Documents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended MARCH 31, 2007 or

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______.

Commission file number: 000-13091
 
WASHINGTON TRUST BANCORP, INC.
 
(Exact name of registrant as specified in its charter)


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)

(401) 348-1200
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o     Accelerated filer x     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
oYes   xNo

The number of shares of common stock of the registrant outstanding as of May 3, 2007 was 13,356,244.

 
FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
For the Quarter Ended March 31, 2007
     
   
Page
   
Number
     
 
 
 
 
 
 
 
 
 
Exhibit 10.1 Annual Performance Plan  
Exhibit 10.2 Wealth Management Business Building Incentive Plan  
Exhibit 10.3 Amendment to the Supplemental Pension Benefit and Profit Sharing Plan  
Exhibit 15.1 Letter re: Unaudited Interim Financial Statements  
Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002  
Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002  
Exhibit 32.1 Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  

 
-2-

 
 
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Dollars in thousands)
 
Unaudited
 
   
March 31,
 
December 31,
 
   
2007
 
2006
 
Assets:
             
Cash and due from banks
 
$
30,058
 
$
54,337
 
Federal funds sold
   
29,625
   
16,425
 
Other short term investments
   
683
   
1,147
 
Mortgage loans held for sale
   
2,122
   
2,148
 
Securities:
             
Available for sale, at fair value; amortized cost $540,650 in 2007 and $525,966 in 2006
   
541,942
   
526,396
 
Held to maturity, at cost; fair value $162,974 in 2007 and $175,369 in 2006
   
164,464
   
177,455
 
Total securities
   
706,406
   
703,851
 
Federal Home Loan Bank stock, at cost
   
28,727
   
28,727
 
Loans:
             
Commercial and other
   
599,170
   
587,397
 
Residential real estate
   
589,565
   
588,671
 
Consumer
   
281,465
   
283,918
 
Total loans
   
1,470,200
   
1,459,986
 
Less allowance for loan losses
   
19,360
   
18,894
 
Net loans
   
1,450,840
   
1,441,092
 
Premises and equipment, net
   
24,603
   
24,307
 
Accrued interest receivable
   
11,572
   
11,268
 
Investment in bank-owned life insurance
   
40,161
   
39,770
 
Goodwill
   
44,558
   
44,558
 
Identifiable intangible assets, net
   
12,448
   
12,816
 
Other assets
   
18,159
   
18,719
 
Total assets
 
$
2,399,962
 
$
2,399,165
 
Liabilities:
             
Deposits:
             
Demand deposits
 
$
175,010
 
$
186,533
 
NOW accounts
   
176,006
   
175,479
 
Money market accounts
   
290,273
   
286,998
 
Savings accounts
   
204,465
   
205,998
 
Time deposits
   
837,838
   
822,989
 
Total deposits
   
1,683,592
   
1,677,997
 
Dividends payable
   
2,682
   
2,556
 
Federal Home Loan Bank advances
   
457,145
   
474,561
 
Junior subordinated debentures
   
22,681
   
22,681
 
Other borrowings
   
25,792
   
14,684
 
Accrued expenses and other liabilities
   
32,543
   
33,630
 
Total liabilities
   
2,224,435
   
2,226,109
 
Shareholders’ Equity:
             
Common stock of $.0625 par value; authorized 30,000,000 shares;
             
issued 13,492,110 in 2007 and 2006
   
843
   
843
 
Paid-in capital
   
35,697
   
35,893
 
Retained earnings
   
144,841
   
141,548
 
Accumulated other comprehensive loss
   
(2,876
)
 
(3,515
)
Treasury stock, at cost; 109,575 shares in 2007 and 62,432 shares in 2006
   
(2,978
)
 
(1,713
)
Total shareholders’ equity
   
175,527
   
173,056
 
Total liabilities and shareholders’ equity
 
$
2,399,962
 
$
2,399,165
 
               
The accompanying notes are an integral part of these consolidated financial statements.
             
