Washington Trust Bancorp, Inc. 2002 Annual Report Washington Trust Bancorp, Inc. 2002 Annual Report Our Vision: To Be The Best Community Bank And Trust Company In New England Our Mission: Contents Acquisition of Phoenix Investment Management – 2000 Acquisition of First Bank and Trust Company – 2002 Warwick Branch Opening – 2003 Washington Trust Founded – 1800 Acquisition of Pier Bank – 1999 23 Broad Street, Westerly, Rhode Island 02891 www.washtrust.com E m b r a c i n g O p p o r t u n i t i e s 2002 Financial Highlights...................................inside cover Corporate Highlights............................................inside cover Letter to Shareholders .................................................one New Markets ................................................................two Business Banking .......................................................four Phoenix Investment Management ............................eight Trust & Investment Services..................................nine Personal Banking ........................................................ten Consolidated Balance Sheets ....................................twelve Consolidated Statements of Income .......................thirteen Consolidated Statements of Changes in Shareholders’ Equity ..........................................fourteen Consolidated Statements of Cash Flows ...................fifteen Independent Auditors’ Report ..................................sixteen Management’s Responsibility for Financial Statements .............................................seventeen Corporate Directory .................................................eighteen Shareholder Overview...............................................twenty Washington Trust Locations ...........................inside back cover As an independent financial services company, we will provide the highest value to our shareholders by: Delivering superior service to our customers, Providing financial and public service leadership in our communities, Fostering a well-trained and highly motivated staff. This report contains certain statements that may be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Corporation’s actual results, performance or achievements could differ materially from those projected in the forward- looking statements as a result, among other factors, of changes in general national or regional economic conditions, changes in interest rates, reductions in the market value of trust and investment assets under management, reductions in deposit levels necessitating increased borrowing to fund loans and investments, changes in the size and nature of the Corporation’s competition, changes in loan default and chargeoff rates and changes in the assumptions used in making such forward-looking statements. Washington Trust Bancorp, Inc. 2002 Annual Report Washington Trust Bancorp, Inc. 2002 Annual Report Our Vision: To Be The Best Community Bank And Trust Company In New England Our Mission: Contents Acquisition of Phoenix Investment Management – 2000 Acquisition of First Bank and Trust Company – 2002 Warwick Branch Opening – 2003 Washington Trust Founded – 1800 Acquisition of Pier Bank – 1999 23 Broad Street, Westerly, Rhode Island 02891 www.washtrust.com E m b r a c i n g O p p o r t u n i t i e s 2002 Financial Highlights...................................inside cover Corporate Highlights............................................inside cover Letter to Shareholders .................................................one New Markets ................................................................two Business Banking .......................................................four Phoenix Investment Management ............................eight Trust & Investment Services..................................nine Personal Banking ........................................................ten Consolidated Balance Sheets ....................................twelve Consolidated Statements of Income .......................thirteen Consolidated Statements of Changes in Shareholders’ Equity ..........................................fourteen Consolidated Statements of Cash Flows ...................fifteen Independent Auditors’ Report ..................................sixteen Management’s Responsibility for Financial Statements .............................................seventeen Corporate Directory .................................................eighteen Shareholder Overview...............................................twenty Washington Trust Locations ...........................inside back cover As an independent financial services company, we will provide the highest value to our shareholders by: Delivering superior service to our customers, Providing financial and public service