,276

Less allowance for loan losses
27,161

 
28,023

Net loans
2,922,757

 
2,831,253

Premises and equipment, net
28,180

 
27,495

Investment in bank-owned life insurance
65,000

 
63,519

Goodwill
64,196

 
58,114

Identifiable intangible assets, net
11,793

 
4,849

Other assets
58,366

 
54,987

Total assets

$3,674,836

 

$3,586,874

Liabilities:
 
 
 
Deposits:
 
 
 
Demand deposits

$513,856

 

$459,852

NOW accounts
358,973

 
326,375

Money market accounts
855,858

 
802,764

Savings accounts
305,775

 
291,725

Time deposits
801,818

 
874,102

Total deposits
2,836,280

 
2,754,818

Federal Home Loan Bank advances
381,649

 
406,297

Junior subordinated debentures
22,681

 
22,681

Other liabilities
63,699

 
56,799

Total liabilities
3,304,309

 
3,240,595

Commitments and contingencies


 


Shareholders’ Equity:
 
 
 
Common stock of $.0625 par value; authorized 30,000,000 shares; issued and outstanding 16,984,737 shares at September 30, 2015 and 16,746,363 shares at December 31, 2014
1,062

 
1,047

Paid-in capital
109,724

 
101,204

Retained earnings
268,166

 
252,837

Accumulated other comprehensive loss
(8,425
)
 
(8,809
)
Total shareholders’ equity
370,527

 
346,279

Total liabilities and shareholders’ equity

$3,674,836

 

$3,586,874


The accompanying notes are an integral part of these unaudited consolidated financial statements.
3


Consolidated Statements of Income (unaudited)
(Dollars and shares in thousands, except per share amounts)


 
 
Three months
 
Nine months
Periods ended September 30,
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans

$28,626

 

$27,239

 

$85,718

 

$78,997

Interest on securities:
Taxable
2,178

 
2,397

 
6,613

 
8,038

 
Nontaxable
366

 
519

 
1,203

 
1,658

Dividends on Federal Home Loan Bank stock
309

 
140

 
638

 
420

Other interest income
47

 
36

 
101

 
99

Total interest and dividend income
31,526

 
30,331

 
94,273

 
89,212

Interest expense:
 

 
 

 
 
 
 
Deposits
3,308

 
3,317

 
10,045

 
9,406

Federal Home Loan Bank advances
1,987

 
1,832

 
5,780

 
5,831

Junior subordinated debentures
232

 
241

 
714

 
723

Other interest expense
2

 
3

 
7

 
10

Total interest expense
5,529

 
5,393

 
16,546

 
15,970

Net interest income
25,997

 
24,938

 
77,727

 
73,242

Provision for loan losses
200

 
600

 
300

 
1,350

Net interest income after provision for loan losses
25,797

 
24,338

 
77,427

 
71,892

Noninterest income:
 

 
 

 
 
 
 
Wealth management revenues
8,902

 
8,374

 
26,249

 
24,969

Merchant processing fees
—

 
—

 
—

 
1,291

Net gains on loan sales and commissions on loans originated for others
1,963

 
1,742

 
7,296

 
4,688

Service charges on deposit accounts
986

 
881

 
2,894

 
2,459

Card interchange fees
849

 
804

 
2,389

 
2,264

Income from bank-owned life insurance
498

 
468

 
1,480

 
1,354

Loan related derivative income
327

 
339

 
1,689

 
562

Equity in earnings (losses) of unconsolidated subsidiaries
(69
)
 
(63
)
 
(224
)
 
(213
)
Net gain on sale of business line
—

 
—

 
—

 
6,265

Other income
457

 
580

 
1,421

 
1,670

Total noninterest income
13,913

 
13,125

 
43,194

 
45,309

Noninterest expense:
 

 
 

 
 

 
 