-3-

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
 
(Dollars and shares in thousands,
 
 
except per share amounts)
 
       
   
Unaudited
 
Three months ended March 31,
 
2007
 
2006
 
Interest income:
             
Interest and fees on loans
 
$
23,934
 
$
21,897
 
Interest on securities:
             
Taxable
   
7,792
   
8,412
 
Nontaxable
   
668
   
328
 
Dividends on corporate stock and Federal Home Loan Bank stock
   
718
   
677
 
Interest on federal funds sold and other short-term investments
   
191
   
115
 
Total interest income
   
33,303
   
31,429
 
Interest expense:
             
Deposits
   
12,977
   
10,238
 
Federal Home Loan Bank advances
   
4,968
   
5,359
 
Junior subordinated debentures
   
338
   
338
 
Other
   
150
   
79
 
Total interest expense
   
18,433
   
16,014
 
Net interest income
   
14,870
   
15,415
 
Provision for loan losses
   
300
   
300
 
Net interest income after provision for loan losses
   
14,570
   
15,115
 
Noninterest income:
             
Wealth management services
             
Trust and investment advisory fees
   
5,038
   
4,627
 
Mutual fund fees
   
1,262
   
1,130
 
Financial planning, commissions and other service fees
   
570
   
683
 
Wealth management services
   
6,870
   
6,440
 
Service charges on deposit accounts
   
1,125
   
1,119
 
Merchant processing fees
   
1,204
   
1,047
 
Income from bank-owned life insurance
   
391
   
279
 
Net gains on loan sales and commissions on loans originated for others
   
264
   
276
 
Net realized gains on sales of securities
   
1,036
   
59
 
Other income
   
358
   
300
 
Total noninterest income
   
11,248
   
9,520
 
Noninterest expense:
             
Salaries and employee benefits
   
9,812
   
9,619
 
Net occupancy
   
1,017
   
954
 
Equipment
   
832
   
799
 
Merchant processing costs
   
1,019
   
887
 
Outsourced services
   
519
   
518
 
Advertising and promotion
   
429
   
437
 
Legal, audit and professional fees
   
450
   
376
 
Amortization of intangibles
   
368
   
405
 
Debt prepayment penalties
   
1,067
   
-
 
Other
   
1,596
   
1,709
 
Total noninterest expense
   
17,109
   
15,704
 
Income before income taxes
   
8,709
   
8,931
 
Income tax expense
   
2,734
   
2,858
 
Net income
 
$
5,975
 
$
6,073
 
               
Weighted average shares outstanding - basic
   
13,412.1
   
13,386.8
 
Weighted average shares outstanding - diluted
   
13,723.0
   
13,698.6
 
Per share information: Basic earnings per share
 
$
0.45
 
$
0.45
 
Diluted earnings per share
 
$
0.44
 
$
0.44
 
Cash dividends declared per share
 
$
0.20
 
$
0.19
 
               
The accompanying notes are an integral part of these consolidated financial statements.
-4-

WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
 
(Dollars in thousands)
 
     
   
(Unaudited)
 
Three months ended March 31,
 
2007
 
2006
 
Cash flows from operating activities:
             
Net income
 
$
5,975
 
$
6,073
 
Adjustments to reconcile net income to net cash provided by operating activities:
             
Provision for loan losses
   
300
   
300
 
Depreciation of premises and equipment
   
728
   
729
 
Loss on disposal of premises and equipment
   
21
   
-
 
Net amortization of premium and discount
   
204
   
416
 
Net amortization of intangibles
   
368
   
405
 
Share-based compensation
   
171
   
181
 
Earnings from bank-owned life insurance
   
(391
)
 
(279
)
Net gains on loan sales
   
(264
)
 
(276
)
Net realized gains on sales of securities
   
(1,036
)
 
(59
)
Proceeds from sales of loans
   
11,364
   
6,819
 
Loans originated for sale
   
(11,201
)
 
(8,364
)
Increase in accrued interest receivable, excluding purchased interest
   
(295
)
 
(567
)
Decrease (increase) in other assets
   
266
   
(681
)
(Decrease) increase in accrued expenses and other liabilities
   
(1,018
)
 
761
 
Other, net
   
-
   
6
 
Net cash provided by operating activities
   
5,192
   
5,464
 
Cash flows from investing activities:
             
Purchases of:      Other investment securities available for sale 
   
(17,065
)
 
(12,851
)
           Other investment securities available for sale 
   
(15,873
)
 
(18,608
)
           Other investment securities held to maturity 
   
(10,302
)
 
(6,141
)
Proceeds from sale of:     Other investment securities available for sale
   
2,001
   
193
 
Maturities and principal payments of:    Mortgage-backed securities available for sale
   
14,177
   
23,787
 
                           Other investment securities available for sale
   
2,982
   
-
 
                           Mortgage-backed securities held to maturity
   
2,980
   
4,291
 
                           Other investment securities held to maturity
   
20,265
   
1,335
 
Net increase in loans
   
(8,339
)
 
(349
)
Purchases of loans, including purchased interest
   
(1,630
)
 
(16,616
)
Purchases of premises and equipment
   
(1,045
)
 
(1,098
)
Net cash used in investing activities
   
(11,849
)
 
(26,057
)
Cash flows from financing activities:
             
