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SECURITIES AND EXCHANGE COMMISSION
x | Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 2007 or |
o | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________ |
RHODE ISLAND | 05-0404671 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
23 BROAD STREET | ||
WESTERLY, RHODE ISLAND | 02891 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filero | Accelerated filerx | |
Non-accelerated filero | Smaller reporting companyo | |
(Do not check if a smaller reporting company) |
WASHINGTON TRUST BANCORP, INC.
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Washington Trust Bancorp, Inc. (the “Bancorp”), a publicly-owned registered bank holding company and financial holding company, was organized in 1984 under the laws of the state of Rhode Island. The Bancorp owns all of the outstanding common stock of The Washington Trust Company (the “Bank”), a Rhode Island chartered commercial bank. The Bancorp was formed in 1984 under a plan of reorganization in which outstanding common shares of the Bank were exchanged for common shares of the Bancorp. See additional information under the caption “Subsidiaries”.
The Corporation offers a variety of banking and related financial services, including:
Residential mortgages | Consumer installment loans | Merchant credit card services | ||
Reverse mortgages | Commercial and consumer demand deposits | Telephone banking services | ||
Commercial loans | Savings, NOW and money market deposits | Internet banking services | ||
Construction loans | Certificates of deposit | Cash management services | ||
Home equity lines of credit | Retirement accounts | Remote deposit capture | ||
Home equity loans | Automated teller machines (ATMs) | Safe deposit boxes |
The Corporation generates fee income from providing investment management, trust and financial planning services. Washington Trust provides personal trust services, including services as executor, trustee, administrator, custodian and guardian. Institutional trust services are also provided, including services as trustee for pension and profit sharing plans. Investment management and financial planning services are provided for both personal and
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Segment reporting information is presented in Note 18 to the Consolidated Financial Statements.
The following summarizes Washington Trust’s acquisition history:
(1) | These acquisitions have been accounted for as a purchase and, accordingly, the operations of the acquired companies are included in the Consolidated Financial Statements from their dates of acquisition. | |
(2) | These acquisitions were accounted for as poolings of interests and, accordingly, all financial data was restated to reflect the combined financial condition and results of operations as if these acquisitions were in effect for all periods presented. |
The Bancorp’s subsidiaries include the Bank and Weston Securities Corporation (“WSC”). The Bancorp also owns all of the outstanding common stock of WT Capital Trust I and WT Capital Trust II, special purpose finance entities formed in connection with the acquisition of Weston Financial and with the sole purpose of issuing trust preferred debt securities and investing the proceeds in junior subordinated debentures of the Bancorp. See Note 12 to the Consolidated Financial Statements for additional information.
The Bank was originally chartered in 1800 as the Washington Bank and is the oldest banking institution headquartered in its market area and is among the oldest banks in the United States. Its current corporate charter dates to 1902.
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WSC is a licensed broker-dealer that markets several of Weston Financial’s investment programs, including mutual funds and variable annuities. WSC acts as the principal distributor to a group of mutual funds for which Weston Financial is the investment advisor.
Washington Trust faces considerable competition in its market area for all aspects of banking and related financial service activities. Competition from both bank and non-bank organizations is expected to continue.
At December 31, 2007, Washington Trust had 434 full-time and 40 part-time and other employees. Washington Trust maintains a comprehensive employee benefit program providing, among other benefits, group medical and dental insurance, life insurance, disability insurance, a pension plan and a 401(k) plan. Management considers relations with its employees to be good. See Note 16 to the Consolidated Financial Statements for additional information on certain employee benefit programs.
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The business in which the Corporation is engaged is subject to extensive supervision, regulation, and examination by various bank regulatory authorities and other governmental agencies. State and federal banking laws have as their principal objective either the maintenance of the safety and soundness of financial institutions and the federal deposit insurance system or the protection of consumers, or classes of consumers, and depositors, in particular, rather than the specific protection of shareholders of a bank or its parent company.
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§ | “well-capitalized” if it has a total risk based capital ratio of 10.0% or greater, has a Tier 1 risk based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or greater and is not subject to any written agreement, order or capital directive or prompt corrective action directive; | ||
§ | “adequately capitalized” if it has a total risk based capital ratio of 8.0% or greater, a Tier 1 risk based capital ratio of 4.0% or more, and a leverage ratio of 4.0% or greater (3.0% under certain circumstances) and does not meet the definition of a “well-capitalized bank;” | ||
§ | “undercapitalized” if it has a total risk based capital ratio that is less than 8.0%, a Tier 1 risk based capital ratio that is less than 4.0% or a leverage ratio that is less than 4.0% (3.0% under certain circumstances); | ||
§ | “significantly undercapitalized” if it has a total risk based capital ratio that is less than 6.0%, a Tier 1 risk based capital ratio that is less than 3.0% or a leverage ratio that is less than 3.0%; and | ||
§ | “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. |
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§ | In the case of one such affiliate, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries cannot exceed 10% of the capital stock and surplus of the insured depository institution. | ||
§ | In the case of all affiliates, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries cannot exceed 20% of the capital stock and surplus of the insured depository institution. |
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Under Sections 13 and 15(d) of the Exchange Act, periodic and current reports must be filed or furnished with the SEC. Washington Trust makes available free of charge on the Investor Relations section of its website (www.washtrust.com) its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and exhibits and amendments to those reports as soon as practicable after it electronically files such material with, or furnishes it to, the SEC. Information on the Washington Trust website is not incorporated by reference into this Annual Report on Form 10-K.
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• | Regional credit concentration – We are exposed to real estate and economic factors in southern New England, primarily Rhode Island and, to a lesser extent, Connecticut and Massachusetts, because a significant portion of our loan portfolio is concentrated among borrowers in these markets. Further, because a substantial portion of our loan portfolio is secured by real estate in this area, including residential mortgages, most consumer loans, commercial mortgages and other commercial loans, the value of our collateral is also subject to regional real estate market conditions and other factors that might affect the value of real estate, including natural disasters. |
• | Industry concentration – A portion of our loan portfolio consists of loans to the hospitality, tourism and recreation industries. Loans to companies in these industries may have a somewhat higher risk of loss than some other industries because these businesses are seasonal, with a substantial portion of commerce concentrated in the summer season. Accordingly, the ability of borrowers to meet their repayment terms is more dependent on economic, climate and other conditions and may be subject to a higher degree of volatility from year to year. |
• | The second half of 2007 was highlighted by volatility in the financial markets associated with subprime mortgages, including adverse impacts on credit quality and liquidity within the financial markets. The volatility has been exacerbated by a general decline in the real estate and housing market along with significant mortgage loan related losses reported by many other financial institutions. Global and domestic economic conditions have been adversely affected by these factors. No assurance can be given that these conditions will not result in an increase in delinquencies with a negative impact on our loan loss experience, necessitating an increase in our allowance for loan losses. |
• | Federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize additional charge-offs. Any increase in our allowance for loan losses or loan charge-offs required by these regulatory agencies could have a material adverse effect on our results of operations and financial condition. |
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The information required by Securities Act Guide 3 “Statistical Disclosure by Bank Holding Companies” is located on the pages noted below.
Page | ||||||
I. | Distribution of Assets, Liabilities and Stockholder Equity; | |||||
Interest Rates and Interest Differentials | 28, 29 | |||||
II. | Investment Portfolio | 36, 64-68 | ||||
III. | Loan Portfolio | 37-39, 69 | ||||
IV. | Summary of Loan Loss Experience | 40-42, 71 | ||||
V. | Deposits | 28, 76 | ||||
VI. | Return on Equity and Assets | 20 | ||||
VII. | Short-Term Borrowings | N/A |
The Corporation conducts its business from seventeen branch offices, including its headquarters located at 23 Broad Street, Westerly, Rhode Island and branch offices located within Washington, Providence and Kent Counties in Rhode Island and New London County in southeastern Connecticut. In addition, Washington Trust has a commercial lending office located in the financial district of Providence and provides wealth management services from its main office and offices located in Providence and Narragansett, Rhode Island and Wellesley, Massachusetts. The Bank also has two operations facilities located in Westerly, Rhode Island. At December 31, 2007, ten of the Corporation’s facilities were owned, eleven were leased and one branch office was owned on leased land. Lease expiration dates range from three months to fifteen years with renewal options of one to twenty years. All of the Corporation’s properties are considered to be in good condition and adequate for the purpose for which they are used.
The Corporation is involved in various other claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such other matters will not materially affect the consolidated financial position or results of operations of the Corporation.
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2007.
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The following is a list of all executive officers of the Bancorp and the Bank with their titles, ages, and years of service, followed by certain biographical information as of December 31, 2007.
Years of | ||||||||
Name | Title | Age | Service | |||||
John C. Warren | Chairman and Chief Executive Officer of the Bancorp and the Bank | 62 | 12 | |||||
John F. Treanor | President and Chief Operating Officer of the Bancorp and the Bank | 60 | 9 | |||||
Galan G. Daukas | Executive Vice President of Wealth Management of the Bancorp and the Bank | 44 | 2 | |||||
David V. Devault | Executive Vice President, Secretary, Treasurer and Chief Financial Officer of the Bancorp and the Bank | 53 | 21 | |||||
Stephen M. Bessette | Executive Vice President – Retail Lending of the Bank | 60 | 11 | |||||
B. Michael Rauh, Jr. | Executive Vice President –Sales, Service and Delivery of the Bank | 48 | 16 | |||||
James M. Vesey | Executive Vice President and Chief Credit Officer of the Bank | 60 | 9 | |||||
Dennis L. Algiere | Senior Vice President – Chief Compliance Officer and Director of Community Affairs of the Bank | 47 | 13 | |||||
Vernon F. Bliven | Senior Vice President – Human Resources of the Bank | 58 | 35 | |||||
Elizabeth B. Eckel | Senior Vice President – Marketing of the Bank | 47 | 16 | |||||
William D. Gibson | Senior Vice President – Risk Management of the Bank | 61 | 9 | |||||
Barbara J. Perino, CPA | Senior Vice President – Operations and Technology of the Bank | 46 | 19 | |||||
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The Bancorp’s common stock has traded on the NASDAQ Global Market since July 2006. Previously, the Bancorp’s stock traded on the NASDAQ National Market since May 1996, the NASDAQ Small Cap Market since June 1992, and had been listed on the NASDAQ Over-The-Counter Market system since June 1987.
2007 Quarters | 1 | 2 | 3 | 4 | ||||||||||||
Stock prices: | ||||||||||||||||
High | $ | 28.98 | $ | 27.69 | $ | 28.42 | $ | 28.65 | ||||||||
Low | 25.32 | 23.90 | 22.87 | 23.49 | ||||||||||||
Cash dividend declared per share | $0.20 | $0.20 | $0.20 | $0.20 | ||||||||||||
2006 Quarters | 1 | 2 | 3 | 4 | ||||||||||||
Stock prices: | ||||||||||||||||
High | $ | 29.49 | $ | 28.93 | $ | 27.44 | $ | 29.30 | ||||||||
Low | 25.45 | 24.07 | 24.01 | 25.31 | ||||||||||||
Cash dividend declared per share | $0.19 | $0.19 | $0.19 | $0.19 |
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Total number of | Maximum number | |||||||||||||||||
Total number of | shares purchased as | of shares that may | ||||||||||||||||
shares | Average price | part of publicly | yet be purchased | |||||||||||||||
purchased | paid per share | announced plan(s) | under the plan(s) | |||||||||||||||
Deferred Compensation Plan (1) | ||||||||||||||||||
Balance at beginning of period | N/A | |||||||||||||||||
10/1/2007 to 10/31/2007 | 287 | $ | 27.68 | 287 | N/A | |||||||||||||
11/1/2007 to 11/30/2007 | – | – | – | N/A | ||||||||||||||
12/1/2007 to 12/31/2007 | – | – | – | N/A | ||||||||||||||
Total Deferred Compensation Plan | 287 | $ | 27.68 | 287 | N/A | |||||||||||||
2006 Stock Repurchase Plan (2) | ||||||||||||||||||
Balance at beginning of period | 214,600 | |||||||||||||||||
10/1/2007 to 10/31/2007 | – | – | – | – | ||||||||||||||
11/1/2007 to 11/30/2007 | – | – | – | – | ||||||||||||||
12/1/2007 to 12/31/2007 | – | – | – | – | ||||||||||||||
Total 2006 Stock Repurchase Plan | – | – | – | 214,600 | ||||||||||||||
Other (3) | ||||||||||||||||||
Balance at beginning of period | N/A | |||||||||||||||||
10/1/2007 to 10/31/2007 | – | – | – | N/A | ||||||||||||||
11/1/2007 to 11/30/2007 | 289 | $ | 18.25 | 289 | N/A | |||||||||||||
12/1/2007 to 12/31/2007 | 138 | 18.25 | 138 | N/A | ||||||||||||||
Total Other | 427 | $ | 18.25 | 427 | N/A | |||||||||||||
Total Purchases of Equity Securities | 714 | $ | 22.04 | 714 | ||||||||||||||
(1) | The Deferred Compensation Plan allows directors and officers to defer a portion of their compensation. The deferred compensation is contributed to a rabbi trust that invests the assets of the trust into selected mutual funds as well as shares of the Bancorp’s common stock. The plan authorizes Bancorp to acquire shares of Bancorp’s common stock to satisfy its obligation under this plan. All shares are purchased in the open market. As of October 15, 2007, the Bancorp’s common stock was no longer available as a new benchmark investment under the plan. Further, directors and officers who currently have selected Bancorp’s common stock as a benchmark investment (the “Bancorp Stock Fund”) will be allowed to transfer from that fund during a transition period that will run through September 15, 2008. After September 15, 2008, directors and officers will not be allowed to make transfers from the Bancorp Stock Fund and any distributions will be made in whole shares of Bancorp’s common stock to the extent of the benchmark investment election in the Bancorp Stock Fund. | |
(2) | The 2006 Stock Repurchase Plan was established in December 2006. A maximum of 400,000 shares were authorized under the plan. The Bancorp plans to hold the repurchased shares as treasury stock for general corporate purposes. | |
(3) | Pursuant to the Corporation’s share-based compensation plans, employees may deliver back shares of stock previously issued in payment of the exercise price of stock options. While required to be reported in this table, such transactions are not reported as share repurchases in the Corporation’s Consolidated Financial Statements. The Corporation’s share-based compensation plans (the 1988 Plan, the 1997 Plan and the 2003 Plan) have expiration dates of December 31, 1997, April 29, 2007 and April 29, 2013, respectively. |
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The selected consolidated financial data set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information including the Consolidated Financial Statements and related Notes, and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in this Annual Report on Form 10-K.
Selected Financial Data | (Dollars in thousands, except per share amounts) | |||||||||||||||||||||
At or for the years ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||
Financial Results: | ||||||||||||||||||||||
Interest income | $136,434 | $131,134 | $115,693 | $96,853 | $86,245 | |||||||||||||||||
Interest expense | 76,490 | 69,660 | 55,037 | 42,412 | 37,446 | |||||||||||||||||
Net interest income | 59,944 | 61,474 | 60,656 | 54,441 | 48,799 | |||||||||||||||||
Provision for loan losses | 1,900 | 1,200 | 1,200 | 610 | 460 | |||||||||||||||||
Net interest income after | ||||||||||||||||||||||
provision for loan losses | 58,044 | 60,274 | 59,456 | 53,831 | 48,339 | |||||||||||||||||
Noninterest income | 45,509 | 42,183 | 30,946 | 26,905 | 26,735 | |||||||||||||||||
Net interest and noninterest income | 103,553 | 102,457 | 90,402 | 80,736 | 75,074 | |||||||||||||||||
Noninterest expense | 68,906 | 65,335 | 56,393 | 50,373 | 47,632 | |||||||||||||||||
Income before income taxes | 34,647 | 37,122 | 34,009 | 30,363 | 27,442 | |||||||||||||||||
Income tax expense | 10,847 | 12,091 | 10,985 | 9,534 | 8,519 | |||||||||||||||||
Net income | $23,800 | $25,031 | $23,024 | $20,829 | $18,923 | |||||||||||||||||
Per share information ($): | ||||||||||||||||||||||
Earnings per share: | ||||||||||||||||||||||
Basic | 1.78 | 1.86 | 1.73 | 1.57 | 1.44 | |||||||||||||||||
Diluted | 1.75 | 1.82 | 1.69 | 1.54 | 1.41 | |||||||||||||||||
Cash dividends declared (1) | 0.80 | 0.76 | 0.72 | 0.68 | 0.62 | |||||||||||||||||
Book value | 13.97 | 12.89 | 11.86 | 11.44 | 10.46 | |||||||||||||||||
Tangible book value | 9.33 | 8.61 | 7.79 | 9.64 | 8.60 | |||||||||||||||||
Market value – closing stock price | 25.23 | 27.89 | 26.18 | 29.31 | 26.20 | |||||||||||||||||
Performance Ratios (%): | ||||||||||||||||||||||
Return on average assets | 0.99 | 1.04 | 0.98 | 0.97 | 1.03 | |||||||||||||||||
Return on average shareholders’ equity | 13.48 | 14.99 | 14.80 | 14.40 | 14.15 | |||||||||||||||||
Average equity to average total assets | 7.33 | 6.93 | 6.62 | 6.73 | 7.24 | |||||||||||||||||
Dividend payout ratio (2) | 45.71 | 41.76 | 42.60 | 44.16 | 43.97 | |||||||||||||||||
Asset Quality Ratios (%): | ||||||||||||||||||||||
Nonperforming loans to total loans | 0.27 | 0.19 | 0.17 | 0.38 | 0.29 | |||||||||||||||||
Nonperforming assets to total assets | 0.17 | 0.11 | 0.10 | 0.21 | 0.14 | |||||||||||||||||
Allowance for loan losses to nonaccrual loans | 471.12 | 693.87 | 742.25 | 354.49 | 580.17 | |||||||||||||||||
Allowance for loan losses to total loans | 1.29 | 1.29 | 1.28 | 1.34 | 1.66 | |||||||||||||||||
Net charge-offs (recoveries) to average loans | 0.03 | 0.02 | (0.01 | ) | (0.02 | ) | – | |||||||||||||||
Capital Ratios (%): | ||||||||||||||||||||||
Tier 1 leverage capital ratio | 6.09 | 6.01 | 5.45 | 5.35 | 5.65 | |||||||||||||||||
Tier 1 risk-based capital ratio | 9.10 | 9.57 | 9.06 | 9.15 | 10.00 | |||||||||||||||||
Total risk-based capital ratio | 10.39 | 10.96 | 10.51 | 10.72 | 11.57 |
(1) | Represents historical per share dividends declared by the Bancorp. | |
(2) | Represents the ratio of historical per share dividends declared by the Bancorp to diluted earnings per share. |
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Selected Financial Data | (Dollars in thousands) | ||||||||||||||||||||||
December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||
Assets: | |||||||||||||||||||||||
Cash and cash equivalents | $41,112 | $71,909 | $66,163 | $52,081 | $61,110 | ||||||||||||||||||