Salaries and employee benefits
15,971

 
14,516

 
46,971

 
43,845

Net occupancy
1,721

 
1,557

 
5,276

 
4,672

Equipment
1,424

 
1,211

 
4,140

 
3,682

Merchant processing costs
—

 
—

 
—

 
1,050

Outsourced services
1,250

 
1,138

 
3,774

 
3,197

Legal, audit and professional fees
630

 
494

 
1,916

 
1,710

FDIC deposit insurance costs
467

 
442

 
1,376

 
1,295

Advertising and promotion
356

 
368

 
1,201

 
1,140

Amortization of intangibles
260

 
161

 
571

 
489

Debt prepayment penalties
—

 
—

 
—

 
6,294

Acquisition related expenses
504

 
—

 
937

 
—

Other expenses
1,955

 
2,160

 
6,206

 
6,413

Total noninterest expense
24,538

 
22,047

 
72,368

 
73,787

Income before income taxes
15,172

 
15,416

 
48,253

 
43,414

Income tax expense
4,964

 
4,878

 
15,532

 
13,781

Net income

$10,208

 

$10,538

 

$32,721

 

$29,633

 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
16,939

 
16,714

 
16,837

 
16,673

Weighted average common shares outstanding - diluted
17,102

 
16,855

 
17,027

 
16,832

Per share information:
Basic earnings per common share

$0.60

 

$0.63

 

$1.94

 

$1.77

 
Diluted earnings per common share

$0.60

 

$0.62

 

$1.92

 

$1.75

 
Cash dividends declared per share

$0.34

 

$0.32

 

$1.02

 

$0.90


The accompanying notes are an integral part of these unaudited consolidated financial statements.
4


Consolidated Statements of Comprehensive Income (unaudited)
(Dollars in thousands)


 
Three Months
 
Nine Months
Periods ended September 30,
2015
 
2014
 
2015

 
2014

Net income

$10,208

 

$10,538

 

$32,721

 

$29,633

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Net change in fair value of securities available for sale
344

 
(953
)
 
(693
)
 
1,476

Cash flow hedges:
 
 
 
 
 
 
 
Change in fair value of cash flow hedges
(1
)
 
1

 
(10
)
 
(29
)
Net cash flow hedge losses reclassified into earnings
82

 
92

 
265

 
277

Net change in fair value of cash flow hedges
81

 
93

 
255

 
248

Defined benefit plan obligation adjustment
233

 
81

 
822

 
250

Total other comprehensive income (loss), net of tax
658

 
(779
)
 
384

 
1,974

Total comprehensive income

$10,866

 

$9,759

 

$33,105

 

$31,607




The accompanying notes are an integral part of these unaudited consolidated financial statements.
5


Consolidated Statements of Changes in Shareholders' Equity (unaudited)
(Dollars and shares in thousands)


 
Common
Shares Outstanding
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balance at January 1, 2015
16,746

 

$1,047

 

$101,204

 

$252,837

 

($8,809
)
 

$346,279

Net income
 
 
 
 
 
 
32,721

 
 
 
32,721

Total other comprehensive income, net of tax
 
 
 
 
 
 
 
 
384

 
384

Cash dividends declared
 
 
 
 
 
 
(17,392
)
 
 
 
(17,392
)
Share-based compensation
 
 
 
 
1,640

 
 
 
 
 
1,640

Common stock issued for acquisition
137

 
8

 
5,422

 
 
 
 
 
5,430

Exercise of stock options, issuance of other compensation-related equity instruments and related tax benefit
102

 
7

 
1,458

 
 
 
 
 
1,465

Balance at September 30, 2015
16,985

 

$1,062

 

$109,724

 

$268,166

 

($8,425
)
 

$370,527



 
Common
Shares Outstanding
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Balance at January 1, 2014
16,614

 

$1,038

 

$97,566

 

$232,595

 

($1,553
)
 

$329,646

Net income
 
 
 
 
 
 
29,633

 
 
 
29,633

Total other comprehensive income, net of tax
 
 
 
 
 
 
 
 
1,974

 
1,974

Cash dividends declared
 
 
 
 
 
 
(15,176
)
 
 
 
(15,176
)
Share-based compensation
 
 
 
 
1,433

 
 
 
 
 
1,433

Exercise of stock options, issuance of other compensation-related equity instruments and related tax benefit
107

 
7

 
1,045

 
 
 
 
 
1,052

Balance at September 30, 2014
16,721

 

$1,045

 

$100,044

 

$247,052

 

$421

 