Net increase in deposits
   
5,595
   
21,363
 
Net increase (decrease) in other borrowings
   
11,108
   
(3,666
)
Proceeds from Federal Home Loan Bank advances
   
170,400
   
160,204
 
Repayment of Federal Home Loan Bank advances
   
(187,805
)
 
(149,463
)
Purchases of treasury stock, including deferred compensation plan activity
   
(1,930
)
 
(69
)
Proceeds from the issuance of common stock under dividend reinvestment plan
   
-
   
313
 
Proceeds from the exercise of share options
   
113
   
530
 
Tax benefit from share option exercises
   
189
   
201
 
Cash dividends paid
   
(2,556
)
 
(2,408
)
Net cash (used in) provided by financing activities
   
(4,886
)
 
27,005
 
Net (decrease) increase in cash and cash equivalents
   
(11,543
)
 
6,412
 
Cash and cash equivalents at beginning of year
   
71,909
   
66,163
 
Cash and cash equivalents at end of period
 
$
60,366
 
$
72,575
 
               
Noncash Investing and Financing Activities: Loans charged off
 
$
25
 
$
38
 
Supplemental Disclosures:    Interest payments
   
18,393
   
14,727
 
                     Income tax payments
   
125
   
240
 
               
The accompanying notes are an integral part of these consolidated financial statements.
             
-5-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
 
 

General
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 to individuals and businesses 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, ATMs, and its Internet web site (www.washtrust.com).

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

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

In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) and disclosures necessary to present fairly the Corporation’s financial position as of March 31, 2007 and December 31, 2006, respectively, and the results of operations and cash flows for the interim periods presented. Interim results are not necessarily reflective of the results of the entire year. The unaudited consolidated financial statements of the Corporation presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Washington Trust’s Annual Report on Form 10-K for the year ended December 31, 2006.

(2) New Accounting Pronouncements
In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140.” This Statement 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. This Statement 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 this Statement 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.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140.” This Statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value. SFAS No. 156 permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. An entity that used derivative instruments to mitigate the risks inherent in servicing assets and servicing liabilities is required to account for those derivative instruments at fair value. SFAS No. 156 is effective as of the beginning of the first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 156 did not have a material impact on the Corporation’s financial position or results of operations.
 
-6-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
Effective January 1, 2007, the Corporation adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes." FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 did not have a material impact on the Corporation’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures of fair value measurements. SFAS No. 157 applies to the accounting principles that currently use fair value measurement, and does not require any new fair value measurements. The expanded disclosures focus on the inputs used to measure fair value as well as the effect of the fair value measurements on earnings. This Statement is effective as of the beginning of the first fiscal year beginning after November 15, 2007 and interim periods within that fiscal year. The Corporation believes the adoption of SFAS No. 157 will not have a material impact on the Corporation’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans (an amendment of FASB Statements No. 87, 88, 106 and 132R)”. The recognition and disclosure provisions of SFAS No. 158 were adopted by the Corporation for the year ended December 31, 2006. Upon adoption, the funded status of an employer’s postretirement benefit plan was recognized in the statement of financial position and the changes in funded status of the defined benefit plan, including actuarial gains and losses and prior service costs and credits were recognized in comprehensive income. The requirement to measure the plan’ assets and obligations as of the employers fiscal year end is effective for fiscal years ending after December 15, 2008. The Corporation is currently evaluating the impact the measurement date provisions of SFAS No. 158 will have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities - Including an amendment to FASB No. 115”. This Statement permits entities to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The fair value option (i) may be applied instrument-by-instrument with certain exceptions, (ii) is irrevocable (unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. This Statement is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, “Fair Value Instruments.” Retrospective application is allowed for early adopters, prohibited for others. The choice to adopt early must be made within 120 days of the beginning of the fiscal year of adoption, provided the entity has not yet issued financial statements. This Statement permits application to eligible items existing at the effective date (or early adoption date). The Corporation is currently evaluating the impact that SFAS No. 159 will have on its consolidated financial statements.
-7-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(3) Securities
Securities available for sale are summarized as follows:
 
(Dollars in thousands)
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
   
Cost
 
Gains
 
Losses
 
Value
 
March 31, 2007
                         
U.S. Treasury obligations and obligations
                         
of U.S. government-sponsored agencies
 
$
164,394
 
$
846
 
$
(551
)
$
164,689
 
Mortgage-backed securities
   
300,793
   
1,085
   
(4,189
)
 
297,689
 
Trust preferred securities
   
36,161
   
281
   
(151
)
 
36,291
 
Corporate bonds
   
24,983
   
81
   
(20
)
 