Total securities | 751,778 | 703,851 | 783,941 | 890,058 | 839,421 | ||||||||||||||||||
FHLB stock | 31,725 | 28,727 | 34,966 | 34,373 | 31,464 | ||||||||||||||||||
Loans: | |||||||||||||||||||||||
Commercial and other | 680,266 | 587,397 | 554,734 | 507,711 | 408,477 | ||||||||||||||||||
Residential real estate | 599,671 | 588,671 | 582,708 | 513,695 | 389,855 | ||||||||||||||||||
Consumer | 293,715 | 283,918 | 264,466 | 228,270 | 162,649 | ||||||||||||||||||
Total loans | 1,573,652 | 1,459,986 | 1,401,908 | 1,249,676 | 960,981 | ||||||||||||||||||
Less allowance for loan losses | 20,277 | 18,894 | 17,918 | 16,771 | 15,914 | ||||||||||||||||||
Net loans | 1,553,375 | 1,441,092 | 1,383,990 | 1,232,905 | 945,067 | ||||||||||||||||||
Investment in bank-owned life insurance | 41,363 | 39,770 | 30,360 | 29,249 | 28,074 | ||||||||||||||||||
Goodwill and other intangibles | 61,912 | 57,374 | 54,372 | 23,900 | 24,544 | ||||||||||||||||||
Other assets | 58,675 | 56,442 | 48,211 | 45,254 | 44,127 | ||||||||||||||||||
Total assets | $2,539,940 | $2,399,165 | $2,402,003 | $2,307,820 | $1,973,807 | ||||||||||||||||||
Liabilities: | |||||||||||||||||||||||
Deposits: | |||||||||||||||||||||||
Demand deposits | $175,542 | $186,533 | $196,102 | $189,588 | $194,144 | ||||||||||||||||||
NOW accounts | 164,944 | 175,479 | 178,677 | 174,727 | 153,344 | ||||||||||||||||||
Money market accounts | 321,600 | 286,998 | 223,255 | 196,775 | 83,037 | ||||||||||||||||||
Savings accounts | 176,278 | 205,998 | 212,499 | 251,920 | 257,497 | ||||||||||||||||||
Time deposits | 807,841 | 822,989 | 828,725 | 644,875 | 518,119 | ||||||||||||||||||
Total deposits | 1,646,205 | 1,677,997 | 1,639,258 | 1,457,885 | 1,206,141 | ||||||||||||||||||
FHLB advances | 616,417 | 474,561 | 545,323 | 672,748 | 607,104 | ||||||||||||||||||
Junior subordinated debentures | 22,681 | 22,681 | 22,681 | – | – | ||||||||||||||||||
Other borrowings | 32,560 | 14,684 | 9,774 | 3,417 | 2,311 | ||||||||||||||||||
Other liabilities | 35,564 | 36,186 | 26,521 | 21,918 | 20,196 | ||||||||||||||||||
Shareholders’ equity | 186,513 | 173,056 | 158,446 | 151,852 | 138,055 | ||||||||||||||||||
Total liabilities and shareholders’ equity | $2,539,940 | $2,399,165 | $2,402,003 | $2,307,820 | $1,973,807 | ||||||||||||||||||
Asset Quality: | |||||||||||||||||||||||
Nonaccrual loans | $4,304 | $2,723 | $2,414 | $4,731 | $2,743 | ||||||||||||||||||
Other real estate owned, net | – | – | – | 4 | 11 | ||||||||||||||||||
Total nonperforming assets | $4,304 | $2,723 | $2,414 | $4,735 | $2,754 | ||||||||||||||||||
Wealth Management Assets:(1) | |||||||||||||||||||||||
Market value of assets under administration | $4,014,352 | $3,609,180 | $3,215,763 | $1,821,718 | $1,741,948 | ||||||||||||||||||
(1) | Certain prior year amounts have been adjusted to conform to the current year presentation. |
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Selected Quarterly Financial Data | (Dollars and shares in thousands, except per share amounts) |
2007 | Q1 | Q2 | Q3 | Q4 | Year | |||||||||||||||||
Interest income: | ||||||||||||||||||||||
Interest and fees on loans | $23,934 | $24,414 | $25,032 | $25,340 | $98,720 | |||||||||||||||||
Income on securities: | ||||||||||||||||||||||
Taxable | 7,792 | 7,839 | 7,565 | 7,967 | 31,163 | |||||||||||||||||
Nontaxable | 668 | 759 | 781 | 775 | 2,983 | |||||||||||||||||
Dividends on corporate stock and FHLB stock | 718 | 685 | 669 | 665 | 2,737 | |||||||||||||||||
Other interest income | 191 | 184 | 275 | 181 | 831 | |||||||||||||||||
Total interest income | 33,303 | 33,881 | 34,322 | 34,928 | 136,434 | |||||||||||||||||
Interest expense: | ||||||||||||||||||||||
Deposits | 12,977 | 13,215 | 13,140 | 13,090 | 52,422 | |||||||||||||||||
FHLB advances | 4,968 | 5,112 | 5,243 | 6,318 | 21,641 | |||||||||||||||||
Junior subordinated debentures | 338 | 338 | 338 | 338 | 1,352 | |||||||||||||||||
Other interest expense | 150 | 289 | 291 | 345 | 1,075 | |||||||||||||||||
Total interest expense | 18,433 | 18,954 | 19,012 | 20,091 | 76,490 | |||||||||||||||||
Net interest income | 14,870 | 14,927 | 15,310 | 14,837 | 59,944 | |||||||||||||||||
Provision for loan losses | 300 | 300 | 300 | 1,000 | 1,900 | |||||||||||||||||
Net interest income after provision for loan losses | 14,570 | 14,627 | 15,010 | 13,837 | 58,044 | |||||||||||||||||
Noninterest income: | ||||||||||||||||||||||
Wealth management services: | ||||||||||||||||||||||
Trust and investment advisory fees | 5,038 | 5,252 | 5,336 | 5,498 | 21,124 | |||||||||||||||||
Mutual fund fees | 1,262 | 1,352 | 1,386 | 1,430 | 5,430 | |||||||||||||||||
Financial planning, commissions and other service fees | 570 | 889 | 456 | 547 | 2,462 | |||||||||||||||||
Wealth management services | 6,870 | 7,493 | 7,178 | 7,475 | 29,016 | |||||||||||||||||
Service charges on deposit accounts | 1,125 | 1,220 | 1,214 | 1,154 | 4,713 | |||||||||||||||||
Merchant processing fees | 1,204 | 1,829 | 2,252 | 1,425 | 6,710 | |||||||||||||||||
Income from bank-owned life insurance | 391 | 399 | 376 | 427 | 1,593 | |||||||||||||||||
Net gains on loan sales and commissions on loans originated for others | 264 | 510 | 431 | 288 | 1,493 | |||||||||||||||||
Net realized gains (losses) on securities | 1,036 | (700 | ) | – | 119 | 455 | ||||||||||||||||
Other income | 358 | 372 | 399 | 400 | 1,529 | |||||||||||||||||
Total noninterest income | 11,248 | 11,123 | 11,850 | 11,288 | 45,509 | |||||||||||||||||
Noninterest expense: | ||||||||||||||||||||||
Salaries and employee benefits | 9,812 | 10,285 | 10,098 | 9,791 | 39,986 | |||||||||||||||||
Net occupancy | 1,017 | 1,038 | 1,021 | 1,074 | 4,150 | |||||||||||||||||
Equipment | 832 | 861 | 871 | 909 | 3,473 | |||||||||||||||||
Merchant processing costs | 1,019 | 1,558 | 1,916 | 1,193 | 5,686 | |||||||||||||||||
Outsourced services | 519 | 535 | 556 | 570 | 2,180 | |||||||||||||||||
Advertising and promotion | 429 | 572 | 466 | 557 | 2,024 | |||||||||||||||||
Legal, audit and professional fees | 450 | 404 | 444 | 463 | 1,761 | |||||||||||||||||
Amortization of intangibles | 368 | 348 | 341 | 326 | 1,383 | |||||||||||||||||
Debt prepayment penalties | 1,067 | – | – | – | 1,067 | |||||||||||||||||
Other expenses | 1,596 | 2,159 | 1,599 | 1,842 | 7,196 | |||||||||||||||||
Total noninterest expense | 17,109 | 17,760 | 17,312 | 16,725 | 68,906 | |||||||||||||||||
Income before income taxes | 8,709 | 7,990 | 9,548 | 8,400 | 34,647 | |||||||||||||||||
Income tax expense | 2,734 | 2,508 | 2,992 | 2,613 | 10,847 | |||||||||||||||||
Net income | $5,975 | $5,482 | $6,556 | $5,787 | $23,800 | |||||||||||||||||
Weighted average shares outstanding – basic | 13,412.1 | 13,339.6 | 13,323.6 | 13,347.5 | 13,355.5 | |||||||||||||||||
Weighted average shares outstanding – diluted | 13,723.0 | 13,616.4 | 13,564.1 | 13,580.7 | 13,604.1 | |||||||||||||||||
Per share information: | ||||||||||||||||||||||
Basic earnings per share | $0.45 | $0.41 | $0.49 | $0.43 | $1.78 | |||||||||||||||||
Diluted earnings per share | $0.44 | $0.40 | $0.48 | $0.43 | $1.75 | |||||||||||||||||
Cash dividends declared per share | $0.20 | $0.20 | $0.20 | $0.20 | $0.80 |
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Selected Quarterly Financial Data | (Dollars and shares in thousands, except per share amounts) |
2006 | Q1 | Q2 | Q3 | Q4 | Year | |||||||||||||||||
Interest income: | ||||||||||||||||||||||
Interest and fees on loans | $21,897 | $23,130 | $23,430 | $23,733 | $92,190 | |||||||||||||||||
Income on securities: | ||||||||||||||||||||||
Taxable | 8,412 | 8,648 | 8,493 | 8,210 | 33,763 | |||||||||||||||||
Nontaxable | 328 | 371 | 405 | 514 | 1,618 | |||||||||||||||||
Dividends on corporate stock and FHLB stock | 678 | 249 | 1,197 | 718 | 2,842 | |||||||||||||||||
Other interest income | 115 | 150 | 252 | 204 | 721 | |||||||||||||||||
Total interest income | 31,430 | 32,548 | 33,777 | 33,379 | 131,134 | |||||||||||||||||
Interest expense: | ||||||||||||||||||||||
Deposits | 10,238 | 11,161 | 12,473 | 13,110 | 46,982 | |||||||||||||||||
FHLB advances | 5,359 | 5,745 | 5,011 | 4,801 | 20,916 | |||||||||||||||||
Junior subordinated debentures | 338 | 338 | 338 | 338 | 1,352 | |||||||||||||||||
Other interest expense | 80 | 87 | 89 | 154 | 410 | |||||||||||||||||
Total interest expense | 16,015 | 17,331 | 17,911 | 18,403 | 69,660 | |||||||||||||||||
Net interest income | 15,415 | 15,217 | 15,866 | 14,976 | 61,474 | |||||||||||||||||
Provision for loan losses | 300 | 300 | 300 | 300 | 1,200 | |||||||||||||||||
Net interest income after provision for loan losses | 15,115 | 14,917 | 15,566 | 14,676 | 60,274 | |||||||||||||||||
Noninterest income: | ||||||||||||||||||||||
Wealth management services: | ||||||||||||||||||||||
Trust and investment advisory fees | 4,627 | 4,682 | 4,727 | 5,063 | 19,099 | |||||||||||||||||
Mutual fund fees | 1,130 | 1,214 | 1,229 | 1,092 | 4,665 | |||||||||||||||||
Financial planning, commissions and other service fees | 683 | 841 | 509 | 583 | 2,616 | |||||||||||||||||
Wealth management services | 6,440 | 6,737 | 6,465 | 6,738 | 26,380 | |||||||||||||||||
Service charges on deposit accounts | 1,119 | 1,236 | 1,312 | 1,248 | 4,915 | |||||||||||||||||
Merchant processing fees | 1,047 | 1,656 | 2,125 | 1,380 | 6,208 | |||||||||||||||||
Income from bank-owned life insurance | 279 | 346 | 389 | 396 | 1,410 | |||||||||||||||||
Net gains on loan sales and commissions on loans originated for others | 276 | 336 | 417 | 394 | 1,423 | |||||||||||||||||
Net realized gains (losses) on securities | 59 | 765 | (365 | ) | (16 | ) | 443 | |||||||||||||||
Other income | 300 | 371 | 440 | 293 | 1,404 | |||||||||||||||||
Total noninterest income | 9,520 | 11,447 | 10,783 | 10,433 | 42,183 | |||||||||||||||||
Noninterest expense: | ||||||||||||||||||||||
Salaries and employee benefits | 9,619 | 9,830 | 9,651 | 9,598 | 38,698 | |||||||||||||||||
Net occupancy | 954 | 1,018 | 934 | 982 | 3,888 | |||||||||||||||||
Equipment | 799 | 881 | 872 | 818 | 3,370 | |||||||||||||||||
Merchant processing costs | 887 | 1,407 | 1,796 | 1,167 | 5,257 | |||||||||||||||||
Outsourced services | 518 | 496 | 490 | 505 | 2,009 | |||||||||||||||||
Advertising and promotion | 437 | 681 | 371 | 405 | 1,894 | |||||||||||||||||
Legal, audit and professional fees | 376 | 403 | 563 | 295 | 1,637 | |||||||||||||||||
Amortization of intangibles | 405 | 406 | 398 | 384 | 1,593 | |||||||||||||||||
Other expenses | 1,709 | 2,158 | 1,536 | 1,586 | 6,989 | |||||||||||||||||
Total noninterest expense | 15,704 | 17,280 | 16,611 | 15,740 | 65,335 | |||||||||||||||||
Income before income taxes | 8,931 | 9,084 | 9,738 | 9,369 | 37,122 | |||||||||||||||||
Income tax expense | 2,858 | 2,907 | 3,160 | 3,166 | 12,091 | |||||||||||||||||
Net income | $6,073 | $6,177 | $6,578 | $6,203 | $25,031 | |||||||||||||||||
Weighted average shares outstanding – basic | 13,386.8 | 13,419.9 | 13,436.6 | 13,452.5 | 13,424.1 | |||||||||||||||||
Weighted average shares outstanding – diluted | 13,698.6 | 13,703.2 | 13,726.3 | 13,769.3 | 13,723.2 | |||||||||||||||||
Per share information: | ||||||||||||||||||||||
Basic earnings per share | $0.45 | $0.46 | $0.49 | $0.46 | $1.86 | |||||||||||||||||
Diluted earnings per share | $0.44 | $0.45 | $0.48 | $0.45 | $1.82 | |||||||||||||||||
Cash dividends declared per share | $0.19 | $0.19 | $0.19 | $0.19 | $0.76 |
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Arriving at an appropriate level of allowance for loan losses necessarily involves a high degree of judgment. The Corporation uses a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient allowance for loan losses. The methodology includes three elements: (1) identification of loss allocations for certain specific loans, (2) general loss allocation factors for certain loan types based on credit grade and loss experience, and (3) general loss allocations for other environmental factors. The methodology includes an analysis of individual loans deemed to be impaired in accordance with U.S. generally accepted accounting principles (SFAS 114, “Accounting by Creditors for Impairment of a Loan – an amendment of FASB Statements No. 5 and 15”). Other individual commercial loans and commercial mortgage loans are evaluated using an internal rating system and the application of loss allocation factors. The loan rating system and the related
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The Corporation records an investment impairment charge at the point it believes an investment security has experienced a decline in value that is other-than-temporary. In determining whether an other-than-temporary impairment has occurred, the Corporation considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for impairment, the severity and duration of the impairment, changes in the value subsequent to year end, forecasted performance of the issuer, and the general market condition in the geographic area or industry the issuer operates in. If necessary, the investment is written down to its current fair value through a charge to earnings at the time the impairment is deemed to have occurred. Future adverse changes in market conditions, continued poor operating results of the issuer or other factors could result in further losses that may not be reflected in an investment’s current carrying value, possibly requiring an additional impairment charge in the future.
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At or for the Years Ended December 31, | 2007 | 2006 | ||||||||
Earnings: | ||||||||||
Net income | $23,800 | $25,031 | ||||||||
Diluted earnings per share | $1.75 | $1.82 | ||||||||
Dividends declared per share | $0.80 | $0.76 | ||||||||
Book value per share | $13.97 | $12.89 | ||||||||
Tangible book value per share | $9.33 | $8.61 | ||||||||
Weighted average shares – Basic | 13,355.5 | 13,424.1 | ||||||||
Weighted average shares – Diluted | 13,604.1 | 13,723.2 | ||||||||
Select Ratios: | ||||||||||
Return on average assets | 0.99% | 1.04% | ||||||||
Return on average shareholders equity | 13.48% | 14.99% | ||||||||
Interest rate spread (taxable equivalent basis) | 2.39% | 2.47% | ||||||||
Net interest margin (taxable equivalent basis) | 2.76% | 2.80% |
Net interest income is the difference between interest earned on loans and securities and interest paid on deposits and other borrowings, and continues to be the primary source of Washington Trust’s operating income. Included in interest income are loan prepayment fees and certain other fees, such as late charges. Net interest income is affected by the level of interest rates, changes in interest rates and by changes in the amount and composition of interest-earning assets and interest-bearing liabilities.
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Years ended December 31, | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | Average | Yield/ | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||||||||||
Residential real estate loans | $589,619 | $31,540 | 5.35 | $590,245 | $30,237 | 5.12 | $562,838 | $27,890 | 4.96 | ||||||||||||||||||||||||||||||
Commercial and other loans | 626,309 | 47,713 | 7.62 | 564,310 | 43,409 | 7.69 | 531,434 | 37,244 | 7.01 | ||||||||||||||||||||||||||||||
Consumer loans | 283,873 | 19,634 | 6.92 | 274,764 | 18,748 | 6.82 | 246,959 | 13,983 | 5.66 | ||||||||||||||||||||||||||||||
Total loans | 1,499,801 | 98,887 | 6.59 | 1,429,319 | 92,394 | 6.46 | 1,341,231 | 79,117 | 5.90 | ||||||||||||||||||||||||||||||
Cash, federal funds sold and other short-term investments | 16,759 | 831 | 4.96 | 14,548 | 721 | 4.96 | 14,703 | 451 | 3.07 | ||||||||||||||||||||||||||||||
Taxable debt securities | 605,443 | 31,163 | 5.15 | 712,870 | 33,763 | 4.74 | 783,662 | 32,934 | 4.20 | ||||||||||||||||||||||||||||||
Nontaxable debt securities | 77,601 | 4,368 | 5.63 | 42,977 | 2,486 | 5.79 | 23,329 | 1,362 | 5.84 | ||||||||||||||||||||||||||||||
Corporate stocks and FHLB stock | 42,544 | 3,047 | 7.16 | 48,643 | 3,205 | 6.59 | 50,763 | 2,858 | 5.63 | ||||||||||||||||||||||||||||||
Total securities | 742,347 | 39,409 | 5.31 | 819,038 | 40,175 | 4.91 | 872,457 | 37,605 | 4.31 | ||||||||||||||||||||||||||||||
Total interest-earning assets | 2,242,148 | 138,296 | 6.17 | 2,248,357 | 132,569 | 5.90 | 2,213,688 | 116,722 | 5.27 | ||||||||||||||||||||||||||||||
Noninterest-earning assets | 165,561 | 159,115 | 137,460 | ||||||||||||||||||||||||||||||||||||
Total assets | $2,407,709 | $2,407,472 | $2,351,148 | ||||||||||||||||||||||||||||||||||||
Liabilities and shareholders’ equity: | |||||||||||||||||||||||||||||||||||||||
NOW accounts | $166,580 | $285 | 0.17 | $173,137 | $302 | 0.17 | $176,706 | $ 295 | 0.17 | ||||||||||||||||||||||||||||||
Money market accounts | 303,138 | 11,846 | 3.91 | 262,613 | 9,063 | 3.45 | 203,799 | 4,386 | 2.15 | ||||||||||||||||||||||||||||||
Savings accounts | 194,342 | 2,619 | 1.35 | 198,040 | 1,464 | 0.74 | 234,311 | 1,392 | 0.59 | ||||||||||||||||||||||||||||||
Time deposits | 821,951 | 37,672 | 4.58 | 856,979 | 36,153 | 4.22 | 741,456 | 26,113 | 3.52 | ||||||||||||||||||||||||||||||
FHLB advances | 489,229 | 21,641 | 4.42 | 509,611 | 20,916 | 4.10 | 611,177 | 22,233 | 3.64 | ||||||||||||||||||||||||||||||
Junior subordinated debentures | 22,681 | 1,352 | 5.96 | 22,681 | 1,352 | 5.96 | 7,767 | 458 | 5.90 | ||||||||||||||||||||||||||||||
Other | 23,990 | 1,075 | 4.48 | 8,627 | 410 | 4.76 | 3,581 | 160 | 4.48 | ||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 2,021,911 | 76,490 | 3.78 | 2,031,688 | 69,660 | 3.43 | 1,978,797 | 55,037 | 2.78 | ||||||||||||||||||||||||||||||
Demand deposits | 177,342 | 185,322 | 197,245 | ||||||||||||||||||||||||||||||||||||
Other liabilities | 31,886 | 23,517 | 19,498 | ||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 176,570 | 166,945 | 155,608 | ||||||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $2,407,709 | $2,407,472 | $2,351,148 | ||||||||||||||||||||||||||||||||||||
Net interest income | $61,806 | $62,909 | $61,685 | ||||||||||||||||||||||||||||||||||||
Interest rate spread | 2.39 | 2.47 | 2.49 | ||||||||||||||||||||||||||||||||||||
Net interest margin | 2.76 | 2.80 | 2.79 | ||||||||||||||||||||||||||||||||||||
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||
Commercial and other loans | $167 | $204 | $186 | |||||||||||
Nontaxable debt securities | 1,385 | 868 | 476 | |||||||||||
Corporate stocks and FHLB stock | 310 | 363 | 367 | |||||||||||
Total | $1,862 | $1,435 | $1,029 | |||||||||||
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2007/2006 | 2006/2005 | |||||||||||||||||||||||||
(Dollars in thousands) | Volume | Rate | Net Change | Volume | Rate | Net Change | ||||||||||||||||||||
Interest on interest-earning assets: | ||||||||||||||||||||||||||
Residential real estate loans | $(33 | ) | $1,336 | $1,303 | $1,412 | $935 | $2,347 | |||||||||||||||||||
Commercial and other loans | 4,704 | (400 | ) | 4,304 | 2,401 | 3,764 | 6,165 | |||||||||||||||||||
Consumer loans | 615 | 271 | 886 | 1,689 | 3,076 | 4,765 | ||||||||||||||||||||
Cash, federal funds sold and other short-term investments | 109 | 1 | 110 | (5 | ) | 275 | 270 | |||||||||||||||||||
Taxable debt securities | (5,366 | ) | 2,766 | (2,600 | ) | (3,150 | ) | 3,979 | 829 | |||||||||||||||||
Nontaxable debt securities | 1,953 | (71 | ) | 1,882 | 1,136 | (12 | ) | 1,124 | ||||||||||||||||||
Corporate stocks and FHLB stock | (421 | ) | 263 | (158 | ) | (124 | ) | 471 | 347 | |||||||||||||||||
Total interest income | 1,561 | 4,166 | 5,727 | 3,359 | 12,488 | 15,847 | ||||||||||||||||||||
Interest on interest-bearing liabilities: | ||||||||||||||||||||||||||
NOW accounts | (17 | ) | – | (17 | ) | 7 | – | 7 | ||||||||||||||||||
Money market accounts | 1,493 | 1,290 | 2,783 | 1,511 | 3,166 | 4,677 | ||||||||||||||||||||
Savings accounts | (27 | ) | 1,182 | 1,155 | (239 | ) | 311 | 72 | ||||||||||||||||||
Time deposits | (1,507 | ) | 3,026 | 1,519 | 4,411 | 5,629 | 10,040 | |||||||||||||||||||
FHLB advances | (859 | ) | 1,584 | 725 | (3,942 | ) | 2,625 | (1,317 | ) | |||||||||||||||||
Junior subordinated debentures | – | – | – | 889 | 5 | 894 | ||||||||||||||||||||
Other | 689 | (24 | ) | 665 | 239 | 11 | 250 | |||||||||||||||||||
Total interest expense | (228 | ) | 7,058 | 6,830 | 2,876 | 11,747 | 14,623 | |||||||||||||||||||
Net interest income | $1,789 | $(2,892 | ) | $(1,103 | ) | $483 | $741 | $1,224 | ||||||||||||||||||
Noninterest income is an important source of revenue for Washington Trust. Noninterest income was 43% of total revenues (net interest income plus noninterest income) in 2007. Washington Trust’s primary sources of noninterest income are revenues from wealth management services, service charges on deposit accounts, merchant credit card processing fees, and net gains on loan sales and commissions on loans originated for others. Also included in noninterest income are earnings generated from bank-owned life insurance (“BOLI”). Noninterest income amounted to $45.5 million for 2007, up $3.3 million, or 7.9%, from 2006. This increase was largely attributable to higher revenues from wealth management services.