$348,562



The accompanying notes are an integral part of these unaudited consolidated financial statements.
6


Consolidated Statement of Cash Flows (unaudited)
(Dollars in thousands)


Nine months ended September 30,
2015

 
2014

Cash flows from operating activities:
 
 
 
Net income

$32,721

 

$29,633

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
300

 
1,350

Depreciation of premises and equipment
2,535

 
2,350

Net amortization of premium and discount
1,149

 
672

Amortization of intangibles
571

 
489

Share-based compensation
1,640

 
1,433

Income from bank-owned life insurance
(1,480
)
 
(1,354
)
Net gain on sale of business line
—

 
(6,265
)
Net gains on loan sales and commissions on loans originated for others
(7,296
)
 
(4,688
)
Equity in losses of unconsolidated subsidiaries
224

 
213

Proceeds from sales of loans
365,533

 
176,389

Loans originated for sale
(345,322
)
 
(196,322
)
Decrease (increase) in other assets
2,683

 
(3,587
)
Decrease in other liabilities
(5,059
)
 
(89
)
Net cash provided by operating activities
48,199

 
224

Cash flows from investing activities:
 
 
 
Purchases of:
Mortgage-backed securities available for sale
(1,525
)
 
(53,051
)
 
Other investment securities available for sale
(63,229
)
 
(31,009
)
Proceeds from sale of:
Other investment securities available for sale
—

 
547

Maturities and principal payments of:
Mortgage-backed securities available for sale
38,312

 
63,938

 
Other investment securities available for sale
58,583

 
38,137

 
Mortgage-backed securities held to maturity
3,893

 
3,248

Net proceeds from the sale of business line
—

 
7,205

Net increase in loans
(88,680
)
 
(205,877
)
Proceeds from sale of portfolio loans
—

 
1,200

Purchases of loans, including purchased interest
(2,877
)
 
(7,065
)
Proceeds from the sale of property acquired through foreclosure or repossession
637

 
1,630

Purchases of premises and equipment
(3,220
)
 
(3,315
)
Purchases of bank-owned life insurance
—

 
(5,000
)
Cash used in business combination, net of cash acquired
(1,671
)
 
—

Net cash used in investing activities
(59,777
)
 
(189,412
)
Cash flows from financing activities:
 
 
 
Net increase in deposits
81,462

 
233,567

Proceeds from Federal Home Loan Bank advances
348,000

 
259,000

Repayment of Federal Home Loan Bank advances
(372,648
)
 
(285,397
)
Proceeds from stock options exercises and issuance of other equity instruments
946

 
592

Tax benefit from stock option exercises and other equity instruments
518

 
460

Cash dividends paid
(16,976
)
 
(14,350
)
Net cash provided by financing activities
41,302

 
193,872

Net increase in cash and cash equivalents
29,724

 
4,684

Cash and cash equivalents at beginning of period
80,350

 
85,317

Cash and cash equivalents at end of period

$110,074

 

$90,001


The accompanying notes are an integral part of these unaudited consolidated financial statements.
7


Consolidated Statement of Cash Flows – continued (unaudited)
(Dollars in thousands)


Noncash Investing and Financing Activities:
 
 
 
Loans charged off

$1,401

 

$1,638

Loans transferred to property acquired through foreclosure or repossession
491

 
1,659

In conjunction with the purchase acquisition detailed in Note 3 to the Unaudited Consolidated Financial Statements, assets were acquired and liabilities were assumed as follows:
 
 
 
Common stock issued for acquisition
5,430

 
—

Fair value of assets acquired, net of cash acquired
14,315

 
—

Fair value of liabilities assumed
7,214

 
—

Supplemental Disclosures:
 
 
 
Interest payments

$16,690

 

$15,779

Income tax payments
14,995

 
12,734


The accompanying notes are an integral part of these unaudited consolidated financial statements.
8


Condensed Notes to Unaudited Consolidated Financial Statements


(1)
General Information
Washington Trust Bancorp, Inc. (the “Bancorp”) is a publicly-owned registered bank holding company and financial holding company.  The Bancorp owns all of the outstanding common stock of The Washington Trust Company, of Westerly (the “Bank”), a Rhode Island chartered commercial bank founded in 1800.  Through its subsidiaries, the Bancorp offers a complete product line of financial services including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices in Rhode Island, eastern Massachusetts and Connecticut.