25,044
 
Corporate stocks
   
14,319
   
4,071
   
(161
)
 
18,229
 
Total
   
540,650
   
6,364
   
(5,072
)
 
541,942
 
December 31, 2006
                         
U.S. Treasury obligations and obligations
                         
of U.S. government-sponsored agencies
   
157,383
   
778
   
(876
)
 
157,285
 
Mortgage-backed securities
   
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
 
$
525,966
 
$
6,907
 
$
(6,477
)
$
526,396
 

Securities held to maturity are summarized as follows:
 
(Dollars in thousands)
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
 
   
Cost
 
Gains
 
Losses
 
Value
 
March 31, 2007
                         
U.S. Treasury obligations and obligations
                         
of U.S. government-sponsored agencies
 
$
22,000
 
$
-
 
$
(246
)
$
21,754
 
Mortgage-backed securities
   
66,319
   
496
   
(1,351
)
 
65,464
 
States and political subdivisions
   
76,145
   
108
   
(497
)
 
75,756
 
Total
   
164,464
   
604
   
(2,094
)
 
162,974
 
December 31, 2006
                         
U.S. Treasury obligations and obligations
                         
of U.S. government-sponsored agencies
   
42,000
   
-
   
(422
)
 
41,578
 
Mortgage-backed securities
   
69,340
   
440
   
(1,604
)
 
68,176
 
States and political subdivisions
   
66,115
   
88
   
(588
)
 
65,615
 
Total
 
$
177,455
 
$
528
 
$
(2,614
)
$
175,369
 

Securities available for sale and held to maturity with a fair value of $555.2 million and $557.4 million were pledged in compliance with state regulations concerning trust powers and to secure Treasury Tax and Loan deposits, borrowings, and certain public deposits at March 31, 2007 and December 31, 2006, respectively. In addition, securities available for sale and held to maturity with a fair value of $9.3 million and $9.6 million were collateralized for the discount window at the Federal Reserve Bank at March 31, 2007 and December 31, 2006, respectively. There were no borrowings with the Federal Reserve Bank at either date. Securities available for sale with a fair value of $2.1 million were designated in a rabbi trust for a nonqualified retirement plan at March 31, 2007 and December 31, 2006. As of March 31, 2007, securities available for sale with a fair value of $20.4 million were pledged as collateral to secure securities sold under agreements to repurchase.

At March 31, 2007 and December 31, 2006, the available for sale and held to maturity securities portfolio included $200 thousand and $1.7 million of net pretax unrealized losses, respectively. Included in these net amounts were gross unrealized losses amounting to $7.2 million and $9.1 million at March 31, 2007 and December 31, 2006, respectively.
-8-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

The following tables summarize, for all securities in an unrealized loss position at March 31, 2007 and December 31, 2006, respectively, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position.

(Dollars in thousands)
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
       
Fair
 
Unrealized
     
Fair
 
Unrealized
     
Fair
 
Unrealized
 
At March 31, 2007
 
#
 
Value
 
Losses
 
#
 
Value
 
Losses
 
#
 
Value
 
Losses
 
U.S. Treasury obligations
                                                       
and obligations of U.S. government-sponsored agencies
   
6
 
$
35,884
 
$
82
   
13
 
$
82,765
 
$
715
   
19
 
$
118,649
 
$
797
 
Mortgage-backed securities
   
10
   
27,705
   
74
   
69
   
230,984
   
5,466
   
79
   
258,689
   
5,540
 
States and
                                                       
political subdivisions
   
62
   
49,347
   
343
   
12
   
6,758
   
154
   
74
   
56,105
   
497
 
Trust preferred securities
   
-
   
-
   
-
   
6
   
13,896
   
151
   
6
   
13,896
   
151
 
Corporate bonds
   
3
   
11,148
   
8
   
1
   
3,002
   
12
   
4
   
14,150
   
20
 
Subtotal, debt securities
   
81
   
124,084
   
507
   
101
   
337,405
   
6,498
   
182
   
461,489
   
7,005
 
Corporate stocks
   
5
   
5,834
   
107
   
4
   
1,505
   
54
   
9
   
7,339
   
161
 
Total temporarily
                                                       
impaired securities
   
86
 
$
129,918
 
$
614
   
105
 
$
338,910
 
$
6,552
   
191
 
$
468,828
 
$
7,166
 

(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
   
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
 

For those debt securities whose amortized cost exceeds fair value, the primary cause is related to interest rates. The majority of debt securities reported in an unrealized loss position at March 31, 2007 were purchased during 2005, 2004 and 2003, during which time interest rates were at or near historical lows. The Corporation believes that the nature and duration of impairment on its debt security holdings are primarily a function of interest rate movements and changes in investment spreads, and does not consider full repayment of principal on the reported debt obligations to be at risk. The Corporation has the ability and intent to hold these investments to full recovery of the cost basis. The debt securities in an unrealized loss position at March 31, 2007 consisted of 182 debt security holdings. The largest loss percentage of any single holding was 4.50% of its amortized cost.