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(Dollars in thousands) | 2007 | 2006 | $ Change | % Change | ||||||||||||||
Noninterest income: | ||||||||||||||||||
Wealth management services: | ||||||||||||||||||
Trust and investment advisory fees | $ | 21,124 | $ | 19,099 | $ | 2,025 | 10.6 | % | ||||||||||
Mutual fund fees | 5,430 | 4,665 | 765 | 16.4 | ||||||||||||||
Financial planning, commissions and other service fees | 2,462 | 2,616 | (154 | ) | (5.9 | ) | ||||||||||||
Wealth management services | 29,016 | 26,380 | 2,636 | 10.0 | ||||||||||||||
Service charges on deposit accounts | 4,713 | 4,915 | (202 | ) | (4.1 | ) | ||||||||||||
Merchant processing fees | 6,710 | 6,208 | 502 | 8.1 | ||||||||||||||
Income from BOLI | 1,593 | 1,410 | 183 | 13.0 | ||||||||||||||
Net gains on loan sales and commissions on loans originated for others | 1,493 | 1,423 | 70 | 4.9 | ||||||||||||||
Other income | 1,529 | 1,404 | 125 | 8.9 | ||||||||||||||
Subtotal | 45,054 | 41,740 | 3,314 | 7.9 | ||||||||||||||
Net realized gains on securities | 455 | 443 | 12 | 2.7 | ||||||||||||||
Total noninterest income | $ | 45,509 | $ | 42,183 | $ | 3,326 | 7.9 | % | ||||||||||
(Dollars in thousands) | 2007 | |||
Wealth Management Assets Under Administration: | ||||
Balance at the beginning of period (1) | $ | 3,609,180 | ||
Net market appreciation and income | 272,398 | |||
Net customer cash flows | 132,774 | |||
Balance at the end of period | $ | 4,014,352 | ||
(1) | Prior period amounts have been adjusted to conform to the current year presentation. |
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Noninterest expense totaled $68.9 million, up $3.6 million, or 5.5%, from 2006. Included in this increase was $1.1 million in debt prepayment penalties that were incurred in the first quarter of 2007 as a result of the prepayment of higher cost FHLB advances. Excluding the debt prepayment penalty expense, noninterest expense for 2007 increased $2.5 million, or 3.8%, over the prior year. Additional discussion and further changes in the components of noninterest expenses are disclosed below.
(Dollars in thousands) | 2007 | 2006 | $ Change | % Change | ||||||||||||
Noninterest expense: | ||||||||||||||||
Salaries and employee benefits | $ | 39,986 | $ | 38,698 | $ | 1,288 | 3.3 | % | ||||||||
Net occupancy | 4,150 | 3,888 | 262 | 6.7 | ||||||||||||
Equipment | 3,473 | 3,370 | 103 | 3.1 | ||||||||||||
Merchant processing costs | 5,686 | 5,257 | 429 | 8.2 | ||||||||||||
Outsourced services | 2,180 | 2,009 | 171 | 8.5 | ||||||||||||
Advertising and promotion | 2,024 | 1,894 | 130 | 6.9 | ||||||||||||
Legal, audit and professional fees | 1,761 | 1,637 | 124 | 7.6 | ||||||||||||
Amortization of intangibles | 1,383 | 1,593 | (210 | ) | (13.2 | ) | ||||||||||
Debt prepayment penalties | 1,067 | – | 1,067 | 100.0 | ||||||||||||
Other | 7,196 | 6,989 | 207 | 3.0 | ||||||||||||
Total noninterest expense | $ | 68,906 | $ | 65,335 | $ | 3,571 | 5.5 | % | ||||||||
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Income tax expense amounted to $10.8 million and $12.1 million in 2007 and 2006, respectively. The Corporation’s effective tax rate was 31.3% in 2007, compared to a rate of 32.6% in 2006. These rates differed from the federal rate of 35.0% due to the benefits of tax-exempt income, the dividends received deduction and income from BOLI. In 2007, the decrease in the effective tax rate was primarily due to higher average balances in nontaxable state and municipal debt obligations.
Net income for the year ended December 31, 2006 amounted to $25.0 million, up $2.0 million, or 8.7% from the amount reported for 2005. On a diluted share basis, net income was $1.82 for 2006, up $0.13, or 7.7% from the $1.69 reported for 2005. The rates of return on average equity and average assets for 2006 were 14.99% and 1.04%, respectively. Comparable amounts for the year 2005 were 14.80% and 0.98%, respectively.
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(Dollars in thousands) | 2006 | 2005 | $ Change | % Change | |||||||||||||
Noninterest income: | |||||||||||||||||
Wealth management services: | |||||||||||||||||
Trust and investment advisory fees | $19,099 | $14,407 | $4,692 | 32.6 | % | ||||||||||||
Mutual fund fees | 4,665 | 1,336 | 3,329 | 249.2 | |||||||||||||
Financial planning, commissions and other service fees | 2,616 | 919 | 1,697 | 184.7 | |||||||||||||
Wealth management services | 26,380 | 16,662 | 9,718 | 58.3 | |||||||||||||
Service charges on deposit accounts | 4,915 | 4,502 | 413 | 9.2 | |||||||||||||
Merchant processing fees | 6,208 | 5,203 | 1,005 | 19.3 | |||||||||||||
Income from BOLI | 1,410 | 1,110 | 300 | 27.0 | |||||||||||||
Net gains on loan sales and commissions on loans originated for others | 1,423 | 1,679 | (256 | ) | (15.2 | ) | |||||||||||
Other income | 1,404 | 1,433 | (29 | ) | (2.0 | ) | |||||||||||
Subtotal | 41,740 | 30,589 | 11,151 | 36.5 | |||||||||||||
Net realized gains on securities | 443 | 357 | 86 | 24.1 | |||||||||||||
Total noninterest income | $42,183 | $30,946 | $11,237 | 36.3 | % | ||||||||||||
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(Dollars in thousands) | 2006 | 2005 | $ Change | % Change | |||||||||||||
Noninterest expense: | |||||||||||||||||
Salaries and employee benefits | $38,698 | $32,133 | $6,565 | 20.4 | % | ||||||||||||
Net occupancy | 3,888 | 3,460 | 428 | 12.4 | |||||||||||||
Equipment | 3,370 | 3,456 | (86 | ) | (2.5 | ) | |||||||||||
Merchant processing costs | 5,257 | 4,319 | 938 | 21.7 | |||||||||||||
Outsourced services | 2,009 | 1,723 | 286 | 16.6 | |||||||||||||
Advertising and promotion | 1,894 | 1,977 | (83 | ) | (4.2 | ) | |||||||||||
Legal, audit and professional fees | 1,637 | 1,900 | (263 | ) | (13.8 | ) | |||||||||||
Amortization of intangibles | 1,593 | 852 | 741 | 87.0 | |||||||||||||
Other | 6,989 | 6,573 | 416 | 6.3 | |||||||||||||
Total noninterest expense | $65,335 | $56,393 | $8,942 | 15.9 | % | ||||||||||||
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Summary
Total assets were $2.5 billion at December 31, 2007, up $140.8 million from December 31, 2006, largely due to the $112.3 million increase in the loan portfolio. Total liabilities increased $127.3 million in 2007, primarily due to increases in FHLB advances. Shareholders’ equity totaled $186.5 million at December 31, 2007, compared to $173.1 million at the end of 2006.
Washington Trust’s securities portfolio is managed to generate interest income, to implement interest rate risk management strategies, and to provide a readily available source of liquidity for balance sheet management. Securities are designated as either available for sale or held to maturity at the time of purchase. Securities available for sale may be sold in response to changes in market conditions, prepayment risk, rate fluctuations, liquidity, or capital requirements. Securities available for sale are reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of tax, until realized. Securities designated as held to maturity are classified as such because the Corporation has the intent and ability to hold them until maturity. Securities held to maturity are reported at amortized cost. At December 31, 2007, the Corporation’s portfolio consisted primarily of mortgage-backed securities and U.S. government treasury and agency securities. All of the Corporation’s mortgage-backed securities are issued by U.S. government and government-sponsored agencies. See Note 5 to the Consolidated Financial Statements for additional information.
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(Dollars in thousands) | |||||||||||||||||||||||||
December 31, | 2007 | 2006 | 2005 | ||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | ||||||||||||||||||||
Securities Available for Sale: | |||||||||||||||||||||||||
U.S. Treasury obligations and obligations of U.S. government-sponsored agencies | $139,599 | 18 | % | $157,285 | 30 | % | $107,651 | 18 | % | ||||||||||||||||
Mortgage-backed securities issued by U.S. government and government-sponsored agencies | 469,388 | 62 | % | 293,787 | 56 | % | 428,174 | 69 | % | ||||||||||||||||
States and political subdivisions | 80,894 | 11 | % | – | – | % | – | – | % | ||||||||||||||||
Trust preferred securities | 34,454 | 5 | % | 30,574 | 6 | % | 30,363 | 5 | % | ||||||||||||||||
Corporate bonds | 14,101 | 2 | % | 25,034 | 5 | % | 32,832 | 5 | % | ||||||||||||||||
Corporate stocks | 13,342 | 2 | % | 19,716 | 3 | % | 20,214 | 3 | % | ||||||||||||||||
Total securities available for sale | $751,778 | 100 | % | $526,396 | 100 | % | $619,234 | 100 | % | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||
December 31, | 2007 | 2006 | 2005 | ||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | ||||||||||||||||||||
Securities Held to Maturity: | |||||||||||||||||||||||||
U.S. Treasury obligations and obligations of U.S. government-sponsored agencies | $ – | – | % | $42,000 | 24 | % | $47,250 | 29 | % | ||||||||||||||||
Mortgage-backed securities issued by U.S. government-sponsored agencies | – | – | % | 69,340 | 39 | % | 84,960 | 52 | % | ||||||||||||||||
States and political subdivisions | – | – | % | 66,115 | 37 | % | 32,497 | 19 | % | ||||||||||||||||
Total securities held to maturity | $ – | – | % | $177,455 | 100 | % | $164,707 | 100 | % | ||||||||||||||||
The Corporation is required to maintain a level of investment in FHLB stock that currently is based on the level of its FHLB advances. As of December 31, 2007 and 2006, the Corporation’s investment in FHLB stock totaled $31.7 million and $28.7 million, respectively.
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The following table sets forth the composition of the Corporation’s loan portfolio for each of the past five years:
(Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||||
Commercial: | |||||||||||||||||||||||||||||||||||||||||
Mortgages | $278,821 | 18 | % | $282,019 | 19 | % | $291,292 | 21 | % | $266,670 | 21 | % | $227,334 | 24 | % | ||||||||||||||||||||||||||
Construction & development | 60,361 | 4 | % | 32,233 | 2 | % | 37,190 | 3 | % | 29,263 | 2 | % | 12,486 | 1 | % | ||||||||||||||||||||||||||
Other(1) | 341,084 | 21 | % | 273,145 | 19 | % | 226,252 | 16 | % | 211,778 | 18 | % | 168,657 | 18 | % | ||||||||||||||||||||||||||
Total commercial | 680,266 | 43 | % | 587,397 | 40 | % | 554,734 | 40 | % | 507,711 | 41 | % | 408,477 | 43 | % | ||||||||||||||||||||||||||
Residential real estate: | |||||||||||||||||||||||||||||||||||||||||
Mortgages | 588,628 | 37 | % | 577,522 | 40 | % | 565,680 | 40 | % | 494,720 | 40 | % | 375,706 | 39 | % | ||||||||||||||||||||||||||
Homeowner construction | 11,043 | 1 | % | 11,149 | – | % | 17,028 | 2 | % | 18,975 | 1 | % | 14,149 | 2 | % | ||||||||||||||||||||||||||
Total residential real estate | 599,671 | 38 | % | 588,671 | 40 | % | 582,708 | 42 | % | 513,695 | 41 | % | 389,855 | 41 | % | ||||||||||||||||||||||||||
Consumer: | |||||||||||||||||||||||||||||||||||||||||
Home equity lines | 144,429 | 9 | % | 145,676 | 10 | % | 161,100 | 11 | % | 155,001 | 12 | % | 80,523 | 12 | % | ||||||||||||||||||||||||||
Home equity loans | 99,827 | 6 | % | 93,947 | 6 | % | 72,288 | 5 | % | 54,297 | 4 | % | 35,935 | 4 | % | ||||||||||||||||||||||||||
Other(2) | 49,459 | 4 | % | 44,295 | 4 | % | 31,078 | 2 | % | 18,972 | 2 | % | 46,191 | – | % | ||||||||||||||||||||||||||
Total consumer loans | 293,715 | 19 | % | 283,918 | 20 | % | 264,466 | 18 | % | 228,270 | 18 | % | 162,649 | 16 | % | ||||||||||||||||||||||||||
Total loans | $1,573,652 | 100 | % | $1,459,986 | 100 | % | $1,401,908 | 100 | % | $1,249,676 | 100 | % | $960,981 | 100 | % | ||||||||||||||||||||||||||
(1) | Loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate. | |
(2) | Other consumer loans include personal installment loans and loans to individuals secured by general aviation aircraft and automobiles. | |
(Dollars in thousands) | |||||||||||||||||
1 Year | 1 to 5 | After 5 | |||||||||||||||
Matures in: | or Less | Years | Years | Totals | |||||||||||||
Construction and development (1) | $3,839 | $23,527 | $44,038 | $71,404 | |||||||||||||
Commercial – other | 150,989 | 130,833 | 59,262 | 341,084 | |||||||||||||
$154,828 | $154,360 | $103,300 | $412,488 | ||||||||||||||
(1) | Includes homeowner construction and commercial construction and development. Maturities of homeowner construction loans are included based on their contractual conventional mortgage repayment terms following the completion of construction. |
(Dollars in thousands) | Floating or | |||||||||||||
Predetermined | Adjustable | |||||||||||||
Rates | Rates | Totals | ||||||||||||
Principal due after one year | $ | 172,458 | $ | 85,202 | $ | 257,660 | ||||||||
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The Board of Directors of the Bank monitors credit risk management through two committees, the Finance Committee and the Audit Committee. The Finance Committee reviews and approves large exposure credit requests, monitors asset quality on a regular basis and has approval authority for credit granting policies. The Audit Committee oversees management’s system and procedures to monitor the credit quality of the loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system and determine the adequacy of the allowance for loan losses. The Bank’s practice is to identify problem credits early and take charge-offs as promptly as practicable.
Nonperforming assets include nonaccrual loans and other real estate owned. Nonperforming assets amounted to $4.3 million, or 0.17% of total assets, at December 31, 2007, compared to $2.7 million, or 0.11% of total assets, at December 31, 2006. Nonaccrual loans as a percentage of total loans stood at 0.27% at December 31, 2007, compared to 0.19% at December 31, 2006.
December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
Nonaccrual loans: | |||||||||||||||||||||
Residential real estate | $1,158 | $721 | $1,147 | $1,027 | $946 | ||||||||||||||||
Commercial and other: | |||||||||||||||||||||
Mortgages | 1,094 | 981 | 394 | 2,357 | 342 | ||||||||||||||||
Construction and development | – | – | – | 390 | – | ||||||||||||||||
Other | 1,781 | 831 | 624 | 730 | 1,236 | ||||||||||||||||
Consumer | 271 | 190 | 249 | 227 | 219 | ||||||||||||||||
Total nonaccrual loans | 4,304 | 2,723 | 2,414 | 4,731 | 2,743 | ||||||||||||||||
Other real estate owned, net | – | – | – | 4 | 11 | ||||||||||||||||
Total nonperforming assets | $4,304 | $2,723 | $2,414 | $4,735 | $2,754 | ||||||||||||||||
Loans past due 90 days or more and accruing | $ – | $ – | $ – | $ – | $ – | ||||||||||||||||
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Loans, with the exception of certain well-secured residential mortgage loans, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more past due with respect to principal and/or interest. Well-secured residential mortgage loans are permitted to remain on accrual status provided that full collection of principal and interest is assured. 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 uncollected, is reversed against current period income. Subsequent cash receipts on nonaccrual loans are recognized as interest income, or recorded as a reduction of principal if full collection of the loan is doubtful or if impairment of the collateral is identified. 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.
(Dollars in thousands) | ||||||||||
December 31, | 2007 | 2006 | ||||||||
Nonaccrual loans 90 days or more past due | $2,490 | $1,470 | ||||||||
Nonaccrual loans less than 90 days past due | 1,814 | 1,253 | ||||||||
Total nonaccrual loans | $4,304 | $2,723 | ||||||||
Loans are considered restructured when the Corporation has granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. These concessions include modifications of the terms of the debt such as reduction of the stated interest rate other than normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest. The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the Corporation by increasing the ultimate probability of collection. At December 31, 2007, there were no significant commitments to lend additional funds to borrowers whose loans had been restructured.
The Corporation classifies certain loans as “substandard,” “doubtful,” or “loss” based on criteria consistent with guidelines provided by banking regulators. Potential problem loans consist of classified accruing commercial loans that were less than 90 days past due at December 31, 2007. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve as a result of collection efforts, while the credit quality of other loans may deteriorate, resulting in some amount of losses. These loans are not included in the analysis of nonaccrual or restructured loans above. At December 31, 2007, potential problem loans amounted to approximately $8.1 million, compared to $2.9 million at December 31, 2006. Approximately 90% of the potential problem loans at December 31, 2007 consisted of five commercial lending relationships, which have been classified based on our evaluation of the financial condition of the borrowers. The Corporation’s loan policy provides guidelines for the review of such loans in order to facilitate collection.
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Other real estate owned and repossessed assets is comprised of properties acquired through foreclosure and other legal means, and loans determined to be substantively repossessed. A loan is considered to be substantively repossessed when the Corporation has taken possession of the collateral, but has not completed legal foreclosure proceedings. These assets are carried at the lower of cost or fair value minus estimated costs to sell. A valuation allowance is maintained for declines in market value and estimated selling costs.
The Corporation uses a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient allowance for loan losses. See additional discussion regarding the allowance for loan losses under the caption “Critical Accounting Policies and Estimates”.