The consolidated financial statements include the accounts of the Bancorp and its subsidiaries (collectively, the “Corporation” or “Washington Trust”).  All significant intercompany transactions have been eliminated.

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.

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. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures considered necessary for the fair presentation of the accompanying consolidated financial statements have been included. Interim results are not necessarily reflective of the results of the entire year. The accompanying unaudited 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 fiscal year ended December 31, 2014.

(2)
Recently Issued Accounting Pronouncements
Receivables - Troubled Debt Restructurings by Creditors - Topic 310
Accounting Standards Update No. 2014-04, “Reclassifications of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure” (“ASU 2014-04”), was issued in January 2014 and clarifies when banks and similar institutions (creditors) should reclassify mortgage loans collateralized by residential real estate properties from the loan portfolio to other real estate owned (“OREO”). ASU 2014-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Corporation elected the prospective transition method and the adoption of ASU 2014-04 did not have a material impact on the Corporation’s consolidated financial statements. As of September 30, 2015 and December 31, 2014, there were approximately $3.9 million and $1.8 million, respectively, of residential real estate loans in process of foreclosure.

Revenue from Contracts with Customers - Topic 606
Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), was issued in May 2014 and provides a revenue recognition framework for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other accounting standards. ASU 2014-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period with early adoption not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. In August 2015, Accounting Standards Update No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”) was issued and delayed the effective date of ASU 2014-09 to annual and interim periods in fiscal years beginning after December 15, 2017. The Corporation is currently evaluating the impact that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Corporation has not yet selected a transition method nor has it determined the effect of ASU 2014-09 on its ongoing financial reporting.

Business Combinations - Topic 805
Accounting Standards Update No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), was issued in September 2015 and eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. ASU 2015-16 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The adoption of ASU 2015-16 is not expected to have a material impact on the Corporation’s consolidated financial statements.


- 9-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(3)
Acquisition
On August 1, 2015, Washington Trust completed the acquisition of Halsey Associates, Inc. (“Halsey”), a registered investment adviser firm located in New Haven, Connecticut.  Halsey specializes in providing investment counseling services to high-net worth families, corporations, foundations and endowment clients. The primary reason for the acquisition was to expand the geographic reach of Washington Trust’s wealth management business.

The cost to acquire Halsey included approximately $1.7 million in cash, $5.4 million in the form of 136,543 shares of Washington Trust Bancorp, Inc. common stock and a $2.9 million contingent consideration liability for the estimated present value of future earn-outs to be paid, based on the future revenue growth of the acquired business during the 5‑year period following the acquisition. See Note 13 for additional disclosure on the contingent consideration liability.

The following table presents the estimated fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition, August 1, 2015:
(Dollars in thousands)
 
Fair Value
Assets:
 
 
Cash
 

$10

Deferred tax assets
 
516

Goodwill
 
6,082

Identifiable intangible assets
 
7,515

Other assets
 
202

Total assets acquired
 

$14,325

Liabilities:
 
 
Contingent consideration liability
 

$2,904

Deferred tax liabilities
 
2,803

Other liabilities
 
1,507

Total liabilities assumed
 

$7,214

Net assets acquired
 

$7,111


(4)
Cash and Due from Banks
The Bank maintains certain average reserve balances to meet the requirements of the Board of Governors of the Federal Reserve System (“FRB”).  Some or all of these reserve requirements may be satisfied with vault cash. Reserve balances amounted to $9.3 million at September 30, 2015 and $8.0 million at December 31, 2014 and were included in cash and due from banks in the Consolidated Balance Sheets.

As of September 30, 2015 and December 31, 2014, cash and due from banks included interest-bearing deposits in other banks of $69.3 million and $42.7 million, respectively.