Causes of conditions whereby the fair value of corporate stock equity securities is less than cost include the timing of purchases and changes in valuation specific to individual industries or issuers. The relationship between the level of market interest rates and the dividend rates paid on individual equity securities may also be a contributing factor. The Corporation believes that the nature and duration of impairment on its equity securities holdings are considered to be a function of general financial market movements and industry conditions. The equity securities in an unrealized loss position at March 31, 2007 consisted of 9 holdings of financial and commercial entities.
-9-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(4) Loan Portfolio
The following is a summary of loans:
 
(Dollars in thousands)
 
March 31, 2007
 
December 31, 2006
 
   
Amount
 
% 
 
Amount
 
% 
 
Commercial:
                         
Mortgages (1)
 
$
271,817
   
18
%
$
282,019
   
19
%
Construction and development (2)
   
33,092
   
2
%
 
32,233
   
2
%
Other (3)
   
294,261
   
21
%
 
273,145
   
19
%
Total commercial
   
599,170
   
41
%
 
587,397
   
40
%
                           
Residential real estate:
                         
Mortgages (4)
   
577,823
   
39
%
 
577,522
   
40
%
Homeowner construction
   
11,742
   
1
%
 
11,149
   
-
%
Total residential real estate
   
589,565
   
40
%
 
588,671
   
40
%
                           
Consumer
                         
Home equity lines
   
142,548
   
10
%
 
145,676
   
10
%
Home equity loans
   
94,521
   
6
%
 
93,947
   
6
%
Other
   
44,396
   
3
%
 
44,295
   
4
%
Total consumer
   
281,465
   
19
%
 
283,918
   
20
%
Total loans (5)
 
$
1,470,200
   
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 8 for additional discussion of FHLB borrowings).
(5) Net of unamortized loan origination fees, net of costs, totaling $80 thousand and $277 thousand at March 31, 2007 and December 31, 2006, respectively. Also includes $300 thousand and $342 thousand of premium, net of discount, on purchased loans at March 31, 2007 and December 31, 2006, respectively.

(5) Allowance for Loan Losses
The following is an analysis of the allowance for loan losses:
 
(Dollars in thousands)
     
       
Three months ended March 31,
 
2007
 
2006
 
Balance at beginning of period
 
$
18,894
 
$
17,918
 
Provision charged to expense
   
300
   
300
 
Recoveries of loans previously charged off
   
191
   
67
 
Loans charged off
   
(25
)
 
(38
)
Balance at end of period
 
$
19,360
 
$
18,427
 

-10-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(6) Goodwill and Other Intangibles
The changes in the carrying value of goodwill and other intangible assets for the nine months ended March 31, 2007 are as follows:
 
Goodwill
       
Wealth
     
(Dollars in thousands)
 
Commercial
 
Management
     
   
Banking
 
Service
     
   
Segment
 
Segment
 
Total
 
Balance at December 31, 2006
 
$
22,591
 
$
21,967
 
$
44,558
 
Additions to goodwill during the period
   
-
   
-
   
-
 
Impairment recognized
   
-
   
-
   
-
 
Balance at March 31, 2007
 
$
22,591
 
$
21,967
 
$
44,558
 

Other Intangible Assets
   
Core Deposit
 
Advisory
 
Non-compete
     
   
Intangible
 
Contracts
 
Agreements
 
Total
 
Balance at December 31, 2006
 
$
650
 
$
11,937
 
$
229
 
$
12,816
 
Amortization
   
50
   
306
   
12
   
368
 
Balance at March 31, 2007
 
$
600
 
$
11,631
 
$
217
 
$
12,448
 

Amortization of intangible assets for the three months ended March 31, 2007 totaled $368 thousand. Estimated annual amortization expense of current intangible assets with finite useful lives, absent any impairment or change in estimated useful lives, is summarized below.
 