leadership in our communities, Fostering a well-trained and highly motivated staff. This report contains certain statements that may be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Corporation’s actual results, performance or achievements could differ materially from those projected in the forward- looking statements as a result, among other factors, of changes in general national or regional economic conditions, changes in interest rates, reductions in the market value of trust and investment assets under management, reductions in deposit levels necessitating increased borrowing to fund loans and investments, changes in the size and nature of the Corporation’s competition, changes in loan default and chargeoff rates and changes in the assumptions used in making such forward-looking statements. Financial Highlights Corporate Highlights 2002 Annual Report Washington Trust Bancorp, Inc. 2002 Annual Report (Dollars in millions, except per share amounts) 2002 2001 2000 1999 1998 As of or for the years ended December 31, FINANCIAL RESULTS Net interest income Provision for loan losses Noninterest income Net income Net income – operating basis(1) PER SHARE INFORMATION Diluted earnings per share Diluted earnings per share – operating basis(1) Cash dividends declared Book value Market value – closing stock price FINANCIAL CONDITION Net loans Securities Total assets Total deposits Shareholders’ equity RATIOS (%) Return on average assets Return on average assets – operating basis(1) Return on average equity Return on average equity – operating basis(1) Nonperforming assets to total assets Allowance for loan losses to total loans $ $ 44.3 .4 23.3 16.8 17.2 1.30 1.33 .56 9.87 19.53 $ 779.6 795.8 1,745.7 1,110.5 128.7 1.07 1.09 14.25 14.60 .24 1.95 $ $ $ 39.4 .6 21.5 13.1 15.6 1.07 1.28 .52 8.15 19.00 592.1 629.1 1,362.2 816.9 97.9 1.01 1.20 13.86 16.54 .28 2.24 $ $ $ 37.9 1.2 19.7 13.2 13.9 1.09 1.15 .48 7.43 14.00 $ $ 35.6 1.8 18.8 12.5 12.8 1.03 1.06 .44 6.55 17.75 584.0 511.5 1,218.1 735.7 89.2 $ 536.7 446.8 1,105.6 660.8 78.2 1.14 1.20 16.14 16.98 .28 2.20 1.19 1.21 15.73 16.04 .35 2.25 $ $ $ 32.6 1.9 16.5 12.2 11.5 1.01 .95 .40 6.66 21.50 486.0 415.5 995.2 627.8 78.4 1.31 1.24 16.09 15.21 .61 2.21 (1) The following table presents a reconciliation of financial results presented in accordance with accounting principles generally accepted in the United States of America and operating basis results: Net income Nonoperating items, net of tax: Acquisition costs Litigation settlement, net of insurance recovery Pro-forma income taxes on pre-acquisition earnings of acquired company (2) Net gain on sale of credit card portfolio Total nonoperating items Net income - operating basis 2002 2001 2000 1999 1998 $ 16.8 $ 13.1 $ 13.2 $ 12.5 $ 12.2 .4 2.5 1.1 (.4) .4 17.2 $ 2.5 15.6 $ .7 13.9 $ $ 1.3 (.7) (.3) .3 12.8 (.7) (.7) 11.5 $ (2) Phoenix Investment Management Company, Inc. operated as a sub-S corporation prior to the June 26, 2000 acquisition. The acquisition was accounted for as a pooling of interests. Corporate Profile Washington Trust Bancorp, Inc. (the Corporation) is the publicly-owned holding company of The Washington Trust Company (the Bank), a Rhode Island-chartered bank founded in 1800. The Bank offers a broad range of services, including trust and investment management, through its branch offices in Rhode Island and southeastern Connecticut. At December 31, 2002, Washington Trust had 443 employees. Washington Trust has adopted an Affirmative Action Plan and is an Equal Opportunity Employer. The Bank is a member of the FDIC and an Equal Housing Lender. Corporate Offices Washington Trust Bancorp, Inc. 23 Broad Street Westerly, Rhode Island 02891-1868 401-348-1200 1-800-475-2265 Website: www.washtrust.com Market Leadership • $1.7 Billion in Total Assets • Oldest Community Bank in the Nation • Largest Independent Bank in Rhode Island • 16 Branches (including Warwick branch, scheduled to open in the spring of 2003) • 53% Deposit Share in Washington County, RI Balanced Earnings Stream Washington Trust understands the importance of having a balanced stream of earnings. Our success depends upon our ability to grow our core lines of business by providing competi- tively priced products, superior service and technology that supports our business needs. Key Performance Measures • 10 Consecutive Years of Dividend Increases • ROA Consistently Above 1% • Strong Asset Quality Strong Track Record Washington Trust is committed to enhancing shareholder value. We do this by meeting the needs of our customers, employees, shareholders and the communities we serve. Core Lines of Business • Business Banking • Asset Management • Trust Services • Personal Banking • Mortgage Banking 2002 Accomplishments • Completed Acquisition of First Bank and Trust • Set Record Mortgage Volume • Achieved Record Deposit Growth • Increased Commercial Loan Activity • Supported Hundreds of Local Nonprofits with Financial and Volunteer Support • Commenced Construction of Warwick Branch Location Market and Dividend Information Washington Trust Bancorp, Inc.’s common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market® under the symbol WASH. As of December 31, 2002, there were 2,214 shareholders of record. 