- 10-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(5)
Securities
The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of securities by major security type and class of security:
(Dollars in thousands)
 
September 30, 2015
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
Securities Available for Sale:
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises

$52,430

 

$220

 

($7
)
 

$52,643

Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
197,790

 
8,498

 
—

 
206,288

Obligations of states and political subdivisions
36,775

 
982

 
—

 
37,757

Individual name issuer trust preferred debt securities
29,806

 
—

 
(4,123
)
 
25,683

Corporate bonds
1,418

 
8

 
(2
)
 
1,424

Total securities available for sale

$318,219

 

$9,708

 

($4,132
)
 

$323,795

Held to Maturity:
 
 
 
 
 
 
 
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises

$21,140

 

$680

 

$—

 

$21,820

Total securities held to maturity

$21,140

 

$680

 

$—

 

$21,820

Total securities

$339,359

 

$10,388

 

($4,132
)
 

$345,615



(Dollars in thousands)
 
December 31, 2014
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
Securities Available for Sale:
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises

$31,205

 

$21

 

($54
)
 

$31,172

Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
235,343

 
10,023

 
—

 
245,366

Obligations of states and political subdivisions
47,647

 
1,529

 
—

 
49,176

Individual name issuer trust preferred debt securities
30,753

 
—

 
(4,979
)
 
25,774

Corporate bonds
6,120

 
57

 
(3
)
 
6,174

Total securities available for sale

$351,068

 

$11,630

 

($5,036
)
 

$357,662

Held to Maturity:
 
 
 
 
 
 
 
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises

$25,222

 

$786

 

$—

 

$26,008

Total securities held to maturity

$25,222

 

$786

 

$—

 

$26,008

Total securities

$376,290

 

$12,416

 

($5,036
)
 

$383,670


At September 30, 2015 and December 31, 2014, securities available for sale and held to maturity with a fair value of $326.2 million and $350.5 million, respectively, were pledged as collateral for Federal Home Loan Bank of Boston (“FHLBB”) borrowings and letters of credit, potential borrowings with the FRB, certain public deposits and for other purposes. See Note 10 for additional disclosure on FHLBB borrowings.



- 11-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The schedule of maturities of debt securities available for sale and held to maturity is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments.  All other debt 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.
(Dollars in thousands)
 
September 30, 2015
Within 1 Year
 
1-5 Years
 
5-10 Years
 
After 10 Years
 
Totals
Securities Available for Sale:
 
 
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises:
 
 
 
 
 
 
 
 
 
Amortized cost

$—

 

$15,100

 

$37,330

 

$—

 

$52,430

Weighted average yield
—
%
 
1.42
%
 
2.40
%
 
—
%
 
2.12
%
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises:
 
 
 
 
 
 
 
 
 
Amortized cost
34,731

 
90,071

 
51,254

 
21,734

 
197,790

Weighted average yield
3.70

 
3.25

 
2.77

 
1.66

 
3.03

Obligations of state and political subdivisions:
 
 
 
 
 
 
 
 
 
Amortized cost
4,606

 
21,546

 
10,623

 
—

 
36,775

Weighted average yield
3.83

 
3.96

 
4.01

 
—

 
3.96

Individual name issuer trust preferred debt securities:
 
 
 
 
 
 
 
 
 
Amortized cost
—

 
—

 
—

 
29,806

 
29,806

Weighted average yield
—

 
—

 
—

 
1.17

 
1.17

Corporate bonds:
 
 
 
 
 
 
 
 
 
Amortized cost
—

 
709

 
709

 
—

 
1,418

Weighted average yield
—

 
2.03

 
2.95

 
—

 
2.63

Total debt securities available for sale:
 
 
 
 
 
 
 
 
 
Amortized cost

$39,337

 

$127,426

 

$99,916

 

$51,540

 

$318,219

Weighted average yield
3.72
%
 
3.15
%
 
2.76
%
 
1.37
%
 
2.81
%
Fair value

$40,952

 

$131,936

 

$102,557

 

$48,350

 

$323,795

Securities Held to Maturity:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises:
 
 
 
 
 
 
 
 
 
Amortized cost

$2,690

 

$8,332

 

$6,562

 

$3,556

 

$21,140

Weighted average yield
3.11
%
 
3.03
%
 
2.71
%
 
0.78
%
 
2.56
%
Fair value

$2,777

 

$8,600

 

$6,773

 

$3,670

 

$21,820


Included in the above table are debt securities with an amortized cost balance of $114.2 million and a fair value of $111.1 million at September 30, 2015 that are callable at the discretion of the issuers.  Final maturities of the callable securities range from 5 months to 21 years, with call features ranging from 1 month to 6 years.