(Dollars in thousands)
                 
   
Core
 
Advisory
 
Non-compete
     
Estimated amortization expense:
 
Deposits
 
Contracts
 
Agreements
 
Total
 
2007 (full year)
 
$
140
 
$
1,194
 
$
49
 
$
1,383
 
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
 

The components of intangible assets at March 31, 2007 are as follows:
 
(Dollars in thousands)
                 
   
Core
 
Advisory
 
Non-compete
     
   
Deposits
 
Contracts
 
Agreements
 
Total
 
Gross carrying amount
 
$
2,997
 
$
13,657
 
$
1,147
 
$
17,801
 
Accumulated amortization
   
2,397
   
2,026
   
930
   
5,353
 
Net amount
 
$
600
 
$
11,631
 
$
217
 
$
12,448
 

(7) Income Taxes
Effective January 1, 2007, the Corporation adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). The adoption of FIN 48 did not result in any adjustment to retained earnings as of January 1, 2007.

As of the adoption date, the Corporation had gross tax affected unrecognized tax benefits of $1.2 million. If recognized this amount would be recorded as a component of income tax expense. There have been no significant changes to these amounts during the quarter ended March 31, 2007.

The Corporation recognizes potential accrued interest related to unrecognized tax benefits in income tax expense in the Consolidated Statements of Income. As of the adoption date of January 1, 2007, accrued interest amounted to
-11-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
$70 thousand. To the extent interest is not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. Penalties, if incurred, would be recognized as a component of income tax expense.

The Corporation files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Corporation is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2003. With a few exceptions, the Corporation is no longer subject to state income tax examinations by tax authorities for years before 2000.

(8) Borrowings
Federal Home Loan Bank Advances
Advances payable to the Federal Home Loan Bank (“FHLB”) are summarized as follows:

(Dollars in thousands)
 
March 31,
 
December 31,
 
   
2007
 
2006
 
FHLB advances
 
$
457,145
 
$
474,561
 

During the first quarter of 2007, the Corporation prepaid $26.5 million in advances payable to the FHLB resulting in a debt prepayment penalty charge, recorded in noninterest expense, of $1.1 million. See additional discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the caption “Noninterest Expense.”

In addition to outstanding advances, the Corporation also has access to an unused line of credit amounting to $8.0 million at March 31, 2007. Under an agreement with the FHLB, the Corporation is required to maintain qualified collateral, free and clear of liens, pledges, or encumbrances that, based on certain percentages of book and market values, has a value equal to the aggregate amount of the line of credit and outstanding advances (“FHLB borrowings”). The FHLB maintains a security interest in various assets of the Corporation including, but not limited to, residential mortgages loans, U.S. government or agency securities, U.S. government-sponsored agency securities, and amounts maintained on deposit at the FHLB. The Corporation maintained qualified collateral in excess of the amount required to collateralize the line of credit and outstanding advances at March 31, 2007. Included in the collateral were securities available for sale and held to maturity with a fair value of $432.1 million and $451.5 million that were specifically pledged to secure FHLB borrowings at March 31, 2007 and December 31, 2006, respectively. Unless there is an event of default under the agreement with the FHLB, the Corporation may use, encumber or dispose of any portion of the collateral in excess of the amount required to secure FHLB borrowings, except for that collateral that has been specifically pledged.

Other Borrowings
The following is a summary of other borrowings:
 
(Dollars in thousands)
 
March 31,
 
December 31,
 
   
2007
 
2006
 
Treasury, Tax and Loan demand note balance
 
$
2,121
 
$
3,863
 
Deferred acquisition obligations
   
3,769
   
10,372
 
Securities sold under repurchase agreements
   
19,500
   
-
 
Other
   
402
   
449
 
Other borrowings
 
$
25,792
 
$
14,684
 

In the first quarter of 2007, securities sold under repurchase agreements of $19.5 million were executed. The securities sold under agreements to repurchase are callable at the issuer’s option, at one time only, in one year and mature in five years. The securities underlying the agreements are held in safekeeping by the counterparty in the name of the Corporation and are repurchased when the agreement matures. Accordingly, these underlying securities are included in securities available for sale and the obligations to repurchase such securities are reflected as a liability.
-12-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

The Stock Purchase Agreement for the August 2005 acquisition of Weston Financial provides for the payment of contingent purchase price amounts based on operating results in each of the years in the three-year earn-out period ending December 31, 2008. Contingent payments are added to goodwill and recorded as deferred acquisition liabilities at the time the payments are determinable beyond a reasonable doubt. Deferred acquisition obligations amounted to $3.8 million at March 31, 2007 compared to $10.4 million at December 31, 2006. In the first quarter of 2007 the Corporation paid approximately $6.7.million in earn-out payments.

(9) Shareholders’ Equity
Stock Repurchase Plan:
Under the Corporation’s 2006 stock repurchase plan, 61,100 shares of stock were repurchased at a total cost of $1.7 million during the three months ended March 31, 2007. In addition, 11,180 shares were acquired pursuant to the Nonqualified Deferred Compensation Plan.
 