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(Dollars in thousands) | ||||||||||||||||||||||
December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||
Balance at beginning of year | $18,894 | $17,918 | $16,771 | $15,914 | $15,487 | |||||||||||||||||
Charge-offs: | ||||||||||||||||||||||
Commercial: | ||||||||||||||||||||||
Mortgages | 26 | – | 85 | 215 | – | |||||||||||||||||
Construction and development | – | – | – | – | – | |||||||||||||||||
Other | 506 | 295 | 198 | 257 | 200 | |||||||||||||||||
Residential: | ||||||||||||||||||||||
Mortgages | – | – | – | – | – | |||||||||||||||||
Homeowner construction | – | – | – | – | – | |||||||||||||||||
Consumer | 246 | 133 | 86 | 95 | 94 | |||||||||||||||||
Total charge-offs | 778 | 428 | 369 | 567 | 294 | |||||||||||||||||
Recoveries: | ||||||||||||||||||||||
Commercial: | ||||||||||||||||||||||
Mortgages | – | – | 71 | 36 | 17 | |||||||||||||||||
Construction and development | – | – | – | 34 | – | |||||||||||||||||
Other | 203 | 171 | 389 | 569 | 177 | |||||||||||||||||
Residential: | ||||||||||||||||||||||
Mortgages | – | – | – | – | – | |||||||||||||||||
Homeowner construction | – | – | – | – | – | |||||||||||||||||
Consumer | 58 | 33 | 106 | 175 | 67 | |||||||||||||||||
Total recoveries | 261 | 204 | 566 | 814 | 261 | |||||||||||||||||
Net charge-offs (recoveries) | 517 | 224 | (197 | ) | (247 | ) | 33 | |||||||||||||||
Reclassification of allowance on off-balance sheet exposures | – | – | (250 | ) | – | – | ||||||||||||||||
Provision charged to earnings | 1,900 | 1,200 | 1,200 | 610 | 460 | |||||||||||||||||
Balance at end of year | $20,277 | $18,894 | $17,918 | $16,771 | $15,914 | |||||||||||||||||
Net charge-offs (recoveries) to average loans | .03 | % | .02 | % | (.01 | )% | (.02 | )% | – | % | ||||||||||||
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(Dollars in thousands) | ||||||||||||||||||||||
December 31, | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||
Commercial: | ||||||||||||||||||||||
Mortgages | $5,218 | $4,408 | $4,467 | $4,385 | $4,102 | |||||||||||||||||
% of these loans to all loans | 17.7% | 19.3% | 20.8% | 21.3% | 23.7% | |||||||||||||||||
Construction and development | 1,445 | 589 | 713 | 729 | 294 | |||||||||||||||||
% of these loans to all loans | 3.8% | 2.2% | 2.7% | 2.3% | 1.3% | |||||||||||||||||
Other | 4,229 | 4,200 | 3,263 | 3,633 | 3,248 | |||||||||||||||||
% of these loans to all loans | 21.7% | 18.7% | 16.1% | 16.9% | 17.6% | |||||||||||||||||
Residential: | ||||||||||||||||||||||
Mortgages | 1,681 | 1,619 | 1,642 | 1,447 | 1,965 | |||||||||||||||||
% of these loans to all loans | 37.4% | 39.6% | 40.3% | 39.7% | 39.0% | |||||||||||||||||
Homeowner construction | 55 | 56 | 43 | 47 | 74 | |||||||||||||||||
% of these loans to all loans | 0.7% | 0.8% | 1.2% | 1.5% | 1.5% | |||||||||||||||||
Consumer | 2,027 | 1,882 | 1,585 | 1,323 | 1,507 | |||||||||||||||||
% of these loans to all loans | 18.7% | 19.4% | 18.9% | 18.3% | 16.9% | |||||||||||||||||
Unallocated | 5,622 | 6,140 | 6,205 | 5,207 | 4,724 | |||||||||||||||||
Balance at end of year | $20,277 | $18,894 | $17,918 | $16,771 | $15,914 | |||||||||||||||||
100.0% | 100.0% | 100.0% | 100.0% | 100.0% | ||||||||||||||||||
BOLI amounted to $41.4 million and $39.8 million at December 31, 2007 and 2006, respectively. During the second quarter of 2006, Washington Trust purchased an additional $8 million in BOLI. BOLI provides a means to mitigate increasing employee benefit costs. The Corporation expects to benefit from the BOLI contracts as a result of the tax-free growth in cash surrender value and death benefits that are expected to be generated over time. The purchase of the life insurance policy results in an interest sensitive asset on the Consolidated Balance Sheet that provides monthly tax-free income to the Corporation. The largest risk to the BOLI program is credit risk of the insurance carriers. To mitigate this risk, annual financial condition reviews are completed on all carriers. BOLI is invested in the “general account” of quality insurance companies. Standard & Poor’s rated all such general account carriers “AA” or better at December 31, 2007. BOLI is included in the Consolidated Balance Sheets at its cash surrender value. Increases in BOLI’s cash surrender value are reported as a component of noninterest income in the Consolidated Statements of Income.
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Total deposits amounted to $1.6 billion at December 31, 2007, down $31.8 million, or 1.9%, from the balance at December 31, 2006. Excluding the $45.8 million decrease in brokered certificates of deposit, in-market deposits were up $14.0 million, or 0.9%, in 2007. Washington Trust experienced a shift in the mix of deposits away from lower cost savings accounts and into higher cost premium money market accounts and certificates of deposit. Deposit gathering continues to be extremely competitive.
The Corporation utilizes advances from the FHLB as well as other borrowings as part of its overall funding strategy. FHLB advances were used to meet short-term liquidity needs, to purchase securities and to purchase loans from other institutions. FHLB advances increased $141.9 million during the year and amounted to $616.4 million at December 31, 2007. Included in the December 31, 2007 balance are $18.0 million of callable advances with call dates ranging from January 2008 through March 2008.
Liquidity is the ability of a financial institution to meet maturing liability obligations and customer loan demand. Washington Trust’s primary source of liquidity is deposits. Deposits (demand, NOW, money market, savings and time deposits) funded approximately 69.1% of total average assets in 2007. Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and federal funds purchased), cash flows from the Corporation’s securities portfolios and loan repayments. In addition, securities designated as available for sale may be sold in response to short-term or long-term liquidity needs.
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The Corporation has entered into numerous contractual obligations and commitments. The following table summarizes our contractual cash obligations and other commitments at December 31, 2007.
(Dollars in thousands) | Payments Due by Period | |||||||||||||||||||||
Less Than | After | |||||||||||||||||||||
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||||
Contractual Obligations: | ||||||||||||||||||||||
FHLB advances (1) | $ | 616,417 | $ | 180,966 | $ | 191,709 | $ | 161,191 | $82,551 | |||||||||||||
Junior subordinated debentures | 22,681 | – | – | – | 22,681 | |||||||||||||||||
Operating lease obligations | 5,076 | 1,044 | 1,774 | 855 | 1,403 | |||||||||||||||||
Software licensing arrangements | 1,981 | 1,018 | 917 | 46 | – | |||||||||||||||||
Treasury, tax and loan demand note | 2,793 | 2,793 | – | – | – | |||||||||||||||||
Deferred acquisition obligations | 9,884 | 7,979 | 1,905 | – | – | |||||||||||||||||
Other borrowings | 19,883 | 28 | 63 | 19,573 | 219 | |||||||||||||||||
Total contractual obligations | $ | 678,715 | $ | 193,828 | $ | 196,368 | $ | 181,665 | $ | 106,854 | ||||||||||||
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(Dollars in thousands) | Amount of Commitment Expiration – Per Period | |||||||||||||||||||||
Less Than | After | |||||||||||||||||||||
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||||
Other Commitments: | ||||||||||||||||||||||
Commercial loans | $149,465 | $90,568 | $28,305 | $7,123 | $23,469 | |||||||||||||||||
Home equity lines | 176,284 | 679 | 4,895 | 3,831 | 166,879 | |||||||||||||||||
Other loans | 20,770 | 18,268 | 1,776 | 726 | – | |||||||||||||||||
Standby letters of credit | 8,048 | 1,409 | – | 6,639 | – | |||||||||||||||||
Forward loan commitments to: | ||||||||||||||||||||||
Originate loans | 3,495 | 3,495 | – | – | – | |||||||||||||||||
Sell loans | 5,472 | 5,472 | – | – | – | |||||||||||||||||
Interest rate swap contracts: | ||||||||||||||||||||||
Swaps with customers | 3,850 | – | – | – | 3,850 | |||||||||||||||||
Mirror swaps with counterparties | 3,850 | – | – | – | 3,850 | |||||||||||||||||
Total commitments | $371,234 | $119,891 | $34,976 | $18,319 | $190,348 | |||||||||||||||||
In the normal course of business, Washington Trust engages in a variety of financial transactions that, in accordance with accounting principles generally accepted in the United States, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. Such transactions are used to meet the financing needs of its customers and to manage the exposure to fluctuations in interest rates. These financial transactions include commitments to extend credit, standby letters of credit, financial guarantees, interest rate swaps and floors, and commitments to originate and commitments to sell fixed rate mortgage loans. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
The ALCO is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. Interest rate risk is the risk of loss to future earnings due to changes in interest rates. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with Washington Trust’s liquidity, capital adequacy, growth, risk and profitability goals.
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December 31, | 2007 | 2006 | |||||||||||||||||||
Months 1 - 12 | Months 13 - 24 | Months 1 - 12 | Months 13 - 24 | ||||||||||||||||||
100 basis point rate decrease | -1.77 | % | -2.24 | % | -1.63 | % | -2.47 | % | |||||||||||||
100 basis point rate increase | -1.41 | % | -3.62 | % | -1.18 | % | -5.03 | % | |||||||||||||
200 basis point rate increase | -1.13 | % | -6.11 | % | -0.78 | % | -8.01 | % |
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(Dollars in thousands) | Down 100 | Up 200 | ||||||||
Basis | Basis | |||||||||
Security Type | Points | Points | ||||||||
U.S. Treasury and government-sponsored agency securities (noncallable) | $ | 2,408 | $ | (4,442 | ) | |||||
U.S. government-sponsored agency securities (callable) | 236 | (2,035 | ) | |||||||
States and political subdivisions | 5,203 | (12,665 | ) | |||||||
Mortgage-backed securities issued by U.S. government sponsored agencies | 7,721 | (27,755 | ) | |||||||
Corporate securities | (109 | ) | 85 | |||||||
Total change in market value as of December 31, 2007 | $ | 15,459 | $ | (46,812 | ) | |||||
Total change in market value as of December 31, 2006 | $ | 11,567 | $ | (29,447 | ) | |||||
Description | Page | |||||
48 | ||||||
49 | ||||||
51 | ||||||
52 | ||||||
53 | ||||||
54 | ||||||
56 |
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/s/John C. Warren | /s/ David V. Devault | |
John C. Warren | David V. Devault | |
Chairman and | Executive Vice President, Secretary, | |
Chief Executive Officer | Treasurer and Chief Financial Officer |
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Washington Trust Bancorp, Inc:
February 25, 2008
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Washington Trust Bancorp, Inc.:
February 25, 2008
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WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS | (Dollars in thousands) |
December 31, | 2007 | 2006 | ||||||||
Assets: | ||||||||||
Cash and noninterest-bearing balances due from banks | $30,817 | $53,796 | ||||||||
Interest-bearing balances due from banks | 1,973 | 541 | ||||||||
Federal funds sold | 7,600 | 16,425 | ||||||||
Other short-term investments | 722 | 1,147 | ||||||||
Mortgage loans held for sale | 1,981 | 2,148 | ||||||||
Securities: | ||||||||||
Available for sale, at fair value; amortized cost $750,583 in 2007 and $525,966 in 2006 | 751,778 | 526,396 | ||||||||
Held to maturity, at cost; fair value $175,369 in 2006 | – | 177,455 | ||||||||
Total securities | 751,778 | 703,851 | ||||||||
Federal Home Loan Bank stock, at cost | 31,725 | 28,727 | ||||||||
Loans: | ||||||||||
Commercial and other | 680,266 | 587,397 | ||||||||
Residential real estate | 599,671 | 588,671 | ||||||||
Consumer | 293,715 | 283,918 | ||||||||
Total loans | 1,573,652 | 1,459,986 | ||||||||
Less allowance for loan losses | 20,277 | 18,894 | ||||||||
Net loans | 1,553,375 | 1,441,092 | ||||||||
Premises and equipment, net | 25,420 | 24,307 | ||||||||
Accrued interest receivable | 11,427 | 11,268 | ||||||||
Investment in bank-owned life insurance | 41,363 | 39,770 | ||||||||
Goodwill | 50,479 | 44,558 | ||||||||
Identifiable intangible assets, net | 11,433 | 12,816 | ||||||||
Other assets | 19,847 | 18,719 | ||||||||
Total assets | $2,539,940 | $2,399,165 | ||||||||
Liabilities: | ||||||||||
Deposits: | ||||||||||
Demand deposits | $175,542 | $186,533 | ||||||||
NOW accounts | 164,944 | 175,479 | ||||||||
Money market accounts | 321,600 | 286,998 | ||||||||
Savings accounts | 176,278 | 205,998 | ||||||||
Time deposits | 807,841 | 822,989 | ||||||||
Total deposits | 1,646,205 | 1,677,997 | ||||||||
Dividends payable | 2,677 | 2,556 | ||||||||
Federal Home Loan Bank advances | 616,417 | 474,561 | ||||||||
Junior subordinated debentures | 22,681 | 22,681 | ||||||||
Other borrowings | 32,560 | 14,684 | ||||||||
Accrued expenses and other liabilities | 32,887 | 33,630 | ||||||||
Total liabilities | 2,353,427 | 2,226,109 | ||||||||
Commitments and contingencies | ||||||||||
Shareholders’ Equity: | ||||||||||
Common stock of $.0625 par value; authorized 30,000,000 shares; issued 13,492,110 shares in 2007 and 2006 | 843 | 843 | ||||||||
Paid-in capital | 34,874 | 35,893 | ||||||||
Retained earnings | 154,647 | 141,548 | ||||||||
Accumulated other comprehensive loss | (239 | ) | (3,515 | ) | ||||||
Treasury stock, at cost; 137,652 shares in 2007 and 62,432 shares in 2006 | (3,612 | ) | (1,713 | ) | ||||||
Total shareholders’ equity | 186,513 | 173,056 | ||||||||
Total liabilities and shareholders’ equity | $2,539,940 | $2,399,165 | ||||||||
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WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES | (Dollars and shares in thousands, | |
CONSOLIDATED STATEMENTS OF INCOME | except per share amounts) |
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||
Interest income: | ||||||||||||||
Interest and fees on loans | $98,720 | $92,190 | $78,931 | |||||||||||
Interest on securities: | ||||||||||||||
Taxable | 31,163 | 33,763 | 32,934 | |||||||||||
Nontaxable | 2,983 | 1,618 | 886 | |||||||||||
Dividends on corporate stock and Federal Home Loan Bank stock | 2,737 | 2,842 | 2,491 | |||||||||||
Other interest income | 831 | 721 | 451 | |||||||||||
Total interest income | 136,434 | 131,134 | 115,693 | |||||||||||
Interest expense: | ||||||||||||||
Deposits | 52,422 | 46,982 | 32,186 | |||||||||||
Federal Home Loan Bank advances | 21,641 | 20,916 | 22,233 | |||||||||||
Junior subordinated debentures | 1,352 | 1,352 | 458 | |||||||||||
Other interest expense | 1,075 | 410 | 160 | |||||||||||
Total interest expense | 76,490 | 69,660 | 55,037 | |||||||||||
Net interest income | 59,944 | 61,474 | 60,656 | |||||||||||
Provision for loan losses | 1,900 | 1,200 | 1,200 | |||||||||||
Net interest income after provision for loan losses | 58,044 | 60,274 | 59,456 | |||||||||||
Noninterest income: | ||||||||||||||
Wealth management services: | ||||||||||||||
Trust and investment advisory fees | 21,124 | 19,099 | 14,407 | |||||||||||
Mutual fund fees | 5,430 | 4,665 | 1,336 | |||||||||||
Financial planning, commissions and other service fees | 2,462 | 2,616 | 919 | |||||||||||
Wealth management services | 29,016 | 26,380 | 16,662 | |||||||||||
Service charges on deposit accounts | 4,713 | 4,915 | 4,502 | |||||||||||
Merchant processing fees | 6,710 | 6,208 | 5,203 | |||||||||||
Income from bank-owned life insurance | 1,593 | 1,410 | 1,110 | |||||||||||
Net gains on loan sales and commissions on loans originated for others | 1,493 | 1,423 | 1,679 | |||||||||||
Net realized gains on securities | 455 | 443 | 357 | |||||||||||
Other income | 1,529 | 1,404 | 1,433 | |||||||||||
Total noninterest income | 45,509 | 42,183 | 30,946 | |||||||||||
Noninterest expense: | ||||||||||||||
Salaries and employee benefits | 39,986 | 38,698 | 32,133 | |||||||||||
Net occupancy | 4,150 | 3,888 | 3,460 | |||||||||||
Equipment | 3,473 | 3,370 | 3,456 | |||||||||||
Merchant processing costs | 5,686 | 5,257 | 4,319 | |||||||||||
Outsourced services | 2,180 | 2,009 | 1,723 | |||||||||||
Advertising and promotion | 2,024 | 1,894 | 1,977 | |||||||||||
Legal, audit and professional fees | 1,761 | 1,637 | 1,900 | |||||||||||
Amortization of intangibles | 1,383 | 1,593 | 852 | |||||||||||
Debt prepayment penalties | 1,067 | – | – | |||||||||||
Other expenses | 7,196 | 6,989 | 6,573 | |||||||||||
Total noninterest expense | 68,906 | 65,335 | 56,393 | |||||||||||
Income before income taxes | 34,647 | 37,122 | 34,009 | |||||||||||
Income tax expense | 10,847 | 12,091 | 10,985 | |||||||||||
Net income | $23,800 | $25,031 | $23,024 | |||||||||||
Weighted average shares outstanding - basic | 13,355.5 | 13,424.1 | 13,315.2 | |||||||||||
Weighted average shares outstanding - diluted | 13,604.1 | 13,723.2 | 13,626.7 | |||||||||||
Per share information: | ||||||||||||||
Basic earnings per share | $1.78 | $1.86 | $1.73 | |||||||||||
Diluted earnings per share | $1.75 | $1.82 | $1.69 | |||||||||||
Cash dividends declared per share | $0.80 | $0.76 | $0.72 |
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WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES | (Dollars and shares in thousands) | |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY |
Accumulated | |||||||||||||||||||||||||||||
Common | Other | ||||||||||||||||||||||||||||
Shares | Common | Paid-in | Retained | Comprehensive | Treasury | ||||||||||||||||||||||||
(Dollars and shares in thousands) | Outstanding | Stock | Capital | Earnings | Income (Loss) | Stock | Total | ||||||||||||||||||||||
Balance at January 1, 2005 | 13,269 | $830 | $30,981 | $113,314 | $ 6,937 | $(210 | ) | $151,852 | |||||||||||||||||||||
Net income for 2005 | 23,024 | 23,024 | |||||||||||||||||||||||||||
Unrealized losses on securities, net of $4,443 income tax benefit | (8,061 | ) | (8,061 | ) | |||||||||||||||||||||||||
Reclassification adjustments for net realized gains included in net income, net of $125 income tax expense | (232 | ) | (232 | ) | |||||||||||||||||||||||||
Minimum pension liability adjustment, net of $160 income tax benefit | (297 | ) | (297 | ) | |||||||||||||||||||||||||
Comprehensive income | 14,434 | ||||||||||||||||||||||||||||
Cash dividends declared | (9,603 | ) | (9,603 | ) | |||||||||||||||||||||||||
Share-based compensation | 372 | 372 | |||||||||||||||||||||||||||
Deferred compensation plan | (1 | ) | 7 | (40 | ) | (33 | ) | ||||||||||||||||||||||
Exercise of stock options and related tax benefit | 66 | 4 | 814 | 818 | |||||||||||||||||||||||||
Shares issued – dividend reinvestment plan and other | 28 | 2 | 604 | 606 | |||||||||||||||||||||||||
Balance at December 31, 2005 | 13,362 | $836 | $32,778 | $126,735 | $(1,653 | ) | $(250 | ) | $158,446 | ||||||||||||||||||||
Net income for 2006 | 25,031 | 25,031 | |||||||||||||||||||||||||||
Unrealized gains on securities, net of $843 income tax expense | 1,432 | 1,432 | |||||||||||||||||||||||||||
Reclassification adjustments for net realized gains included in net income, net of $322 income tax expense | (121 | ) | (121 | ) | |||||||||||||||||||||||||
Minimum pension liability adjustment, net of $33 income tax expense | 61 | 61 | |||||||||||||||||||||||||||
Comprehensive income | 26,403 | ||||||||||||||||||||||||||||
Adjustment to initially apply SFAS No. 158, net of $1,741 income tax benefit | (3,234 | ) | (3,234 | ) | |||||||||||||||||||||||||
Cash dividends declared | (10,218 | ) | (10,218 | ) | |||||||||||||||||||||||||
Share-based compensation | 694 | 694 | |||||||||||||||||||||||||||
Deferred compensation plan | (5 | ) | 7 | (144 | ) | (137 | ) | ||||||||||||||||||||||
Exercise of stock options and related tax benefit | 77 | 5 | 1,200 | 91 | 1,296 | ||||||||||||||||||||||||
Shares issued – dividend reinvestment plan | 46 | 2 | 1,214 | 1,216 | |||||||||||||||||||||||||
Shares repurchased | (50 | ) | (1,410 | ) | (1,410 | ) | |||||||||||||||||||||||
Balance at December 31, 2006 | 13,430 | $843 | $35,893 | $141,548 | $(3,515 | ) | $(1,713 | ) | $173,056 | ||||||||||||||||||||
Net income for 2007 | 23,800 | 23,800 | |||||||||||||||||||||||||||
Unrealized gains on securities, net of $427 income tax expense | 793 | 793 | |||||||||||||||||||||||||||
Reclassification adjustments for net realized gains included in net income, net of $190 income tax expense | (265 | ) | (265 | ) | |||||||||||||||||||||||||
Defined benefit plan obligation adjustment, net of $1,330 income tax expense | 2,469 | 2,469 | |||||||||||||||||||||||||||
Reclassification adjustments for net periodic pension cost, net of $149 income tax expense | 279 | 279 | |||||||||||||||||||||||||||
Comprehensive income | 27,076 | ||||||||||||||||||||||||||||
Cash dividends declared | (10,701 | ) | (10,701 | ) | |||||||||||||||||||||||||
Share-based compensation | 508 | 508 | |||||||||||||||||||||||||||
Deferred compensation plan | (14 | ) | (4 | ) | (354 | ) | (358 | ) | |||||||||||||||||||||
Exercise of stock options and related tax benefit | 97 | (922 | ) | 2,612 | 1,690 | ||||||||||||||||||||||||
Shares issued – other | 26 | (601 | ) | 690 | 89 | ||||||||||||||||||||||||
Shares repurchased | (185 | ) | (4,847 | ) | (4,847 | ) | |||||||||||||||||||||||
Balance at December 31, 2007 | 13,354 | $843 | $34,874 | $154,647 | $(239 | ) | $(3,612 | ) | $186,513 | ||||||||||||||||||||
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WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES | (Dollars in thousands) | |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income | $23,800 | $25,031 | $23,024 | |||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Provision for loan losses | 1,900 | 1,200 | 1,200 | |||||||||||
Depreciation of premises and equipment | 2,951 | 2,995 | 3,020 | |||||||||||
Net amortization of premium and discount | 631 | 1,252 | 2,295 | |||||||||||
Net amortization of intangibles | 1,383 | 1,593 | 852 | |||||||||||
Non–cash charitable contribution | 520 | 513 | 516 | |||||||||||
Share–based compensation | 508 | 694 | 372 | |||||||||||
Deferred income tax benefit | (2,311 | ) | (1,969 | ) | (1,296 | ) | ||||||||
Earnings from bank-owned life insurance | (1,593 | ) | (1,410 | ) | (1,110 | ) | ||||||||
Net gains on loan sales | (1,493 | ) | (1,423 | ) | (1,679 | ) | ||||||||
Net realized gains on securities | (455 | ) | (443 | ) | (357 | ) | ||||||||
Proceeds from sales of loans | 59,013 | 44,398 | 65,000 | |||||||||||
Loans originated for sale | (57,926 | ) | (45,082 | ) | (63,045 | ) | ||||||||
Decrease (increase) in accrued interest receivable, excluding purchased interest | 43 | (513 | ) | (1,008 | ) | |||||||||
Decrease (increase) in other assets | 1,472 | (2,175 | ) | 4,970 | ||||||||||
Increase (decrease) in accrued expenses and other liabilities | 1,475 | 4,689 | (3,145 | ) | ||||||||||
Other, net | 24 | (263 | ) | (450 | ) | |||||||||
Net cash provided by operating activities | 29,942 | 29,087 | 29,159 | |||||||||||
Cash flows from investing activities: | ||||||||||||||
Purchases of: Mortgage-backed securities available for sale | (258,737 | ) | (39,279 | ) | (84,852 | ) | ||||||||
Other investment securities available for sale | (39,290 | ) | (77,111 | ) | (57,401 | ) | ||||||||
Mortgage-backed securities held to maturity | – | – | (17,505 | ) | ||||||||||
Other investment securities held to maturity | (12,882 | ) | (38,358 | ) | (28,184 | ) | ||||||||
Proceeds from sales of: Mortgage-backed securities available for sale | 47,938 | 94,118 | 11,426 | |||||||||||
Other investment securities available for sale | 43,015 | 12,235 | 55,600 | |||||||||||
Mortgage-backed securities held to maturity | 38,501 | – | – | |||||||||||
Other investment securities held to maturity | 21,698 | – | – | |||||||||||
Maturities and principal payments of: Mortgage-backed securities available for sale | 65,443 | 86,778 | 128,019 | |||||||||||
Other investment securities available for sale | 22,967 | 16,999 | 48,995 | |||||||||||
Mortgage-backed securities held to maturity | 3,191 | 16,019 | 25,957 | |||||||||||
Other investment securities held to maturity | 20,490 | 9,360 | 9,052 | |||||||||||
(Purchase) remittance of Federal Home Loan Bank stock | (2,998 | ) | 6,239 | (593 | ) | |||||||||