Other-Than-Temporary Impairment Assessment
Washington Trust assesses whether the decline in fair value of investment securities is other-than-temporary on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer.  Management evaluates impairments in value both qualitatively and quantitatively to assess whether they are other‑than‑temporary.



- 12-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following tables summarize temporarily impaired securities, 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
September 30, 2015
#
 
Fair
Value
Unrealized
Losses
 
#

 
Fair
Value
Unrealized
Losses
 
#

 
Fair
Value
Unrealized
Losses
Obligations of U.S. government-sponsored enterprises
2

 

$10,148


($7
)
 
—

 

$—


$—

 
2

 

$10,148


($7
)
Individual name issuer trust preferred debt securities
—

 
—

—

 
10

 
25,683

(4,123
)
 
10

 
25,683

(4,123
)
Corporate bonds
1

 
200

(2
)
 
—

 
—

—

 
1

 
200

(2
)
Total temporarily impaired securities
3

 

$10,348


($9
)
 
10

 

$25,683


($4,123
)
 
13

 

$36,031


($4,132
)


(Dollars in thousands)
Less than 12 Months
 
12 Months or Longer
 
Total
December 31, 2014
#

 
Fair
Value
Unrealized
Losses
 
#

 
Fair
Value
Unrealized
Losses
 
#

 
Fair
Value
Unrealized
Losses
Obligations of U.S. government-sponsored enterprises
3

 

$20,952


($54
)
 
—

 

$—


$—

 
3

 

$20,952


($54
)
Individual name issuer trust preferred debt securities
—

 
—

—

 
11

 
25,774

(4,979
)
 
11

 
25,774

(4,979
)
Corporate bonds
—

 
—

—

 
1

 
199

(3
)
 
1

 
199

(3
)
Total temporarily impaired securities
3

 

$20,952


($54
)
 
12

 

$25,973


($4,982
)
 
15

 

$46,925


($5,036
)

Further deterioration in credit quality of the underlying issuers of the securities, further deterioration in the condition of the financial services industry, a continuation or worsening of the current economic environment, 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.

Unrealized losses on temporarily impaired securities as of September 30, 2015 and December 31, 2014 were concentrated in variable rate trust preferred debt securities.

Trust Preferred Debt Securities of Individual Name Issuers
Included in debt securities in an unrealized loss position at September 30, 2015 were 10 trust preferred security holdings issued by 7 individual companies in the banking sector.  Management believes the unrealized loss position in these holdings was attributable to the general widening of spreads for this category of debt securities issued by financial services companies since the time these securities were purchased.  Based on the information available through the filing date of this report, all individual name issuer 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, 2015, individual name issuer trust preferred debt securities with an amortized cost of $10.9 million and unrealized losses of $1.1 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 December 31, 2014 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, 2015.




- 13-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(6)
Loans
The following is a summary of loans:
(Dollars in thousands)
September 30, 2015
 
December 31, 2014
 
Amount

 
%

 
Amount

 
%

Commercial:
 
 
 
 
 
 
 
Mortgages (1)

$873,767

 
30
%
 

$843,978

 
30
%
Construction & development (2)
121,857

 
4

 
79,592

 
3

Commercial & industrial (3)
584,230

 
20

 
611,918

 
21

Total commercial
1,579,854

 
54

 
1,535,488

 
54

Residential real estate:
 
 
 
 
 
 
 
Mortgages
994,808

 
34

 
948,731

 
33

Homeowner construction
29,406

 
1

 
36,684

 
1

Total residential real estate
1,024,214

 
35

 
985,415

 
34

Consumer:
 
 
 
 
 
 
 
Home equity lines
252,862

 
9

 
242,480

 
8

Home equity loans
47,610

 
2

 
46,967

 
2

Other (4)
45,378

 
—

 
48,926

 
2

Total consumer
345,850

 
11

 
338,373

 
12

Total loans (5)

$2,949,918

 
100
%
 

$2,859,276

 
100
%
(1)
Loans primarily secured by income producing property.
(2)
Loans for construction of commercial properties, loans to developers for construction of residential properties and loans for land development.
(3)
Loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate.
(4)
Consumer installment loans and loans secured by general aviation aircraft and automobiles.
(5)
Includes net unamortized loan origination costs of $2.7 million and $2.1 million, respectively, and net unamortized premiums on purchased loans of $87 thousand and $94 thousand, respectively, at September 30, 2015 and December 31, 2014.