Regulatory Capital Requirements:
The following table presents the Corporation’s and the Bank’s actual capital amounts and ratios at March 31, 2007 and December 31, 2006, as well as the corresponding minimum regulatory amounts and ratios:
 
(Dollars in thousands)
 
 
Actual
 
 
For Capital Adequacy Purposes
 
To Be Well Capitalized Under Prompt Corrective Action Provisions
 
   
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
 
As of March 31, 2007:
                                     
Total Capital (to Risk-Weighted Assets):
                                     
Corporation
 
$
163,382
   
10.84
%
$
120,581
   
8.00
%
$
150,727
   
10.00
%
Bank
 
$
164,163
   
10.90
%
$
120,508
   
8.00
%
$
150,635
   
10.00
%
Tier 1 Capital (to Risk-Weighted Assets):
                                     
Corporation
 
$
142,772
   
9.47
%
$
60,291
   
4.00
%
$
90,436
   
6.00
%
Bank
 
$
143,564
   
9.53
%
$
60,254
   
4.00
%
$
90,381
   
6.00
%
Tier 1 Capital (to Average Assets): (1)
                                     
Corporation
 
$
142,772
   
6.14
%
$
92,944
   
4.00
%
$
116,180
   
5.00
%
Bank
 
$
143,564
   
6.18
%
$
92,900
   
4.00
%
$
116,125
   
5.00
%
                                       
As of December 31, 2006:
                                     
Total Capital (to Risk-Weighted Assets):
                                     
Corporation
 
$
161,076
   
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
%
 
(1)  
Leverage ratio

The Corporation’s capital ratios at March 31, 2007 place the Corporation in the “well-capitalized” category according to regulatory standards.

(10) Financial Instruments with Off-Balance Sheet Risk and Derivative Financial Instruments
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to manage the Corporation’s exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, financial guarantees, and commitments to originate and commitments to sell fixed rate mortgage loans. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Corporation’s Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation uses the same credit policies in making commitments and
-13-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
conditional obligations as it does for on-balance sheet instruments. The contractual and notional amounts of financial instruments with off-balance sheet risk are as follows:

(Dollars in thousands)
 
March 31,
2007
 
December 31, 2006
 
Financial instruments whose contract amounts represent credit risk:
             
Commitments to extend credit:
             
Commercial loans
 
$
156,944
 
$
122,376
 
Home equity lines
   
182,290
   
185,483
 
Other loans
   
11,906
   
10,671
 
Standby letters of credit
   
8,898
   
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
   
4,868
   
2,924
 
Commitments to sell fixed rate mortgage loans
   
6,988
   
5,066
 

Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each borrower’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained is based on management’s credit evaluation of the borrower.

Standby Letters of Credit
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Under 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 March 31, 2007 and December 31, 2006, the maximum potential amount of undiscounted future payments, not reduced by amounts that may be recovered, totaled $8.9 million and $9.4 million, respectively. At March 31, 2007 and December 31, 2006, there was no liability to beneficiaries resulting from standby letters of credit. Fee income on standby letters of credit for the three months ended March 31, 2007 and 2006 was insignificant.

At March 31, 2007, a substantial portion of the standby letters of credit were supported by pledged collateral. The collateral obtained is determined based on management’s credit evaluation of the customer. Should the Corporation be required to make payments to the beneficiary, repayment from the customer to the Corporation is required.

Forward Loan Commitments
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 changes in fair value of such commitments are recorded in current earnings in the income statement. The carrying value of such commitments as of March 31, 2007 and December 31, 2006 and the respective changes in fair values for the three months ended March 31, 2007 and 2006 were insignificant.
-14-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

(11) Defined Benefit Pension Plans

Components of Net Periodic Benefit Costs:
 
(Dollars in thousands)
 
Qualified
 
Non-Qualified
 
   
Pension Plan
 
Retirement Plans
 
Three months ended March 31,
 
2007
 
2006
 
2007
 
2006
 
Service cost
 
$
503
 
$
517
 
$
86
 
$
88
 
Interest cost
   
462
   
413
   
130
   
116
 
Expected return on plan assets
   
(496
)
 
(450
)
 
-
   
-
 
Amortization of transition asset
   
(1
)
 
(1
)
 
-
   
-
 
Amortization of prior service cost
   
(9
)
 
(8
)
 
16
   
16
 
Recognized net actuarial loss
   
47
   
79
   
54
   
54
 
Net periodic benefit cost
 
$
506
 
$
550
 
$
286
 
$
274
 

Assumptions:
The measurement date and weighted-average assumptions used to determine net periodic benefit cost for the three months ended March 31, 2007 and 2006 were as follows:
 