Net increase in loans | (23,054 | ) | (25,047 | ) | (78,822 | ) | ||||||||
Purchases of loans, including purchased interest | (90,988 | ) | (33,238 | ) | (73,520 | ) | ||||||||
Proceeds from the sale of other real estate owned | – | 380 | 4 | |||||||||||
Purchases of premises and equipment | (4,091 | ) | (3,571 | ) | (2,443 | ) | ||||||||
Purchases of bank-owned life insurance | – | (8,000 | ) | – | ||||||||||
Equity investment in capital trusts | – | – | (681 | ) | ||||||||||
Payment of deferred acquisition obligation | (6,720 | ) | – | – | ||||||||||
Cash paid for acquisition, net of cash acquired | – | – | (19,827 | ) | ||||||||||
Net cash (used in) provided by investing activities | (175,517 | ) | 17,524 | (84,775 | ) | |||||||||
Cash flows from financing activities: | ||||||||||||||
Net (decrease) increase in deposits | (31,792 | ) | 38,740 | 181,384 | ||||||||||
Net increase in other borrowings | 18,675 | 315 | 970 | |||||||||||
Proceeds from Federal Home Loan Bank advances | 803,513 | 516,162 | 669,643 | |||||||||||
Repayment of Federal Home Loan Bank advances | (661,617 | ) | (586,868 | ) | (796,919 | ) | ||||||||
Purchase of treasury stock, including deferred compensation plan activity | (5,200 | ) | (1,547 | ) | (33 | ) | ||||||||
Proceeds from the issuance of common stock under dividend reinvestment plan | – | 1,216 | 606 | |||||||||||
Net proceeds from the exercise of stock options and issuance of other equity instruments | 1,052 | 803 | 367 | |||||||||||
Tax benefit from stock option exercises and issuance of other equity instruments | 727 | 384 | 451 | |||||||||||
Proceeds from the issuance of junior subordinated debentures | – | – | 22,681 | |||||||||||
Cash dividends paid | (10,580 | ) | (10,070 | ) | (9,452 | ) | ||||||||
Net cash provided by (used in) financing activities | 114,778 | (40,865 | ) | 69,698 | ||||||||||
Net (decrease) increase in cash and cash equivalents | (30,797 | ) | 5,746 | 14,082 | ||||||||||
Cash and cash equivalents at beginning of year | 71,909 | 66,163 | 52,081 | |||||||||||
Cash and cash equivalents at end of year | $41,112 | $71,909 | $66,163 | |||||||||||
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WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES | (Dollars in thousands) | |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) |
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||
Noncash Investing and Financing Activities: | ||||||||||||||
Loans charged off | $778 | $428 | $369 | |||||||||||
Net transfers from loans to other real estate owned | – | 385 | – | |||||||||||
In conjunction with the purchase acquisition detailed in Note 2 to the Consolidated Financial Statements, assets were acquired and liabilities were assumed as follows: | ||||||||||||||
Fair value of assets acquired, excluding cash | 5,921 | 4,595 | 32,561 | |||||||||||
Fair value of liabilities assumed | – | – | 7,347 | |||||||||||
Net assets acquired, excluding cash | 5,921 | 4,595 | 25,214 | |||||||||||
Less: | ||||||||||||||
Deferred acquisition obligation incurred | 5,921 | 4,595 | 5,387 | |||||||||||
Cash paid for acquisition, net of cash acquired | – | – | 19,827 | |||||||||||
Supplemental Disclosures: | ||||||||||||||
Interest payments | 76,264 | 68,946 | 53,722 | |||||||||||
Income tax payments | 11,440 | 14,054 | 11,962 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007 and 2006
Washington Trust Bancorp, Inc. (the “Bancorp”) is a publicly-owned registered bank holding company and financial holding company. The Bancorp owns all of the outstanding common stock of The Washington Trust Company (the “Bank”), a Rhode Island chartered commercial bank founded in 1800. Through its subsidiaries, the Bancorp offers a complete product line of financial services including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its branch offices in Rhode Island, Massachusetts and southeastern Connecticut.
Basis of Presentation
The consolidated financial statements include the accounts of the Bancorp and its subsidiaries (collectively, the “Corporation” or “Washington Trust”). All significant intercompany transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current year classification.
Investments in debt securities that management has the positive intent to hold to maturity are classified as held to maturity and carried at amortized cost. Management determines the appropriate classification of securities at the time of purchase. As more fully described in Note 5, the Corporation will not classify securities in the held to maturity category until April 2009.
The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Boston. As a requirement of membership, the Bank must own a minimum amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB. The Bank may redeem FHLB stock in excess of the minimum required. In addition, the FHLB may require members to redeem stock in excess of the requirement. FHLB stock is redeemable at par value, which equals cost. Since no market exists for these shares, they are carried at par value.
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Mortgage Loans Held for Sale - Residential mortgage loans originated for sale are classified as held for sale. These loans are specifically identified and are carried at the lower of aggregate cost, net of unamortized deferred loan origination fees and costs, or market. Gains or losses on sales of loans are included in noninterest income and are recognized at the time of sale.
Portfolio Loans - Loans held in the portfolio are stated at the principal amount outstanding, net of unamortized deferred loan origination fees and costs. Interest income is accrued on a level yield basis based on principal amounts outstanding. Deferred loan origination fees and costs are amortized as an adjustment to yield over the life of the related loans.
A methodology is used to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio for purposes of establishing a sufficient allowance for loan losses. The methodology includes three elements: (1) identification of loss allocations for certain specific loans, (2) general loss allocation factors for certain loan types based on credit grade and loss experience, and (3) general loss allocations for other environmental factors. The methodology includes an analysis of individual loans deemed to be impaired in accordance with U.S. generally accepted accounting principles (SFAS No. 114, “Accounting by Creditors for Impairment of a Loan – an amendment
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
Premises and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is calculated on the straight-line method over the estimated useful lives of assets. Expenditures for major additions and improvements are capitalized while the costs of current maintenance and repairs are charged to operating expenses. The estimated useful lives of premises and improvements range from three to forty years. For furniture, fixtures and equipment, the estimated useful lives range from two to twenty years.
Goodwill represents the excess of the purchase price over the fair value of net assets acquired for transactions accounted for using purchase accounting. Goodwill and intangible assets that are not amortized are tested for impairment, based on their fair values, at least annually. Identifiable intangible assets that are subject to amortization are also reviewed for impairment, based on their fair value, annually or more frequently if conditions or events indicate that an impairment loss has been incurred. Any impairment is recognized as a charge to earnings and the adjusted carrying amount of the intangible asset becomes its new accounting basis. The remaining useful life of an intangible asset that is being amortized is also evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization.
Long-lived assets and other intangible assets are reviewed for impairment at least annually or whenever events or changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable. If impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.
OREO consists of property acquired through foreclosure and loans determined to be substantively repossessed. Real estate loans that are substantively repossessed include only those loans for which the Corporation has taken possession of the collateral, but has not completed legal foreclosure proceedings.
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BOLI represents life insurance on the lives of certain Bank employees who have provided positive consent allowing the Bank to be the beneficiary of such policies. Increases in the cash value of the policies, as well as insurance proceeds received, are recorded in other noninterest income, and are not subject to income taxes. The cash value is included in assets. The financial strength of the insurance carrier is reviewed prior to the purchase of BOLI and annually thereafter.
The accounting for transfers and servicing of financial assets and extinguishments of liabilities is based on consistent application of a financial components approach that focuses on control. This approach distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. After a transfer of financial assets, the Corporation recognizes all financial and servicing assets it controls and liabilities it has incurred and derecognizes financial assets it no longer controls and liabilities that have been extinguished. This financial components approach focuses on the assets and liabilities that exist after the transfer. Many of these assets and liabilities are components of financial assets that existed prior to the transfer. If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with a pledge of collateral.
Revenue from wealth management services is primarily accrued as earned based upon a percentage of asset values under administration. Certain trust service and financial planning fee revenue is recognized to the extent that services have been completed. Fee revenue from deposit service charges is generally recognized when earned. Fee revenue for merchant processing services is generally accrued as earned.
Effective December 31, 2006, the Corporation adopted the recognition and disclosure provisions of SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” This Statement required that the funded status of an employer’s postretirement benefit plan, measured as the difference between the fair value of plan assets and the projected benefit obligation, be recognized in its statement of financial position. This Statement also requires that changes in the funded status of a defined benefit plan, including actuarial gains and losses and prior service costs and credits, must be recognized in comprehensive income in the year in which the changes occur.
Effective January 1, 2006, the Corporation adopted the fair value recognition provisions of SFAS No. 123R, “Share-Based Payment”, using the modified prospective basis. Under this method, compensation cost includes the portion of awards vested in the period for (1) all share-based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123; and (2) all share-based payments granted subsequent to December 31, 2005, based on the grant date fair value.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
Income tax expense is determined based on the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Beginning with the adoption of FAS Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) as of January 1, 2007, the Corporation recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Prior to the adoption of FIN 48, the Corporation recognized the effect of income tax positions if such positions were probable of being sustained.
Diluted EPS is computed by dividing net income by the average number of common shares and common stock equivalents outstanding. Common stock equivalents arise from the assumed exercise of outstanding stock options, if dilutive. The computation of basic EPS excludes common stock equivalents from the denominator.
Comprehensive income is defined as all changes in equity, except for those resulting from investments by and distribution to shareholders. Net income is a component of comprehensive income, with all other components referred to in the aggregate as other comprehensive income.
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold, and other short-term investments. Generally, federal funds are sold on an overnight basis.
FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” considers standby letters of credit a guarantee of the Corporation. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Under the standby letters of credit, the Corporation is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer’s failure to perform under the terms of the underlying contract with the beneficiary. The fair value of standby letters of credit is considered immaterial to the Corporation’s Consolidated Financial Statements.
As required by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, all derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and resulting designation. Derivatives used to hedge the exposure to changes in fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives
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On August 31, 2005, the Corporation completed its acquisition of Weston Financial Group, Inc. (“Weston Financial”), a Registered Investment Adviser and financial planning company located in Wellesley, Massachusetts, with broker-dealer and insurance agency subsidiaries. The results of Weston Financial’s operations have been included in the Consolidated Statements of Income since that date. The acquisition was accounted for as a purchase in accordance with SFAS No. 141 “Business Combinations” and the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets” were also applied.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155 eliminates the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. SFAS No. 155 also allows a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement event, on an instrument-by-instrument basis, in cases in which a derivative would otherwise have to be bifurcated. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Provisions of SFAS No. 155 may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis. Prior periods should not be restated. The adoption of SFAS No. 155 did not have a material impact on the Corporation’s financial position or results of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
The Bank is required to maintain certain average reserve balances with the Federal Reserve Board. Such reserve balances amounted to $8.0 million and $18.8 million at December 31, 2007 and 2006, respectively.
Securities are summarized as follows:
Amortized | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2007 | Cost | Gains | Losses | Value | ||||||||||||||
Securities Available for Sale: | ||||||||||||||||||
U.S. Treasury obligations and obligations of U.S. government-sponsored agencies | $136,721 | $2,888 | $(10 | ) | $139,599 | |||||||||||||
Mortgage-backed securities issued by U.S. government and government-sponsored agencies | 469,197 | 2,899 | (2,708 | ) | 469,388 | |||||||||||||
States and political subdivisions | 80,634 | 499 | (239 | ) | 80,894 | |||||||||||||
Trust preferred securities | 37,995 | – | (3,541 | ) | 34,454 | |||||||||||||
Corporate bonds | 13,940 | 161 | – | 14,101 | ||||||||||||||
Corporate stocks | 12,096 | 2,974 | (1,728 | ) | 13,342 | |||||||||||||
Total securities available for sale | 750,583 | 9,421 | (8,226 | ) | 751,778 | |||||||||||||
Total securities held to maturity | – | – | – | – | ||||||||||||||
Total securities | $750,583 | $9,421 | $(8,226 | ) | $751,778 | |||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2006 | Cost | Gains | Losses | Value | ||||||||||||||
Securities Available for Sale: | ||||||||||||||||||
U.S. Treasury obligations and obligations of U.S. government-sponsored agencies | $157,383 | $778 | $(876 | ) | $157,285 | |||||||||||||
Mortgage-backed securities issued by U.S. government-sponsored agencies | 298,038 | 923 | (5,174 | ) | 293,787 | |||||||||||||
Trust preferred securities | 30,571 | 208 | (205 | ) | 30,574 | |||||||||||||
Corporate bonds | 24,998 | 83 | (47 | ) | 25,034 | |||||||||||||
Corporate stocks | 14,976 | 4,915 | (175 | ) | 19,716 | |||||||||||||
Total securities available for sale | 525,966 | 6,907 | (6,477 | ) | 526,396 | |||||||||||||
Securities Held to Maturity: | ||||||||||||||||||
U.S. Treasury obligations and obligations of U.S. government-sponsored agencies | 42,000 | – | (422 | ) | 41,578 | |||||||||||||
Mortgage-backed securities issued by U.S. government-sponsored agencies | 69,340 | 440 | (1,604 | ) | 68,176 | |||||||||||||
States and political subdivisions | 66,115 | 88 | (588 | ) | 65,615 | |||||||||||||
Total securities held to maturity | 177,455 | 528 | (2,614 | ) | 175,369 | |||||||||||||
Total securities | $703,421 | $7,435 | $(9,091 | ) | $701,765 | |||||||||||||
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(Dollars in thousands) | Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||
At December 31, 2007 | # | Value | Losses | # | Value | Losses | # | Value | Losses | |||||||||||||||||||||||||||||
U.S. Treasury obligations and obligations of U.S. government-sponsored agencies | 1 | $6,996 | $1 | 1 | $3,990 | $9 | 2 | $10,986 | $10 | |||||||||||||||||||||||||||||
Mortgage-backed securities issued by U.S. government and government-sponsored agencies | 22 | 108,630 | 1,028 | 46 | 110,348 | 1,680 | 68 | 218,978 | 2,708 | |||||||||||||||||||||||||||||
States and political subdivisions | 13 | 12,402 | 128 | 10 | 7,681 | 111 | 23 | 20,083 | 239 | |||||||||||||||||||||||||||||
Trust preferred securities | 8 | 23,167 | 2,769 | 5 | 11,287 | 772 | 13 | 34,454 | 3,541 | |||||||||||||||||||||||||||||
Subtotal, debt securities | 44 | 151,195 | 3,926 | 62 | 133,306 | 2,572 | 106 | 284,501 | 6,498 | |||||||||||||||||||||||||||||
Corporate stocks | 5 | 5,258 | 1,495 | 4 | 1,304 | 233 | 9 | 6,562 | 1,728 | |||||||||||||||||||||||||||||
Total temporarily impaired securities | 49 | $156,453 | $5,421 | 66 | $134,610 | $2,805 | 115 | $291,063 | $8,226 | |||||||||||||||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
(Dollars in thousands) | Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||
At December 31, 2006 | # | Value | Losses | # | Value | Losses | # | Value | Losses | |||||||||||||||||||||||||||||
U.S. Treasury obligations and obligations of U.S. government-sponsored agencies | 8 | $52,751 | $211 | 14 | $94,393 | $1,087 | 22 | $ | 147,144 | $1,298 | ||||||||||||||||||||||||||||
Mortgage-backed securities issued by U.S. government-sponsored agencies | 7 | 20,620 | 122 | 69 | 240,457 | 6,656 | 76 | 261,077 | 6,778 | |||||||||||||||||||||||||||||
States and political subdivisions | 61 | 45,948 | 419 | 12 | 6,747 | 169 | 73 | 52,695 | 588 | |||||||||||||||||||||||||||||
Trust preferred securities | – | – | – | 7 | 14,840 | 205 | 7 | 14,840 | 205 | |||||||||||||||||||||||||||||
Corporate bonds | 2 | 6,130 | 34 | 1 | 3,006 | 13 | 3 | 9,136 | 47 | |||||||||||||||||||||||||||||
Subtotal, debt securities | 78 | 125,449 | 786 | 103 | 359,443 | 8,130 | 181 | 484,892 | 8,916 | |||||||||||||||||||||||||||||
Corporate stocks | 5 | 5,823 | 110 | 4 | 1,494 | 65 | 9 | 7,317 | 175 | |||||||||||||||||||||||||||||
Total temporarily impaired securities | 83 | $131,272 | $896 | 107 | $360,937 | $8,195 | 190 | $492,209 | $9,091 | |||||||||||||||||||||||||||||
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(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: | ||||||||||||||||||||||
U.S. Treasury obligations and obligations of U.S. government-sponsored agencies: | ||||||||||||||||||||||
Amortized cost | $62,710 | $44,106 | $29,905 | $– | $136,721 | |||||||||||||||||
Weighted average yield | 4.97 | % | 4.89 | % | 5.43 | % | – | % | 5.05 | % | ||||||||||||
Mortgage-backed securities issued by U.S. government & government-sponsored agencies: | ||||||||||||||||||||||
Amortized cost | 79,701 | 214,283 | 117,010 | 58,203 | 469,197 | |||||||||||||||||
Weighted average yield | 5.28 | % | 5.23 | % | 5.33 | % | 5.36 | % | 5.28 | % | ||||||||||||
State and political subdivisions: | ||||||||||||||||||||||
Amortized cost | 957 | �� | 9,017 | 61,402 | 9,258 | 80,634 | ||||||||||||||||
Weighted average yield | 2.43 | % | 3.77 | % | 3.89 | % | 3.98 | % | 3.87 | % | ||||||||||||
Trust preferred securities: | ||||||||||||||||||||||
Amortized cost | 1,028 | 4,805 | 6,945 | 25,217 | 37,995 | |||||||||||||||||
Weighted average yield | 4.83 | % | 3.44 | % | 3.50 | % | 4.18 | % | 3.98 | % | ||||||||||||
Corporate bonds: | ||||||||||||||||||||||
Amortized cost | 4,781 | 6,106 | 3,053 | – | 13,940 | |||||||||||||||||
Weighted average yield | 5.90 | % | 5.24 | % | 5.13 | % | – | % | 5.44 | % | ||||||||||||
Total debt securities: | ||||||||||||||||||||||
Amortized cost | $149,177 | $278,317 | $218,315 | $92,678 | $738,487 | |||||||||||||||||
Weighted average yield | 5.12 | % | 5.04 | % | 4.76 | % | 3.77 | % | 4.81 | % | ||||||||||||
Fair value | $149,380 | $277,880 | $218,445 | $92,731 | $738,436 | |||||||||||||||||
Years ended December 31, | 2007 | 2006 | 2005 | ||||||||||||
Proceeds from sales | $151,672 | $106,866 | $67,542 | ||||||||||||
Gross realized gains | $2,181 | $3,984 | $1,840 | ||||||||||||
Gross realized losses | (1,726 | ) | (3,541 | ) | (1,451 | ) | |||||||||
Other than temporary write-downs | – | – | (32 | ) | |||||||||||
Net realized gains | $455 | $443 | $357 | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
The following is a summary of loans:
(Dollars in thousands) | December 31, 2007 | December 31, 2006 | ||||||||||||||||
Amount | % | Amount | % | |||||||||||||||
Commercial: | ||||||||||||||||||
Mortgages(1) | $ | 278,821 | 18 | % | $ | 282,019 | 19 | % | ||||||||||
Construction and development(2) | 60,361 | 4 | % | 32,233 | 2 | % | ||||||||||||
Other(3) | 341,084 | 21 | % | 273,145 | 19 | % | ||||||||||||
Total commercial | 680,266 | 43 | % | 587,397 | 40 | % | ||||||||||||
Residential real estate: | ||||||||||||||||||
Mortgages(4) | 588,628 | 37 | % | 577,522 | 40 | % | ||||||||||||
Homeowner construction | 11,043 | 1 | % | 11,149 | – | % | ||||||||||||
Total residential real estate | 599,671 | 38 | % | 588,671 | 40 | % | ||||||||||||
Consumer | ||||||||||||||||||
Home equity lines | 144,429 | 9 | % | 145,676 | 10 | % | ||||||||||||
Home equity loans | 99,827 | 6 | % | 93,947 | 6 | % | ||||||||||||
Other(5) | 49,459 | 4 | % | 44,295 | 4 | % | ||||||||||||
Total consumer | 293,715 | 19 | % | 283,918 | 20 | % | ||||||||||||
Total loans(6) | $ | 1,573,652 | 100 | % | $ | 1,459,986 | 100 | % | ||||||||||
(1) | Amortizing mortgages, primarily secured by income producing property. | |
(2) | Loans for construction of residential and commercial properties and for land development. | |
(3) | Loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate. | |
(4) | A substantial portion of these loans is used as qualified collateral for FHLB borrowings (See Note 12 for additional discussion of FHLB borrowings). | |
(5) | Fixed rate consumer installment loans. | |
(6) | Net of unamortized loan origination fees, net of costs, totaling $100 thousand and $277 thousand at December 31, 2007 and December 31, 2006, respectively. Also includes $297 thousand and $342 thousand of premium, net of discount, on purchased loans at December 31, 2007 and December 31, 2006, respectively. |
A significant portion of our loan portfolio is concentrated among borrowers in southern New England, primarily Rhode Island and, to a lesser extent, Connecticut and Massachusetts, and a substantial portion of the portfolio is collateralized by real estate in this area. In addition, a portion of the commercial loans and commercial mortgage loans are to borrowers in the hospitality, tourism and recreation industries. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall
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The balance of loans on nonaccrual status as of December 31, 2007 and 2006 was $4.3 million and $2.7 million, respectively. Interest income that would have been recognized had these loans been current in accordance with their original terms was approximately $341 thousand in 2007 and $218 thousand in 2006. Interest income attributable to these loans included in the Consolidated Statements of Income amounted to approximately $318 thousand in 2007 and $192 thousand in 2006.