At September 30, 2015 and December 31, 2014, there were $1.27 billion and $1.21 billion, respectively, of loans pledged as collateral to the FHLBB under a blanket pledge agreement and to the FRB for the discount window. See Note 10 for additional disclosure regarding borrowings.

Nonaccrual Loans
Loans, with the exception of certain well-secured 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 loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously accrued but not collected on such loans is reversed against current period income. Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management’s assessment of the ultimate collectibility of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for approximately six months, 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.



- 14-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following is a summary of nonaccrual loans, segregated by class of loans:
(Dollars in thousands)
Sep 30,
2015
 
Dec 31,
2014
Commercial:
 
 
 
Mortgages

$4,915

 

$5,315

Construction & development
—

 
—

Commercial & industrial
1,137

 
1,969

Residential real estate:
 
 
 
Mortgages
9,472

 
7,124

Homeowner construction
—

 
—

Consumer:
 
 
 
Home equity lines
197

 
1,217

Home equity loans
1,120

 
317

Other
3

 
3

Total nonaccrual loans

$16,844

 

$15,945

Accruing loans 90 days or more past due

$—

 

$—


As of September 30, 2015 and December 31, 2014, nonaccrual loans of $2.9 million and $3.2 million, respectively, were current as to the payment of principal and interest.

At September 30, 2015, there were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status.

Past Due Loans
Past due status is based on the contractual payment terms of the loan. The following tables present an age analysis of past due loans, segregated by class of loans:
(Dollars in thousands)
Days Past Due
 
 
 
 
 
 
September 30, 2015
30-59
 
60-89
 
Over 90
 
Total Past Due
 
Current
 
Total Loans
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Mortgages

$147

 

$—

 

$4,915

 

$5,062

 

$868,705

 

$873,767

Construction & development
—

 
—

 
—

 
—

 
121,857

 
121,857

Commercial & industrial
162

 
3,455

 
720

 
4,337

 
579,893

 
584,230

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
Mortgages
3,610

 
2,458

 
4,499

 
10,567

 
984,241

 
994,808

Homeowner construction
—

 
—

 
—

 
—

 
29,406

 
29,406

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
688

 
201

 
40

 
929

 
251,933

 
252,862

Home equity loans
196

 
135

 
567

 
898

 
46,712

 
47,610

Other
15

 
2

 
1

 
18

 
45,360

 
45,378

Total loans

$4,818

 

$6,251

 

$10,742

 

$21,811

 

$2,928,107

 

$2,949,918





- 15-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

(Dollars in thousands)
Days Past Due
 
 
 
 
 
 
December 31, 2014
30-59
 
60-89
 
Over 90
 
Total Past Due
 
Current
 
Total Loans
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Mortgages

$—

 

$—

 

$5,315

 

$5,315

 

$838,663

 

$843,978

Construction & development
—

 
—

 
—

 
—

 
79,592

 
79,592

Commercial & industrial
2,136

 
1,202

 
181

 
3,519

 
608,399

 
611,918

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
Mortgages
2,943

 
821

 
3,284

 
7,048

 
941,683

 
948,731

Homeowner construction
—

 
—

 
—

 
—

 
36,684

 
36,684

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
570

 
100

 
841

 
1,511

 
240,969

 
242,480

Home equity loans
349

 
240

 
56

 
645

 
46,322

 
46,967

Other
35

 
5

 
—

 
40

 
48,886

 
48,926

Total loans

$6,033

 

$2,368

 

$9,677

 

$18,078

 

$2,841,198

 

$2,859,276


Included in past due loans as of September 30, 2015 and December 31, 2014, were nonaccrual loans of $14.0 million and $12.7 million, respectively. All loans 90 days or more past due at September 30, 2015 and December 31, 2014 were classified as nonaccrual.