   
Qualified
 
Non-Qualified
 
   
Pension Plan
 
Retirement Plans
 
   
2006
 
2005
 
2006
 
2005
 
Measurement date
   
Sept. 30, 2006
   
Sept. 30, 2005
   
Sept. 30, 2006
   
Sept. 30, 2005
 
Discount rate
   
5.90
%
 
5.50
%
 
5.90
%
 
5.50
%
Expected long-term return on plan assets
   
8.25
%
 
8.25
%
 
-
   
-
 
Rate of compensation increase
   
4.25
%
 
4.25
%
 
4.25
%
 
4.25
%

As discussed in Note 2, the SFAS No. 158 requirement to measure the plan’s assets and obligations as of the employer’s fiscal year end is effective December 31, 2008.

Employer Contributions:
The Corporation previously disclosed in its financial statements for the year ended December 31, 2006 that it expected to contribute $1.3 million to its qualified pension plan and $369 thousand in benefit payments to its non-qualified retirement plans in 2007. As of March 31, 2007, approximately $1.9 million of contributions have been made to the qualified pension plan and $84 thousand in benefit payments have been made to the non-qualified retirement plans. The Corporation presently anticipates contributing an additional $251 thousand in benefit payments to the non-qualified retirement plans in 2007.
-15-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(12) Business Segments
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.

(Dollars in thousands)
                 
   
Commercial
Banking
 
Wealth Management Services
 
Corporate
 
Consolidated
Total
 
Three months ended March 31,
 
2007
 
2006
 
2007
 
2006
 
2007
 
2006
 
2007
 
2006
 
Net interest income (expense)
 
$
13,201
 
$
13,396
 
$
(8
)
$
(24
)
$
1,677
 
$
2,043
 
$
14,870
 
$
15,415
 
Noninterest income
   
2,889
   
2,749
   
6,894
   
6,440
   
1,465
   
331
   
11,248
   
9,520
 
Total income
   
16,090
   
16,145
   
6,886
   
6,416
   
3,142
   
2,374
   
26,118
   
24,935
 
                                                   
Provision for loan losses
   
300
   
300
   
-
   
-
   
-
   
-
   
300
   
300
 
Depreciation and
     amortization expense
   
616
   
558
   
436
   
419
   
44
   
157
   
1,096
   
1,134
 
Other noninterest expenses
   
8,643
   
8,315
   
4,298
   
4,342
   
3,072
   
1,913
   
16,013
   
14,570
 
Total noninterest expenses
   
9,559
   
9,173
   
4,734
   
4,761
   
3,116
   
2,070
   
17,409
   
16,004
 
Income before income taxes
   
6,531
   
6,972
   
2,152
   
1,655
   
26
   
304
   
8,709
   
8,931
 
Income tax expense (benefit)
   
2,301
   
2,425
   
834
   
658
   
(401
)
 
(225
)
 
2,734
   
2,858
 
Net income
 
$
4,230
 
$
4,547
 
$
1,318
 
$
997
 
$
427
 
$
529
 
$
5,975
 
$
6,073
 
                                                   
Total assets at period end
   
1,540,794
   
1,499,729
   
36,726
   
33,145
   
822,442
   
899,891
   
2,399,962
   
2,432,765
 
Expenditures for
     long-lived assets
 
$
886
   
788
   
69
   
254
   
90
   
56
   
1,045
   
1,098
 

Management uses certain methodologies to allocate income and expenses to the business lines. A funds transfer pricing methodology is used to assign interest income and interest expense to each interest-earning asset and interest-bearing liability on a matched maturity funding basis. Certain indirect expenses are allocated to segments. These include support unit expenses such as technology and processing operations and other support functions. Taxes are allocated to each segment based on the effective rate for the period shown.

Commercial Banking
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
Wealth Management Services includes asset management services provided for individuals and institutions; personal trust services, including services as executor, trustee, administrator, custodian and guardian; corporate trust services, including services as trustee for pension and profit sharing plans; and other financial planning and advisory services.

Corporate
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. 
-16-

WASHINGTON TRUST BANCORP INC. AND SUBSIDIARIES
(Continued)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

(13) Comprehensive Income
 
(Dollars in thousands)
     
       
Three months ended March 31,
 
2007
 
2006
 
               
Net income
 
$
5,975
 
$
6,073
 
               
Unrealized holding gains (losses) on securities available for sale, net of $664 income
             
tax expense in 2007 and $1,754 income tax benefit in 2006