Impaired loans consist of all nonaccrual commercial loans and loans restructured in a troubled debt restructuring.
December 31, | 2007 | 2006 | |||||||||
Impaired loans requiring an allowance | $2,102 | $1,393 | |||||||||
Impaired loans not requiring an allowance | 2,490 | 419 | |||||||||
Total recorded investment in impaired loans | $4,592 | $1,812 | |||||||||
Years ended December 31, | 2007 | 2006 | 2005 | ||||||||||||
Average recorded investment in impaired loans | $2,903 | $1,105 | $1,076 | ||||||||||||
Interest income recognized on impaired loans | $457 | $192 | $94 | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
(Dollars in thousands) | Loan | ||||||||||||
Servicing | Valuation | ||||||||||||
Rights | Allowance | Total | |||||||||||
Balance at December 31, 2004 | $ | 1,330 | $ | (331 | ) | $999 | |||||||
Loan servicing rights capitalized | 391 | – | 391 | ||||||||||
Amortization(1) | (375 | ) | – | (375 | ) | ||||||||
Decrease in impairment reserve(2) | – | 71 | 71 | ||||||||||
Balance at December 31, 2005 | 1,346 | (260 | ) | 1,086 | |||||||||
Loan servicing rights capitalized | 255 | – | 255 | ||||||||||
Amortization(1) | (419 | ) | – | (419 | ) | ||||||||
Decrease in impairment reserve(2) | – | 36 | 36 | ||||||||||
Balance at December 31, 2006 | 1,182 | (224 | ) | 958 | |||||||||
Loan servicing rights capitalized | 246 | – | 246 | ||||||||||
Amortization(1) | (361 | ) | – | (361 | ) | ||||||||
Decrease in impairment reserve(2) | – | 40 | 40 | ||||||||||
Balance at December 31, 2007 | $ | 1,067 | $ | (184 | ) | $883 | |||||||
(1) | Amortization expense is charged against loan servicing fee income. | |
(2) | (Increases) and decreases in the impairment reserve are recorded as (reductions) and additions to loan servicing fee income. |
Years ending December 31: | 2008 | $ | 208 | ||||||
2009 | 169 | ||||||||
2010 | 135 | ||||||||
2011 | 108 | ||||||||
2012 | 85 |
December 31, | 2007 | 2006 | ||||||||
Residential mortgages | $67,942 | $64,269 | ||||||||
Commercial loans | 36,105 | 28,196 | ||||||||
Total | $104,047 | $92,465 | ||||||||
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Balance at beginning of year | $ | 16,619 | |||
Additions | 9,957 | ||||
Reductions | (9,416 | ) | |||
Balance at end of year | $ | 17,160 | |||
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||
Balance at beginning of year | $18,894 | $17,918 | $16,771 | |||||||||||
Reclassification of allowance on off-balance sheet exposures | – | – | (250 | ) | ||||||||||
Provision charged to expense | 1,900 | 1,200 | 1,200 | |||||||||||
Recoveries of loans previously charged off | 261 | 204 | 566 | |||||||||||
Loans charged off | (778 | ) | (428 | ) | (369 | ) | ||||||||
Balance at end of year | $20,277 | $18,894 | $17,918 | |||||||||||
December 31, | 2007 | 2006 | ||||||||
Land and improvements | $5,389 | $4,203 | ||||||||
Premises and improvements | 29,914 | 29,298 | ||||||||
Furniture, fixtures and equipment | 21,375 | 22,839 | ||||||||
56,678 | 56,340 | |||||||||
Less accumulated depreciation | 31,258 | 32,033 | ||||||||
Total premises and equipment, net | $25,420 | $24,307 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
Years ending December 31: | 2008 | $ | 1,044 | |||||||
2009 | 984 | |||||||||
2010 | 790 | |||||||||
2011 | 646 | |||||||||
2012 | 209 | |||||||||
2013 and thereafter | 1,403 | |||||||||
Total minimum lease payments | $ | 5,076 | ||||||||
Wealth | |||||||||||||
(Dollars in thousands) | Commercial | Management | |||||||||||
Banking | Service | ||||||||||||
Segment | Segment | Total | |||||||||||
Balance at December 31, 2005 | $ | 22,591 | $ | 17,372 | $ | 39,963 | |||||||
Additions to goodwill during the period | – | 4,595 | 4,595 | ||||||||||
Impairment recognized | – | – | – | ||||||||||
Balance at December 31, 2006 | 22,591 | 21,967 | 44,558 | ||||||||||
Additions to goodwill during the period | – | 5,921 | 5,921 | ||||||||||
Impairment recognized | – | – | – | ||||||||||
Balance at December 31, 2007 | $ | 22,591 | $ | 27,888 | $ | 50,479 | |||||||
Core Deposit | Advisory | Non-compete | |||||||||||||||
Intangible | Contracts | Agreements | Total | ||||||||||||||
Balance at December 31, 2005 | $ | 911 | $ | 13,220 | $ | 278 | $ | 14,409 | |||||||||
Amortization | 261 | 1,283 | 49 | 1,593 | |||||||||||||
Balance at December 31, 2006 | 650 | 11,937 | 229 | 12,816 | |||||||||||||
Amortization | 140 | 1,194 | 49 | 1,383 | |||||||||||||
Balance at December 31, 2007 | $510 | $ | 10,743 | $180 | $ | 11,433 | |||||||||||
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Core | Advisory | Non-compete | |||||||||||||||
Estimated amortization expense | Deposits | Contracts | Agreements | Total | |||||||||||||
2008 | $ | 120 | $ | 1,111 | $ | 49 | $ | 1,280 | |||||||||
2009 | 120 | 1,040 | 49 | 1,209 | |||||||||||||
2010 | 120 | 922 | 49 | 1,091 | |||||||||||||
2011 | 120 | 768 | 33 | 921 | |||||||||||||
2012 | 30 | 727 | – | 757 |
Core | Advisory | Non-compete | |||||||||||||||
Deposits | Contracts | Agreements | Total | ||||||||||||||
December 31, 2007: | |||||||||||||||||
Gross carrying amount | $ | 2,997 | $ | 13,657 | $ | 1,147 | $ | 17,801 | |||||||||
Accumulated amortization | 2,487 | 2,914 | 967 | 6,368 | |||||||||||||
Net amount | $510 | $ | 10,743 | $180 | $ | 11,433 | |||||||||||
December 31, 2006: | |||||||||||||||||
Gross carrying amount | $ | 2,997 | $ | 13,657 | $ | 1,147 | $ | 17,801 | |||||||||
Accumulated amortization | 2,347 | 1,720 | 918 | 4,985 | |||||||||||||
Net amount | $650 | $ | 11,937 | $229 | $ | 12,816 | |||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||
Current tax expense: | ||||||||||||||
Federal | $12,512 | $13,435 | $12,106 | |||||||||||
State | 646 | 625 | 175 | |||||||||||
Total current tax expense | 13,158 | 14,060 | 12,281 | |||||||||||
Deferred tax benefit: | ||||||||||||||
Federal | (2,179 | ) | (1,828 | ) | (1,261 | ) | ||||||||
State | (132 | ) | (141 | ) | (35 | ) | ||||||||
Total deferred tax benefit | (2,311 | ) | (1,969 | ) | (1,296 | ) | ||||||||
Total income tax expense | $10,847 | $12,091 | $10,985 | |||||||||||
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||
Tax expense at Federal statutory rate | $12,127 | $12,993 | $11,903 | |||||||||||
(Decrease) increase in taxes resulting from: | ||||||||||||||
Tax-exempt income | (1,014 | ) | (613 | ) | (383 | ) | ||||||||
Dividends received deduction | (217 | ) | (244 | ) | (240 | ) | ||||||||
Bank-owned life insurance | (557 | ) | (493 | ) | (389 | ) | ||||||||
State tax, net of Federal income tax benefit | 420 | 406 | 114 | |||||||||||
Other | 88 | 42 | (20 | ) | ||||||||||
Total income tax expense | $10,847 | $12,091 | $10,985 | |||||||||||
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December 31, | 2007 | 2006 | ||||||||
Gross deferred tax assets: | ||||||||||
Allowance for loan losses | $7,097 | $6,613 | ||||||||
Defined benefit pension obligations | 4,130 | 5,266 | ||||||||
Deferred loan origination fees | 888 | 923 | ||||||||
Deferred compensation | 1,341 | 963 | ||||||||
Other | 2,048 | 1,043 | ||||||||
Gross deferred tax assets | 15,504 | 14,808 | ||||||||
Gross deferred tax liabilities: | ||||||||||
Securities available for sale | (418 | ) | (181 | ) | ||||||
Deferred loan origination costs | (1,940 | ) | (1,803 | ) | ||||||
Premises and equipment | (371 | ) | (440 | ) | ||||||
Amortization of intangibles | (4,621 | ) | (5,160 | ) | ||||||
Other | (449 | ) | (512 | ) | ||||||
Gross deferred tax liabilities | (7,799 | ) | (8,096 | ) | ||||||
Net deferred tax asset | $7,705 | $6,712 | ||||||||
(Dollars in thousands) | ||||
Balance at January 1, 2007 | $ | 1,195 | ||
Increase related to current year tax positions | 163 | |||
Balance at December 31 , 2007 | $ | 1,358 | ||
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Years ending December 31: | 2008 | $ | 668,255 | |||||||
2009 | 84,650 | |||||||||
2010 | 27,810 | |||||||||
2011 | 10,299 | |||||||||
2012 | 16,770 | |||||||||
2013 and thereafter | 57 | |||||||||
Balance at December 31, 2007 | $ | 807,841 | ||||||||
Maturing: | January 1, 2008 to March 31, 2008 | $ | 136,551 | |||||
April 1, 2008 to June 30, 2008 | 80,786 | |||||||
July 1, 2008 to December 31, 2008 | 120,497 | |||||||
January 1, 2009 and beyond | 80,871 | |||||||
Balance at December 31, 2007 | $ | 418,705 | ||||||
Federal Home Loan Bank Advances
December 31, 2007 | December 31, 2006 | ||||||||||||||||||||||||
Scheduled | Redeemed at | Weighted | Scheduled | Redeemed at | Weighted | ||||||||||||||||||||
Maturity | Call Date (1) | Average Rate (2) | Maturity | Call Date (1) | Average Rate (2) | ||||||||||||||||||||
2007 | $ – | $ – | – | % | $161,000 | $210,500 | 4.09 | % | |||||||||||||||||
2008 | 186,220 | 204,220 | 4.15 | % | 115,860 | 115,860 | 3.84 | % | |||||||||||||||||
2009 | 115,441 | 110,441 | 4.27 | % | 82,063 | 70,063 | 4.17 | % | |||||||||||||||||
2010 | 83,569 | 83,569 | 4.72 | % | 29,671 | 15,171 | 5.49 | % | |||||||||||||||||
2011 | 69,414 | 61,414 | 4.54 | % | 28,993 | 20,993 | 4.77 | % | |||||||||||||||||
2012 | 89,842 | 89,842 | 4.83 | % | 19,205 | 9,205 | 4.30 | % | |||||||||||||||||
2013 and after | 71,931 | 66,931 | 4.93 | % | 37,769 | 32,769 | 4.97 | % | |||||||||||||||||
$616,417 | $616,417 | $474,561 | $474,561 | ||||||||||||||||||||||
(1) | Callable FHLB advances are shown in the respective periods assuming that the callable debt is redeemed at the call date while all other advances are shown in the periods corresponding to their scheduled maturity date. | |
(2) | Weighted average rate based on scheduled maturity dates. |
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In August 2005, the Bancorp sponsored the creation of WT Capital Trust I (“Trust I”) and WT Capital Trust II (“Trust II”). Trust I and Trust II are Delaware statutory trusts created for the sole purpose of issuing trust preferred securities and investing the proceeds in junior subordinated debentures of the Bancorp. The Bancorp is the owner of all of the common securities of Trust I and Trust II. In accordance with FASB Interpretation 46-R, “Consolidation of Variable Interest Entities–Revised”, Trust I and Trust II are treated as unconsolidated subsidiaries. The common stock investment in the statutory trusts is included in “Other Assets” in the Consolidated Balance Sheet.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
The following is a summary of other borrowings:
December 31, | 2007 | 2006 | ||||||||
Treasury, Tax and Loan demand note balance | $2,793 | $3,863 | ||||||||
Deferred acquisition obligations | 9,884 | 10,372 | ||||||||
Securities sold under repurchase agreements | 19,500 | – | ||||||||
Other | 383 | 449 | ||||||||
Other borrowings | $32,560 | $14,684 | ||||||||
Stock Repurchase Plan
In December 2006, the Bancorp’s Board of Directors approved a new common stock repurchase plan to replace a prior stock repurchase plan approved in 2001, which was terminated. The 2006 plan authorizes the repurchase of up to 400,000 shares, or approximately 3%, of the Corporation’s common stock in open market transactions. This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The Bancorp plans to hold the repurchased shares as treasury stock to be used for general corporate purposes. Under the 2006 plan, 185,400 shares of stock were repurchased in 2007 at a total cost of $4.8 million.
In August 2006, the Bancorp’s Board of Directors adopted a new shareholder rights plan, as set forth in the Shareholders Rights Agreement, dated August 17, 2006 (the “2006 Rights Agreement”). The 2006 Rights Agreement replaced a previous rights plan, which expired in August 2006. Pursuant to the terms of the 2006 Rights Agreement, the Bancorp declared a dividend distribution of one common share purchase right (a “Right”) for each outstanding share of common stock to shareholders of record on August 31, 2006. Such Rights also apply to new
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The primary source of liquidity for the Bancorp is dividends received from the Bank. The Bancorp and the Bank are regulated enterprises and their abilities to pay dividends are subject to regulatory review and restriction. Certain regulatory and statutory restrictions exist regarding dividends, loans, and advances from the Bank to the Bancorp. Generally the Bank has the ability to pay dividends to the Bancorp subject to minimum regulatory capital requirements. The FDIC has the authority to use its enforcement powers to prohibit a bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. In addition, the Rhode Island Division of Banking may also restrict the declaration of dividends if a bank would not be able to pay its debts as they become due in the usual course of business or the bank’s total assets would be less than the sum of its total liabilities. Under the most restrictive of these requirements, the Bank could have declared aggregate additional dividends of $58.1 million as of December 31, 2007.
Under the Amended and Restated Dividend Reinvestment and Stock Purchase Plan, 607,500 shares of common stock were originally reserved to be issued for dividends reinvested and cash payments to the plan.
As of December 31, 2007, a total of 1,683,162 common stock shares were reserved for issuance under the 1997 Plan, 2003 Plan, the Amended and Restated Dividend Reinvestment, the 2006 Stock Repurchase Plan and the Nonqualified Deferred Compensation Plan.
The Bancorp and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve Board and the FDIC, respectively. These requirements were established to more accurately assess the credit risk inherent in the assets and off-balance sheet activities of financial institutions. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
To Be “Well Capitalized” | ||||||||||||||||||||||||||
For Capital Adequacy | Under Prompt Corrective | |||||||||||||||||||||||||
(Dollars in thousands) | Actual | Purposes | Action Provisions | |||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||
As of December 31, 2007: | ||||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets): | ||||||||||||||||||||||||||
Corporation | $167,061 | 10.39 | % | $128,648 | 8.00 | % | $160,810 | 10.00 | % | |||||||||||||||||
Bank | $174,750 | 10.87 | % | $128,574 | 8.00 | % | $160,717 | 10.00 | % | |||||||||||||||||
Tier 1 Capital (to Risk-Weighted Assets): | ||||||||||||||||||||||||||
Corporation | $146,393 | 9.10 | % | $64,324 | 4.00 | % | $96,486 | 6.00 | % | |||||||||||||||||
Bank | $154,093 | 9.59 | % | $64,287 | 4.00 | % | $96,430 | 6.00 | % | |||||||||||||||||
Tier 1 Capital (to Average Assets):(1) | ||||||||||||||||||||||||||
Corporation | $146,393 | 6.09 | % | $96,088 | 4.00 | % | $120,110 | 5.00 | % | |||||||||||||||||
Bank | $154,093 | 6.42 | % | $96,042 | 4.00 | % | $120,053 | 5.00 | % | |||||||||||||||||
As of December 31, 2006: | ||||||||||||||||||||||||||
Total Capital (to Risk-Weighted Assets): | ||||||||||||||||||||||||||
Corporation | $161,606 | 10.96 | % | $117,538 | 8.00 | % | $146,922 | 10.00 | % | |||||||||||||||||
Bank | $168,235 | 11.46 | % | $117,465 | 8.00 | % | $146,832 | 10.00 | % | |||||||||||||||||
Tier 1 Capital (to Risk-Weighted Assets): | ||||||||||||||||||||||||||
Corporation | $140,568 | 9.57 | % | $58,769 | 4.00 | % | $88,153 | 6.00 | % | |||||||||||||||||
Bank | $147,738 | 10.06 | % | $58,733 | 4.00 | % | $88,099 | 6.00 | % | |||||||||||||||||
Tier 1 Capital (to Average Assets):(1) | ||||||||||||||||||||||||||
Corporation | $140,568 | 6.01 | % | $93,487 | 4.00 | % | $116,858 | 5.00 | % | |||||||||||||||||
Bank | $147,738 | 6.32 | % | $93,437 | 4.00 | % | $116,797 | 5.00 | % |
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage the exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, financial guarantees, interest rate swaps and floors, and commitments to originate and commitments to sell fixed rate mortgage loans. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the
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December 31, | 2007 | 2006 | ||||||||
Financial instruments whose contract amounts represent credit risk: | ||||||||||
Commitments to extend credit: | ||||||||||
Commercial loans | $ | 149,465 | $ | 122,376 | ||||||
Home equity lines | 176,284 | 185,483 | ||||||||
Other loans | 20,770 | 10,671 | ||||||||
Standby letters of credit | 8,048 | 9,401 | ||||||||
Financial instruments whose notional amounts exceed the amount of credit risk: | ||||||||||
Forward loan commitments: | ||||||||||
Commitments to originate fixed rate mortgage loans to be sold | 3,495 | 2,924 | ||||||||
Commitments to sell fixed rate mortgage loans | 5,472 | 5,066 | ||||||||
Interest rate swap contracts: | ||||||||||
Swaps with customers | 3,850 | – | ||||||||
Mirror swaps with counterparties | 3,850 | – |
Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each borrower’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Under the standby letters of credit, the Corporation is required to make payments to the beneficiary of the letters of credit upon request by the beneficiary contingent upon the customer’s failure to perform under the terms of the underlying contract with the beneficiary. Standby letters of credit extend up to five years. At December 31, 2007 and 2006, the maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $8.0 million and $9.4 million, respectively. At December 31, 2007 and 2006, there was no liability to beneficiaries resulting from standby letters of credit. Fee income on standby letters of credit for 2007 and 2006 totaled $97 thousand and $109 thousand, respectively.