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. Prior to September 30, 2015, the Corporation defined impaired loans to include nonaccrual commercial loans, troubled debt restructured loans and certain other loans that were individually evaluated for impairment. As of September 30, 2015, the Corporation redefined impaired loans to include nonaccrual loans and troubled debt restructured loans. The redefinition of impaired loans resulted in $7.8 million of nonaccrual residential real estate mortgage loans and consumer loans being classified as impaired loans as of September 30, 2015. The redefinition of impaired loans in the third quarter of 2015 did not result in significant changes to the allowance for loan losses or to the allocation of loss exposure within the allowance for loans losses.



- 16-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following is a summary of impaired loans:
(Dollars in thousands)
Recorded Investment (1)
 
Unpaid Principal
 
Related Allowance
 
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
 
Sep 30,
2015
 
Dec 31,
2014
No Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Mortgages

$205

 

$432

 

$205

 

$432

 

$—

 

$—

Construction & development
—

 
—

 
—

 
—

 
—

 
—

Commercial & industrial
1,153

 
1,047

 
1,172

 
1,076

 
—

 
—

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
Mortgages
5,754

 
1,477

 
6,037

 
1,768

 
—

 
—

Homeowner construction
—

 
—

 
—

 
—

 
—

 
—

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
147

 
—

 
147

 
—

 
—

 
—

Home equity loans
149

 
—

 
149

 
—

 
—

 
—

Other
—

 
—

 
—

 
—

 
—

 
—

Subtotal
7,408

 
2,956

 
7,710

 
3,276

 
—

 
—

With Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Mortgages

$15,373

 

$14,585

 

$15,753

 

$14,564

 

$1,256

 

$927

Construction & development
—

 
—

 
—

 
—

 
—

 
—

Commercial & industrial
2,075

 
1,878

 
2,614

 
2,437

 
186

 
177

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
Mortgages
4,395

 
2,226

 
4,474

 
2,338

 
312

 
326

Homeowner construction
—

 
—

 
—

 
—

 
—

 
—

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
131

 
250

 
223

 
250

 
5

 
141

Home equity loans
1,099

 
45

 
1,249

 
62

 
57

 
12

Other
150

 
112

 
149

 
114

 
1

 
—

Subtotal
23,223

 
19,096

 
24,462

 
19,765

 
1,817

 
1,583

Total impaired loans

$30,631

 

$22,052

 

$32,172

 

$23,041

 

$1,817

 

$1,583

Total:
 
 
 
 
 
 
 
 
 
 
 
Commercial

$18,806

 

$17,942

 

$19,744

 

$18,509

 

$1,442

 

$1,104

Residential real estate
10,149

 
3,703

 
10,511

 
4,106

 
312

 
326

Consumer
1,676

 
407

 
1,917

 
426

 
63

 
153

Total impaired loans

$30,631

 

$22,052

 

$32,172

 

$23,041

 

$1,817

 

$1,583

(1)
The recorded investment in impaired loans consists of unpaid principal balance net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and costs. For impaired accruing loans (troubled debt restructurings for which management has concluded that the collectibility of the loan is not in doubt), the recorded investment also includes accrued interest.



- 17-


Condensed Notes to Unaudited Consolidated Financial Statements – (continued)

The following tables present the average recorded investment balance of impaired loans and interest income recognized on impaired loans segregated by loan class:
 
 
 
 
 
 
 
 
(Dollars in thousands)
Average Recorded Investment
 
Interest Income Recognized
Three months ended September 30,
2015
 
2014
 
2015
 
2014
Commercial:
 
 
 
 
 
 
 
Mortgages

$14,583

 

$23,435

 

$82

 

$175

Construction & development
—

 
—

 
—

 
—

Commercial & industrial
3,376

 
2,570

 
29

 
25

Residential real estate:


 


 


 


Mortgages
4,484

 
4,253

 
27

 
31

Homeowner construction
—

 
—

 
—

 
—

Consumer:


 


 


 


Home equity lines