Interest rate swaps and floors are used from time to time as part of its interest rate risk management strategy. Swaps are agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments) computed on a notional principal amount. A floor is a purchased contract that entitles the Corporation to receive payment from a counterparty if a rate index falls below a contractual rate. The amount of the payment is the difference between the contractual floor rate and the rate index multiplied by the notional principal amount of the contract. If the rate index does not fall below the contractual floor rate, no payment is received. The
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
Interest rate lock commitments are extended to borrowers that relate to the origination of readily marketable mortgage loans held for sale. To mitigate the interest rate risk inherent in these rate locks, as well as closed mortgage loans held for sale, best efforts forward commitments are established to sell individual mortgage loans. Commitments to originate and commitments to sell fixed rate mortgage loans are derivative financial instruments. Accordingly, the fair value of these commitments is recognized in other assets on the balance sheet and the changes in fair value of such commitments are recorded in current earnings in the income statement. The carrying values of such commitments as of December 31, 2007 and 2006 and the respective changes in fair values for the years then ended were insignificant.
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, requires the disclosure of estimated fair values of its financial instruments. Fair value estimates are made as of a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any pricing adjustments that could result from the sale of the entire holding of a particular financial instrument. Because no quoted market exists for a portion of the financial instruments, fair value estimates are based on subjective judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. Changes in assumptions could significantly affect the estimates of fair value. Fair value estimates, methods, and assumptions are set forth as follows:
The carrying amount of short-term instruments such as cash and federal funds sold is used as an estimate of fair value.
The fair value of mortgage loans held for sale is the estimated value to sell the loans using the quoted market prices for sales of similar loans on the secondary market.
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The carrying amount of BOLI represents its cash surrender value and approximates fair value.
Fair values are estimated for categories of loans with similar financial characteristics. Loans are segregated by type and are then further segmented into fixed rate and adjustable rate interest terms to determine their fair value. The fair value of fixed rate commercial and consumer loans is calculated by discounting scheduled cash flows through the estimated maturity of the loan using interest rates offered at December 31, 2007 and 2006 that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Corporation’s historical repayment experience. For residential mortgages, fair value is estimated by using quoted market prices for sales of similar loans on the secondary market, adjusted for servicing costs. The fair value of floating rate commercial and consumer loans approximates carrying value. The fair value of nonaccrual loans is calculated by discounting estimated cash flows, using a rate commensurate with the risk associated with the loan type or by other methods that give consideration to the value of the underlying collateral.
The fair value of demand deposits, NOW accounts, money market accounts and savings accounts is equal to the amount payable on demand as of December 31, 2007 and 2006. The discounted values of cash flows using the rates currently offered for deposits of similar remaining maturities were used to estimate the fair value of certificates of deposit.
The carrying amount of securities sold under repurchase agreements is estimated based on bid quotations received from brokers.
Rates currently available to the Corporation for advances with similar terms and remaining maturities are used to estimate fair value of existing advances.
The fair value of the junior subordinated debentures is estimated using rates currently available to the Corporation for debentures with similar terms and maturities.
Interest rate swap agreements – The estimated fair values of interest rate swap agreements represent the amounts we would expect to receive or pay to terminate such agreements. The fair values of such agreements as of December 31, 2007 were not material and therefore are not disclosed. The Corporation did not engage in such agreements during 2006.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
December 31, | 2007 | 2006 | ||||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||||
(Dollars in thousands) | Amount | Fair Value | Amount | Fair Value | ||||||||||||||
Financial Assets: | ||||||||||||||||||
Cash and cash equivalents | $32,790 | $32,790 | $54,337 | $54,337 | ||||||||||||||
Mortgage loans held for sale | 1,981 | 2,004 | 2,148 | 2,148 | ||||||||||||||
Securities available for sale | 751,778 | 751,778 | 526,396 | 526,396 | ||||||||||||||
Securities held to maturity | – | – | 177,455 | 175,369 | ||||||||||||||
FHLB stock | 31,725 | 31,725 | 28,727 | 28,727 | ||||||||||||||
Loans, net of allowance for loan losses | 1,553,375 | 1,576,278 | 1,441,092 | 1,439,619 | ||||||||||||||
Bank-owned life insurance | 41,363 | 41,363 | 39,770 | 39,770 | ||||||||||||||
Financial Liabilities: | ||||||||||||||||||
Noninterest-bearing demand deposits | $175,542 | $175,542 | $186,533 | $186,533 | ||||||||||||||
NOW accounts | 164,944 | 164,944 | 175,479 | 175,479 | ||||||||||||||
Money market accounts | 321,600 | 321,600 | 286,998 | 286,998 | ||||||||||||||
Savings accounts | 176,278 | 176,278 | 205,998 | 205,998 | ||||||||||||||
Time deposits | 807,841 | 812,009 | 822,989 | 823,372 | ||||||||||||||
FHLB advances | 616,417 | 625,833 | 474,561 | 468,981 | ||||||||||||||
Junior subordinated debentures | 22,681 | 18,706 | 22,681 | 20,998 | ||||||||||||||
Securities sold under repurchase agreements | 19,500 | 20,050 | – | – | ||||||||||||||
Other borrowings | 13,060 | 13,060 | 14,684 | 14,684 |
Defined Benefit Pension Plans
The Corporation offers a tax-qualified defined benefit pension plan for the benefit of certain eligible employees. During 2007, the Corporation reviewed its retirement program, benefit trends, and best practices, and made a strategic decision to shift retirement benefits from the pension plan to the 401(k) Plan. Effective October 1, 2007, the pension plan was amended to freeze plan entry to new hires and rehires. Existing employees hired prior to October 1, 2007 continue to accrue benefits under the plan. Benefits are based on an employee’s years of service and compensation earned during the years of service. The plan is funded on a current basis, in compliance with the requirements of ERISA.
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(Dollars in thousands) | Qualified | Non-Qualified | ||||||||||||||||
Pension Plan | Retirement Plans | |||||||||||||||||
At December 31, | 2007 | 2006 | 2007 | 2006 | ||||||||||||||
Change in Benefit Obligation: | ||||||||||||||||||
Benefit obligation at beginning of period | $31,763 | $30,416 | $8,944 | $8,628 | ||||||||||||||
Service cost | 2,010 | 2,067 | 345 | 351 | ||||||||||||||
Interest cost | 1,848 | 1,651 | 519 | 467 | ||||||||||||||
Amendments | - | - | - | - | ||||||||||||||
Transfer of benefit obligation due to legislative change | - | 231 | - | (231 | ) | |||||||||||||
Actuarial loss (gain) | (1,644 | ) | (1,744 | ) | (250 | ) | 64 | |||||||||||
Benefits paid | (842 | ) | (774 | ) | (335 | ) | (335 | ) | ||||||||||
Administrative expenses | (107 | ) | (84 | ) | - | - | ||||||||||||
Benefit obligation at end of period | $33,028 | $31,763 | $9,223 | $8,944 | ||||||||||||||
Change in Plan Assets: | ||||||||||||||||||
Fair value of plan assets at beginning of period | $25,661 | $23,223 | $- | $- | ||||||||||||||
Actual return on plan assets | 3,888 | 1,996 | - | - | ||||||||||||||
Employer contribution | 1,850 | 1,300 | 335 | 335 | ||||||||||||||
Benefits paid | (842 | ) | (774 | ) | (335 | ) | (335 | ) | ||||||||||
Administrative expenses | (107 | ) | (84 | ) | - | - | ||||||||||||
Fair value of plan assets at end of period | $30,450 | $25,661 | $- | $- | ||||||||||||||
Funded status at end of period | $(2,578 | ) | $(6,102 | ) | $(9,223 | ) | $(8,944 | ) | ||||||||||
(Dollars in thousands) | Qualified | Non-Qualified | ||||||||||||||||
Pension Plan | Retirement Plans | |||||||||||||||||
At December 31, | 2007 | 2006 | 2007 | 2006 | ||||||||||||||
Net actuarial (gain) loss | $ | (129 | ) | $ | 3,606 | $ | 1,884 | $ | 2,352 | |||||||||
Prior service cost (credit) | (394 | ) | (427 | ) | 203 | 266 | ||||||||||||
Net transition asset | (1 | ) | (7 | ) | - | - | ||||||||||||
Total pre-tax amounts recognized in accumulated other comprehensive (income) loss | $ | (524 | ) | $ | 3,172 | $ | 2,087 | $ | 2,618 | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
(Dollars in thousands) | Non-Qualified | |||||||||
Retirement Plans | ||||||||||
December 31, | 2007 | 2006 | ||||||||
Projected benefit obligation | $9,223 | $8,944 | ||||||||
Accumulated benefit obligation | 7,422 | 6,891 | ||||||||
Fair value of plan assets | – | – |
(Dollars in thousands) | Qualified | Non-Qualified | ||||||||||||||||||||||||
Pension Plan | Retirement Plans | |||||||||||||||||||||||||
Years ended December 31, | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | ||||||||||||||||||||
Net Periodic Benefit Cost: | ||||||||||||||||||||||||||
Service cost | $2,010 | $2,067 | $1,871 | $345 | $351 | $311 | ||||||||||||||||||||
Interest cost | 1,848 | 1,651 | 1,522 | 519 | 467 | 436 | ||||||||||||||||||||
Expected return on plan assets | (1,984 | ) | (1,800 | ) | (1,686 | ) | – | – | – | |||||||||||||||||
Amortization of transition asset | (6 | ) | (6 | ) | (6 | ) | – | – | – | |||||||||||||||||
Amortization of prior service cost | (33 | ) | (33 | ) | 30 | 63 | 63 | 76 | ||||||||||||||||||
Recognized net actuarial (gain) loss | 187 | 317 | 123 | 218 | 215 | 131 | ||||||||||||||||||||
Net periodic benefit cost | $2,022 | $2,196 | $1,854 | $1,144 | $1,096 | $954 | ||||||||||||||||||||
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income: | ||||||||||||||||||||||||||
Net loss (gain) | $(3,735 | ) | $ – | $ – | $(468 | ) | $ – | $ – | ||||||||||||||||||
Prior service cost (credit) | 33 | – | – | (63 | ) | – | – | |||||||||||||||||||
Net transition asset | 6 | – | – | – | – | – | ||||||||||||||||||||
Recognized in other comprehensive income | $(3,696 | ) | $ – | $ – | $(531 | ) | $ – | $ – | ||||||||||||||||||
Total recognized in net periodic benefit cost and other comprehensive income | $(1,674 | ) | $2,196 | $1,854 | $613 | $1,096 | $954 | |||||||||||||||||||
(Dollars in thousands) | Qualified | Non-Qualified | ||||||||||||||||
Pension Plan | Retirement Plans | |||||||||||||||||
Years ended December 31, | 2006 | 2005 | 2006 | 2005 | ||||||||||||||
(Decrease) increase in minimum liability in other comprehensive income | $ – | $ – | $(61 | ) | $297 |
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The measurement date and weighted-average assumptions used to determine benefit obligations at December 31, 2007 and 2006 were as follows:
Qualified Pension Plan | Non-Qualified Retirement Plans | |||||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||
Measurement date | Sept. 30, 2007 | Sept. 30, 2006 | Sept. 30, 2007 | Sept. 30, 2006 | ||||||||||||||
Discount rate | 6.25% | 5.90% | 6.25% | 5.90% | ||||||||||||||
Rate of compensation increase | 4.25% | 4.25% | 4.25% | 4.25% |
Qualified Pension Plan | Non-Qualified Retirement Plans | |||||||||||||||||||||||||
2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||||
Measurement date | Sept. 30, 2006 | Sept. 30, 2005 | Sept. 30, 2004 | Sept. 30, 2006 | Sept. 30, 2005 | Sept. 30, 2004 | ||||||||||||||||||||
Discount rate | 5.90% | 5.50% | 6.00% | 5.90% | 5.50% | 6.00% | ||||||||||||||||||||
Expected long-term return on plan assets | 8.25% | 8.25% | 8.25% | – | – | – | ||||||||||||||||||||
Rate of compensation increase | 4.25% | 4.25% | 4.25% | 4.25% | 4.25% | 4.25% |
The asset allocations of the qualified pension plan at December 31, 2007 and 2006, by asset category were as follows:
December 31, | 2007 | 2006 | ||||||||
Asset Category: | ||||||||||
Equity securities | 66.4 | % | 60.6 | % | ||||||
Debt securities | 30.6 | % | 36.3 | % | ||||||
Other | 3.0 | % | 3.1 | % | ||||||
Total | 100.0 | % | 100.0 | % | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
The Internal Revenue Code permits flexibility in plan contributions so that normally a range of contributions is possible. The Corporation’s current funding policy has been generally to contribute the minimum required contribution and additional amounts up to the maximum deductible contribution. The Corporation expects to contribute $2.0 million to the qualified pension plan in 2008. In addition, the Corporation expects to contribute $421 thousand in benefit payments to the non-qualified retirement plans in 2008.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
(Dollars in thousands) | Qualified | Non-Qualified | ||||||||
Pension Plan | Plans | |||||||||
2008 | $ 949 | $ 421 | ||||||||
2009 | 980 | 418 | ||||||||
2010 | 1,150 | 492 | ||||||||
2011 | 1,304 | 657 | ||||||||
2012 | 1,404 | 686 | ||||||||
Years 2013 - 2016 | 10,630 | 4,043 |
The Corporation’s 401(k) Plan provides a specified match of employee contributions for substantially all employees. Total employer matching contributions under this plan amounted to $685 thousand, $647 thousand and $528 thousand in 2007, 2006 and 2005, respectively.
The Corporation maintains several non-qualified incentive compensation plans. Substantially all employees participate in one of the incentive compensation plans. Incentive plans provide for annual or more frequent
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The Amended and Restated Nonqualified Deferred Compensation Plan provides supplemental retirement and tax benefits to directors and certain officers. The plan is funded primarily through pre-tax contributions made by the participants. The assets and liabilities of the Deferred Compensation Plan are recorded at fair value in the Corporation’s Consolidated Balance Sheets. The participants in the plan bear the risk of market fluctuations of the underlying assets. The accrued liability related to this plan amounted to $3.8 million and $2.8 million at December 31, 2007 and 2006, respectively, and is included in other liabilities on the accompanying Consolidated Balance Sheets. The corresponding invested assets are reported in other assets.
Years ended December 31, | 2005 | |||||||||
Net income | As reported | $23,024 | ||||||||
Less total share-based compensation determined under the fair value method for all awards, net of tax | (1,586 | ) | ||||||||
Pro forma net income | Pro forma | 21,438 | ||||||||
Basic earnings per share | As reported | $ 1.73 | ||||||||
Pro forma | $ 1.61 | |||||||||
Diluted earnings per share | As reported | $ 1.69 | ||||||||
Pro forma | $ 1.57 | |||||||||
Weighted average fair value | $ 7.30 | |||||||||
Expected life | 4.8 years | |||||||||
Risk-free interest rate | 4.13% | |||||||||
Expected volatility | 33.0% | |||||||||
Expected dividend yield | 2.7% |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||
Share-based compensation expense | $ 508 | $ 694 | $ 372 | |||||||||||
Related income tax benefit | $ 178 | $ 229 | $ 130 | |||||||||||
(Dollars in thousands) | Number | Weighted | Weighted Average | |||||||||||||||
of | Average | Remaining | Aggregate | |||||||||||||||
Share | Exercise | Contractual | Intrinsic | |||||||||||||||
Options | Price | Term (Years) | Value | |||||||||||||||
Outstanding at January 1, 2007 | 1,090,376 | $ | 20.74 | – | – | |||||||||||||
Granted | – | – | – | – | ||||||||||||||
Exercised | 131,893 | 17.22 | – | – | ||||||||||||||
Forfeited or expired | 2,998 | 26.80 | – | – | ||||||||||||||
Outstanding at December 31, 2007 | 955,485 | $ | 21.21 | 4.8 years | $4,493 | |||||||||||||
Exercisable at December 31, 2007 | 955,485 | $ | 21.21 | 4.8 years | $4,493 | |||||||||||||
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Weighted | ||||||||||
Number | Average | |||||||||
of | Grant Date | |||||||||
Shares | Fair Value | |||||||||
Nonvested at January 1, 2007 | 73,050 | $25.22 | ||||||||
Granted | 1,500 | 23.28 | ||||||||
Vested | (35,031 | ) | 23.68 | |||||||
Forfeited | (169 | ) | 23.61 | |||||||
Nonvested at December 31, 2007 | 39,350 | $26.52 | ||||||||
Washington Trust segregates financial information in assessing its results among two operating segments: Commercial Banking and Wealth Management Services. The amounts in the Corporate column include activity not related to the segments, such as the investment securities portfolio, wholesale funding activities and administrative units. The Corporate column is not considered to be an operating segment. The methodologies and organizational hierarchies that define the business segments are periodically reviewed and revised. Results may be restated, when necessary, to reflect changes in organizational structure or allocation methodology. The following table presents the statement of operations and total assets for Washington Trust’s reportable segments.
�� | ||||||||||||||||||
Year ended December 31, 2007 | Wealth | |||||||||||||||||
Commercial | Management | Consolidated | ||||||||||||||||
(Dollars in thousands) | Banking | Services | Corporate | Total | ||||||||||||||
Net interest income (expense) | $ 53,927 | $(61 | ) | $ 6,078 | $ 59,944 | |||||||||||||
Noninterest income | 14,263 | 29,016 | 2,230 | 45,509 | ||||||||||||||
Total income | 68,190 | 28,955 | 8,308 | 105,453 | ||||||||||||||
Provision for loan losses | 1,900 | – | – | 1,900 | ||||||||||||||
Depreciation and amortization expense | 2,454 | 1,703 | 177 | 4,334 | ||||||||||||||
Other noninterest expenses | 37,530 | 17,942 | 9,100 | 64,572 | ||||||||||||||
Total noninterest expenses | 41,884 | 19,645 | 9,277 | 70,806 | ||||||||||||||
Income before income taxes | 26,306 | 9,310 | (969 | ) | 34,647 | |||||||||||||
Income tax expense (benefit) | 9,234 | 3,601 | (1,988 | ) | 10,847 | |||||||||||||
Net income | $ 17,072 | $ 5,709 | $ 1,019 | $ 23,800 | ||||||||||||||
Total assets at period end | $1,643,200 | $46,163 | $850,577 | $2,539,940 | ||||||||||||||
Expenditures for long-lived assets | $ 3,627 | $ 264 | $ 200 | $ 4,091 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
Year ended December 31, 2006 | Wealth | |||||||||||||||||
Commercial | Management | Consolidated | ||||||||||||||||
(Dollars in thousands) | Banking | Services | Corporate | Total | ||||||||||||||
Net interest income (expense) | $53,561 | $(106 | ) | $8,019 | $61,474 | |||||||||||||
Noninterest income | 13,904 | 26,380 | 1,899 | 42,183 | ||||||||||||||
Total income | 67,465 | 26,274 | 9,918 | 103,657 | ||||||||||||||
Provision for loan losses | 1,200 | – | – | 1,200 | ||||||||||||||
Depreciation and amortization expense | 2,184 | 1,661 | 743 | 4,588 | ||||||||||||||
Other noninterest expenses | 35,802 | 17,337 | 7,608 | 60,747 | ||||||||||||||
Total noninterest expenses | 39,186 | 18,998 | 8,351 | 66,535 | ||||||||||||||
Income before income taxes | 28,279 | 7,276 | 1,567 | 37,122 | ||||||||||||||
Income tax expense (benefit) | 9,885 | 2,827 | (621 | ) | 12,091 | |||||||||||||
Net income | $18,394 | $4,449 | $2,188 | $25,031 | ||||||||||||||
Total assets at period end | $1,553,351 | $40,125 | $805,689 | $2,399,165 | ||||||||||||||
Expenditures for long-lived assets | $2,745 | $466 | $360 | $3,571 |
Year ended December 31, 2005 | Wealth | |||||||||||||||||
Commercial | Management | Consolidated | ||||||||||||||||
(Dollars in thousands) | Banking | Services | Corporate | Total | ||||||||||||||
Net interest income (expense) | $54,088 | $(60 | ) | $6,628 | $60,656 | |||||||||||||
Noninterest income | 12,744 | 16,662 | 1,540 | 30,946 | ||||||||||||||
Total income | 66,832 | 16,602 | 8,168 | 91,602 | ||||||||||||||
Provision for loan losses | 1,200 | – | – | 1,200 | ||||||||||||||
Depreciation and amortization expense | 2,770 | 879 | 223 | 3,872 | ||||||||||||||
Other noninterest expenses | 33,679 | 11,121 | 7,721 | 52,521 | ||||||||||||||
Total noninterest expenses | 37,649 | 12,000 | 7,944 | 57,593 | ||||||||||||||
Income before income taxes | 29,183 | 4,602 | 224 | 34,009 | ||||||||||||||
Income tax expense (benefit) | 10,188 | 1,721 | (924 | ) | 10,985 | |||||||||||||
Net income | $18,995 | $2,881 | $1,148 | $23,024 | ||||||||||||||
Total assets at period end | $1,489,154 | $32,201 | $880,648 | $2,402,003 | ||||||||||||||
Expenditures for long-lived assets | $1,920 | $238 | $285 | $2,443 |
The Commercial Banking segment includes commercial, commercial real estate, residential and consumer lending activities; mortgage banking, secondary market and loan servicing activities; deposit generation; merchant credit card services; cash management activities; and direct banking activities, which include the operation of ATMs, telephone and internet banking services and customer support and sales.
Wealth Management Services includes asset management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; institutional trust
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Corporate includes the Treasury Unit, which is responsible for managing the wholesale investment portfolio and wholesale funding needs. It also includes income from bank-owned life insurance as well as administrative and executive expenses not allocated to the business lines and the residual impact of methodology allocations such as funds transfer pricing offsets.
Years ended December 31, | 2007 | 2006 | 2005 | |||||||||||||||||||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||||
Net income | $ 23,800 | $ 23,800 | $ 25,031 | $ 25,031 | $ 23,024 | $ 23,024 | ||||||||||||||||||||
Share amounts, in thousands: | ||||||||||||||||||||||||||
Average outstanding | 13,355.5 | 13,355.5 | 13,424.1 | 13,424.1 | 13,315.2 | 13,315.2 | ||||||||||||||||||||
Common stock equivalents | – | 248.6 | – | 299.1 | – | 311.5 | ||||||||||||||||||||
Weighted average outstanding | 13,355.5 | 13,604.1 | 13,424.1 | 13,723.2 | 13,315.2 | 13,626.7 | ||||||||||||||||||||
Earnings per share | $ 1.78 | $ 1.75 | $ 1.86 | $ 1.82 | $ 1.73 | $ 1.69 | ||||||||||||||||||||
The Corporation is involved in various claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such matters will not materially affect the consolidated financial position or results of operations of the Corporation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2007 and 2006
Balance Sheets | (Dollars in thousands) | ||||||||
December 31, | 2007 | 2006 | |||||||
Assets: | |||||||||
Cash on deposit with bank subsidiary | $ 2,101 | $ 575 | |||||||
Investment in subsidiaries at equity value | 217,455 | 203,339 | |||||||
Dividends receivable from subsidiaries | 2,280 | 4,800 | |||||||
Other assets | 71 | 63 | |||||||
Total assets | $221,907 | $208,777 | |||||||
Liabilities: | |||||||||
Junior subordinated debentures | $ 22,681 | $ 22,681 | |||||||
Deferred acquisition obligations | 9,884 | 10,372 | |||||||
Dividends payable | 2,677 | 2,556 | |||||||
Accrued expenses and other liabilities | 152 | 112 | |||||||
Total liabilities | 35,394 | 35,721 | |||||||
Shareholders’ Equity: | |||||||||
Common stock of $.0625 par value; authorized 30,000,000 shares in 2007 and 2006; issued 13,492,110 shares in 2007 and 2006 | 843 | 843 | |||||||
Paid-in capital | 34,874 | 35,893 | |||||||
Retained earnings | 154,647 | 141,548 | |||||||
Accumulated other comprehensive loss | (239 | ) | (3,515 | ) | |||||
Treasury stock, at cost; 137,652 shares in 2007 and 62,432 shares in 2006 | (3,612 | ) | (1,713 | ) | |||||
Total shareholders’ equity | 186,513 | 173,056 | |||||||
Total liabilities and shareholders’ equity | $221,907 | $208,777 | |||||||
Statements of Income | (Dollars in thousands) | ||||||||||||
Years ended December 31, | 2007 | 2006 | 2005 | ||||||||||
Income: | |||||||||||||
Dividends from subsidiaries | $21,093 | $11,801 | $ 8,530 | ||||||||||
Expenses: | |||||||||||||
Interest on junior subordinated debentures | 1,352 | 1,352 | 458 | ||||||||||
Interest on deferred acquisition obligations | 312 | 308 | 82 | ||||||||||
Legal and professional fees | 187 | – | 35 | ||||||||||
Other | 173 | 1 | 6 | ||||||||||
Total expenses | 2,024 | 1,661 | 581 | ||||||||||
Income before income taxes | 19,069 | 10,140 | 7,949 | ||||||||||
Income tax benefit | 691 | 567 | 198 | ||||||||||
Income before equity in undistributed earnings of subsidiaries | 19,760 | 10,707 | 8,147 | ||||||||||
Equity in undistributed earnings of subsidiaries | 4,040 | 14,324 | 14,877 | ||||||||||
Net income | $23,800 | $25,031 | $23,024 | ||||||||||
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Statements of Cash Flows | (Dollars in thousands) | ||||||||||||
Years ended December 31, | 2007 | 2006 | 2005 | ||||||||||
Cash flow from operating activities: | |||||||||||||
Net income | $23,800 | $25,031 | $23,024 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||
Equity effect of undistributed earnings of subsidiary | (4,040 | ) | (14,324 | ) | (14,877 | ) | |||||||
Decrease (increase) in dividend receivable | 2,520 | (2,700 | ) | 150 | |||||||||
Increase in other assets | (8 | ) | (4 | ) | (59 | ) | |||||||
Increase (decrease) in accrued expenses and other liabilities | 350 | (1 | ) | 113 | |||||||||
Other, net | (375 | ) | 61 | (336 | ) | ||||||||
Net cash provided by operating activities | 22,247 | 8,063 | 8,015 | ||||||||||
Cash flows from investing activities: | |||||||||||||
Equity investment in capital trust | – | – | (681 | ) | |||||||||
Payment of deferred acquisition obligation | (6,720 | ) | – | – | |||||||||
Cash paid for acquisition | – | – | (22,268 | ) | |||||||||
Net cash used in investing activities | (6,720 | ) | – | (22,949 | ) | ||||||||
Cash flows from financing activities: | |||||||||||||
Purchase of treasury stock | (5,200 | ) | (1,547 | ) | (33 | ) | |||||||
Proceeds from the issuance of common stock under dividend reinvestment plan | – | 1,216 | 606 | ||||||||||
Proceeds from the exercise of stock options | 1,052 | 912 | 367 | ||||||||||
Tax benefit from stock option exercises | 727 | 384 | 451 | ||||||||||
Proceeds from the issuance of junior subordinated debentures | – | – | 22,681 | ||||||||||
Cash dividends paid | (10,580 | ) | (10,070 | ) | (9,452 | ) | |||||||
Net cash (used in) provided by financing activities | (14,001 | ) | (9,105 | ) | 14,620 | ||||||||
Net increase (decrease) in cash | 1,526 | (1,042 | ) | (314 | ) | ||||||||
Cash at beginning of year | 575 | 1,617 | 1,931 | ||||||||||
Cash at end of year | $2,101 | $575 | $1,617 | ||||||||||
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ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
ITEM 9B. | Other Information |
ITEM 10. | Directors and Executive Officers of the Registrant |
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ITEM 11. | Executive Compensation |
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Equity Compensation Plan Information | |||||||||||||
Number of securities | |||||||||||||
remaining available for | |||||||||||||
Number of securities to | Weighted average | future issuance under equity | |||||||||||
be issued upon exercise | exercise price of | compensation plan | |||||||||||
of outstanding options, | outstanding options, | (excluding securities | |||||||||||
Plan category | warrants and rights (1) | warrants and rights | referenced in column (a)) | ||||||||||
(a) | (b) | (c) | |||||||||||
Equity compensation plans approved by security holders (2) | 1,025,054 | (3) | $21.21 | (4) | 232,170 | (5) | |||||||
Equity compensation plans not approved by security holders (6) | 28,615 | N/A | (7) | N/A | |||||||||
Total | 1,053,669 | $21.21 | (4)(7) | 232,170 | |||||||||
(1) | Does not include any nonvested shares as such shares are already reflected in the Bancorp’s outstanding shares. | |
(2) | Consists of the 1997 Plan and the 2003 Plan. | |
(3) | Includes 51,819 nonvested share units outstanding under the 1997 Plan and 17,250 nonvested share units outstanding under the 2003 Plan. | |
(4) | Does not include the effect of the nonvested share units awarded under the 1997 Plan and the 2003 Plan because these units do not have an exercise price. | |
(5) | Includes up to 211,757 securities that may be issued in the form of nonvested shares. | |
(6) | Consists of the Deferred Compensation Plan, which is described below. | |
(7) | Does not include information about the phantom stock units outstanding under the Deferred Compensation Plan as such units do not have any exercise price. |
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ITEM 13. | Certain Relationships and Related Transactions |
ITEM 14. | Principal Accounting Fees and Services |
ITEM 15. | Exhibits and Financial Statement Schedules |
(a) | 1. | Financial Statements. The financial statements of the Corporation required in response to this Item are listed in response to Part II, Item 8 of this Annual Report on Form 10-K. | |
2. | Financial Statement Schedules. All schedules normally required by Article 9 of Regulation S-X and all other schedules to the consolidated financial statements of the Corporation have been omitted because the required information is either not required, not applicable, or is included in the consolidated financial statements or notes thereto. | ||
3. | Exhibits. The following exhibits are included as part of this Form 10-K. |
Exhibit | ||
Number | ||
2.1 | Stock Purchase Agreement, dated March 18, 2005, by and between Washington Trust Bancorp, Inc., Weston Financial Group, Inc., and the shareholders of Weston Financial Group, Inc. – Filed as Exhibit No. 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on March 22, 2005.(1) | |
3.1 | Restated Articles of Incorporation of the Registrant – Filed as Exhibit 3.a to the Registrant’s Annual Report on Form 10-K (File No. 000-13091) for the fiscal year ended December 31, 2000.(1) | |
3.2 | Amendment to Restated Articles of Incorporation – Filed as Exhibit 3.b to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.(1) | |
3.3 | Amended and Restated By-Laws of the Registrant – Filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated September 20, 2007.(1) | |
4.1 | Transfer Agency and Registrar Services Agreement, between Registrant and American Stock Transfer & Trust Company, dated February 15, 2006 – Filed as Exhibit 4.1 on the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006.(1) | |
4.2 | Agreement of Substitution and Amendment of Amended and Restated Rights Agreement, between Registrant and American Stock Transfer & Trust Company, dated February 15, 2006 – Filed as Exhibit 4.2 on the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006.(1) | |
4.3 | Shareholder Rights Agreement, dated as of August 17, 2006, between Washington Trust Bancorp, Inc. and American Stock Transfer & Trust Company, as Rights Agent – Filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated August 17, 2006.(1) | |
10.1 | Annual Performance Plan – Filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-13091) for the quarterly period ended March 31, 2007.(1)(2) | |
10.2 | Amended and Restated 1988 Stock Option Plan – Filed as Exhibit 10.d to the Registrant’s Annual Report on Form 10-K (File No. 000-13091) for the fiscal year ended December 31, 2000.(1)(2) |
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Exhibit | ||
Number | ||
10.3 | Vote of the Board of Directors of the Registrant, which constitutes the 1996 Directors’ Stock Plan – Filed as Exhibit 10.e to the Registrant’s Annual Report on Form 10-K (File No. 000-13091) for the fiscal year ended December 31, 2002.(1)(2) | |
10.4 | The Registrant’s 1997 Equity Incentive Plan – Filed as Exhibit 10.f to the Registrant’s Annual Report on Form 10-K (File No. 000-13091) for the fiscal year ended December 31, 2002.(1)(2) | |
10.5 | Amendment to the Registrant’s 1997 Equity Incentive Plan – Filed as Exhibit 10.b to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-13091) for the quarterly period ended June 30, 2000.(1)(2) | |
10.6 | 2003 Stock Incentive Plan – Filed as Exhibit 10 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003.(1)(2) | |
10.7 | First Amendment to 2003 Stock Incentive Plan – Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated December 16, 2004.(1)(2) | |
10.8 | Form of Restricted Stock Units Certificate under the Washington Trust Bancorp, Inc. 1997 Equity Incentive Plan, as amended (employees) – Filed as exhibit 10.1 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.9 | Form of Nonqualified Stock Option Certificate under the Washington Trust Bancorp, Inc. 2003 Stock Incentive Plan, as amended (employees) – Filed as Exhibit No. 10.2 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.10 | Form of Nonqualified Stock Option Certificate under the Washington Trust Bancorp, Inc. 1997 Equity Incentive Plan, as amended (members of the Board of Directors) - Filed as Exhibit No. 10.3 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.11 | Form of Nonqualified Stock Option Certificate under the Washington Trust Bancorp, Inc. 1997 Equity Incentive Plan, as amended (employees) – Filed as Exhibit No. 10.4 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.12 | Form of Incentive Stock Option Certificate under the Washington Trust Bancorp, Inc. 1997 Equity Incentive Plan, as amended – Filed as Exhibit No. 10.5 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.13 | Form of Restricted Stock Units Certificate under the Washington Trust Bancorp, Inc. 1997 Equity Incentive Plan, as amended (members of the Board of Directors) – Filed as Exhibit No. 10.6 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.14 | Form of Restricted Stock Agreement under the Washington Trust Bancorp, Inc. 1997 Equity Incentive Plan, as amended – Filed as Exhibit No. 10.7 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.15 | Form of Nonqualified Stock Option Certificate under the Washington Trust Bancorp, Inc. 2003 Stock Incentive Plan, as amended (members of the Board of Directors) – Filed as Exhibit No. 10.8 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.16 | Form of Incentive Stock Option Certificate under the Washington Trust Bancorp, Inc. 2003 Stock Incentive Plan, as amended – Filed as Exhibit No. 10.9 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on June 17, 2005.(1) | |
10.17 | Compensatory agreement with Galan G. Daukas, dated July 28, 2005 – Filed as Exhibit 10.1 to the Bancorp’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005.(1)(2) | |
10.18 | Amended and Restated Declaration of Trust of WT Capital Trust I dated August 29, 2005, by and among Wilmington Trust Company, as Delaware Trustee and Institutional Trustee, Washington Trust Bancorp, Inc., as Sponsor, and the Administrators listed therein – Filed as exhibit 10.1 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) |
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Exhibit | ||
Number | ||
10.19 | Indenture dated as of August 29, 2005, between Washington Trust Bancorp, Inc., as Issuer, and Wilmington Trust Company, as Trustee – Filed as exhibit 10.2 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.20 | Guaranty Agreement dated August 29, 2005, by and between Washington Trust Bancorp, Inc. and Wilmington Trust Company – Filed as exhibit 10.3 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.21 | Certificate Evidencing Fixed/Floating Rate Capital Securities of WT Capital Trust I dated August 29, 2005 – Filed as exhibit 10.4 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.22 | Fixed/Floating Rate Junior Subordinated Deferrable Interest Debenture of Washington Trust Bancorp, Inc. dated August 29, 2005 – Filed as exhibit 10.5 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.23 | Amended and Restated Declaration of Trust of WT Capital Trust II dated August 29, 2005, by and among Wilmington Trust Company, as Delaware Trustee and Institutional Trustee, Washington Trust Bancorp, Inc., as Sponsor, and the Administrators listed therein – Filed as exhibit 10.6 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.24 | Indenture dated as of August 29, 2005, between Washington Trust Bancorp, Inc., as Issuer, and Wilmington Trust Company, as Trustee – Filed as exhibit 10.7 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.25 | Guaranty Agreement dated August 29, 2005, by and between Washington Trust Bancorp, Inc. and Wilmington Trust Company – Filed as exhibit 10.8 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.26 | Certificate Evidencing Capital Securities of WT Capital Trust II (Number of Capital Securities – 10,000) dated August 29, 2005 – Filed as exhibit 10.9 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.27 | Certificate Evidencing Capital Securities of WT Capital Trust II (Number of Capital Securities – 4,000) dated August 29, 2005 – Filed as exhibit 10.10 to the Bancorp’s Current Report on Form 8-K (File No. 0-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.28 | Fixed/Floating Rate Junior Subordinated Debt Security due 2035 of Washington Trust Bancorp, Inc. dated August 29, 2005 – Filed as exhibit 10.11 to the Bancorp’s Current Report on Form 8-K (File No. 000-13091), as filed with the Securities and Exchange Commission on September 1, 2005.(1) | |
10.29 | Form of Restricted Stock Units Certificate under the Washington Trust Bancorp, Inc. 2003 Stock Incentive Plan, as amended (employees) – Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated April 25, 2006.(1)(2) | |
10.30 | Form of Restricted Stock Units Certificate under the Washington Trust Bancorp, Inc. 2003 Stock Incentive Plan, as amended (members of the Board of Directors) – Filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated April 25, 2006.(1)(2) | |
10.31 | Form of Restricted Stock Agreement under the Washington Trust Bancorp, Inc. 2003 Stock Incentive Plan, as amended (employees) – Filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated April 25, 2006.(1)(2) | |
10.32 | Form of Restricted Stock Agreement under the Washington Trust Bancorp, Inc. 2003 Stock Incentive Plan, as amended (members of the Board of Directors) – Filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K dated April 25, 2006.(1)(2) | |
10.33 | Second Amendment to 2003 Stock Incentive Plan – Filed as Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K (File No. 000-13091) for the fiscal year ended December 31, 2006.(1)(2) | |
10.34 | Amended and Restated Nonqualified Deferred Compensation Plan – Filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 (File No. 333-146388) filed with the Securities and Exchange Commission on September 28, 2007.(1)(2) | |
10.35 | Wealth Management Business Building Incentive Plan – Filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-13091) for the quarterly period ended March 31, 2007.(1)(2) |
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Exhibit | ||
Number | ||
10.36 | Amended and Restated Supplemental Pension Benefit and Profit Sharing Plan – Filed herewith.(2) | |
10.37 | Amended and Restated Supplemental Executive Retirement Plan – Filed herewith.(2) | |
10.38 | Form of Executive Severance Agreement - Filed herewith.(2) | |
21.1 | Subsidiaries of the Registrant – Filed as Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.(1) | |
23.1 | Consent of Independent Accountants – Filed herewith. | |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Filed herewith. | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Filed herewith. | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Filed herewith.(3) |
(1) | Not filed herewith. In accordance with Rule 12b-32 promulgated pursuant to the Exchange Act, reference is made to the documents previously filed with the SEC, which are incorporated by reference herein. | |
(2) | Management contract or compensatory plan or arrangement. | |
(3) | These certifications are not “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Exchange Act. |
(b) | See (a)(3) above for all exhibits filed herewith and the Exhibit Index. | |
(c) | Financial Statement Schedules. None. |
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WASHINGTON TRUST BANCORP, INC. | |||||
(Registrant) | |||||
Date: February 25, 2008 | By | /s/ John C. Warren | |||
John C. Warren | |||||
Chairman, Chief Executive Officer and Director (principal executive officer) | |||||
Date: February 25, 2008 | By | /s/ David V. Devault | |||
David V. Devault | |||||
Executive Vice President, Secretary, Treasurer and Chief Financial Officer (principal financial and principal accounting officer) | |||||
Date: February 25, 2008 | /s/ Gary P. Bennett | |||
Date: February 25, 2008 | /s/ Steven J. Crandall | |||
Steven J. Crandall, Director | ||||
Date: February 25, 2008 | /s/ Larry J. Hirsch | |||
Larry J. Hirsch, Director | ||||
Date: February 25, 2008 | /s/ Barry G. Hittner | |||
Barry G. Hittner, Director | ||||
Date: February 25, 2008 | /s/ Katherine W. Hoxsie | |||
Katherine W. Hoxsie, Director | ||||
Date: February 25, 2008 | /s/ Mary E. Kennard | |||
Mary E. Kennard, Director | ||||
Date: February 25, 2008 | /s/ Edward M. Mazze | |||
Edward M. Mazze, Director | ||||
Date: February 25, 2008 | /s/ Kathleen McKeough | |||
Kathleen McKeough, Director |
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Table of Contents
Date: February 25, 2008 | /s/ Victor J. Orsinger II | |||
Victor J. Orsinger II, Director | ||||
Date: February 25, 2008 | /s/ H. Douglas Randall III | |||
H. Douglas Randall, III, Director | ||||
Date: February 25, 2008 | /s/ Patrick J. Shanahan, Jr. | |||
Patrick J. Shanahan, Jr., Director | ||||
Date: February 25, 2008 | /s/ James P. Sullivan | |||
James P. Sullivan, Director | ||||
Date: February 25, 2008 | /s/ Neil H. Thorp | |||
Neil H. Thorp, Director | ||||
Date: February 25, 2008 | /s/ John F. Treanor | |||
John F. Treanor, Director | ||||
Date: February 25, 2008 | /s/ John C. Warren | |||
John C. Warren, Director |
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