2002 Quarters Stock prices: High Low Dividend declared 2001 Quarters Stock prices: High Low Dividend declared 1 2 3 4 $19.72 18.00 .14 $24.11 19.05 .14 $23.83 19.12 .14 $21.20 19.10 .14 1 2 3 4 $17.75 13.75 .13 $22.62 16.35 .13 $22.14 16.69 .13 $19.73 17.76 .13 Auditors: KPMG LLP, Providence, Rhode Island Counsel: Goodwin Procter LLP, Boston, Massachusetts Annual Meeting of Shareholders: Tuesday, April 29, 2003, 11:00 a.m., Westerly Public Library, 44 Broad Street, Westerly, Rhode Island 02891 Vote Your Proxy Online For your convenience, you can vote your shares online. Have your proxy card ready and go to the website http://www.eproxy.com/wash. You will be prompted to enter your control number located on your card. Then, follow the instructions to create and submit an electronic ballot. Total Assets $1,745.7 Net Loans $779.6 $995.2 $1,105.6 $1,218.1 $1,362.2 $486.0 $536.7 $584.0 $592.1 Total Deposits $1,110.5 $816.9 $627.8 $660.8 $735.7 Shareholders’ Equity $128.7 $97.9 $89.2 $78.4 $78.2 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 dollars in millions dollars in millions dollars in millions dollars in millions washington trust locations Rhode Island Offices WESTERLY Main Office 23 Broad Street, Westerly, RI 02891 401-348-1200 Franklin Street Office 126 Franklin Street, Westerly, RI 02891 401-348-1367 McQuade’s Marketplace 106 Main Street, Westerly, RI 02891 401-348-1201 RICHMOND Richmond Office 1200 Main Street, Wyoming, RI 02898 401-539-2427 BLOCK ISLAND Block Island Office Ocean Avenue, Block Island, RI 02807 401-466-7710 CHARLESTOWN Charlestown Office 4137 Old Post Road, Charlestown, RI 02813 401-364-4000 NARRAGANSETT Sweet Meadows Office 20 Point Judith Road, Narragansett, RI 02882 401-782-1000 Bonnet Shores Office 885 Boston Neck Road, Narragansett, RI 02882 401-782-4800 SOUTH KINGSTOWN Wakefield Office 730 Kingstown Road, Wakefield, RI 02879 401-782-4200 NORTH KINGSTOWN North Kingstown Office 7625 Post Road, North Kingstown, RI 02852 401-295-4700 PROVIDENCE Providence Office 180 Washington Street, Providence, RI 02903 401-421-3600 Providence Trust and Investment Services Office 66 South Main Street, Providence, RI 02903 401-861-8440 Phoenix Investment Management 68 South Main Street, Providence, RI 02903 401-331-6650 CRANSTON Cranston Office 645 Reservoir Avenue, Cranston, RI 02910 401-946-1004 WARWICK Warwick Office 236 Centerville Road, Warwick, RI 02886 401-739-2353 (Opening Spring 2003) Mystic Office Olde Mistick Village Mystic, CT 06355 860-536-1200 Connecticut Offices MYSTIC A&P Super Foodmart 179 Stonington Road Mystic, CT 06355 860-572-7100 McQuade’s Marketplace 14 Clara Drive Mystic, CT 06355 860-572-2058 Account Information Center 401-348-1200 or toll-free 1-800-475-2265 In Connecticut, call 860-443-1508 XPress Banking Bank by phone 24 hours a day, 7 days a week at 401-348-1399 or toll-free 1-800-226-5877 Online Banking Bank via the Internet 24 hours a day, 7 days a week at www.washtrust.com Website Current information available at www.washtrust.com Financial Highlights Corporate Highlights 2002 Annual Report Washington Trust Bancorp, Inc. 2002 Annual Report (Dollars in millions, except per share amounts) 2002 2001 2000 1999 1998 As of or for the years ended December 31, FINANCIAL RESULTS Net interest income Provision for loan losses Noninterest income Net income Net income – operating basis(1) PER SHARE INFORMATION Diluted earnings per share Diluted earnings per share – operating basis(1) Cash dividends declared Book value Market value – closing stock price FINANCIAL CONDITION Net loans Securities Total assets Total deposits Shareholders’ equity RATIOS (%) Return on average assets Return on average assets – operating basis(1) Return on average equity Return on average equity – operating basis(1) Nonperforming assets to total assets Allowance for loan losses to total loans $ $ 44.3 .4 23.3 16.8 17.2 1.30 1.33 .56 9.87 19.53 $ 779.6 795.8 1,745.7 1,110.5 128.7 1.07 1.09 14.25 14.60 .24 1.95 $ $ $ 39.4 .6 21.5 13.1 15.6 1.07 1.28 .52 8.15 19.00 592.1 629.1 1,362.2 816.9 97.9 1.01 1.20 13.86 16.54 .28 2.24 $ $ $ 37.9 1.2 19.7 13.2 13.9 1.09 1.15 .48 7.43 14.00 $ $ 35.6 1.8 18.8 12.5 12.8 1.03 1.06 .44 6.55 17.75 584.0 511.5 1,218.1 735.7 89.2 $ 536.7 446.8 1,105.6 660.8 78.2 1.14 1.20 16.14 16.98 .28 2.20 1.19 1.21 15.73 16.04 .35 2.25 $ $ $ 32.6 1.9 16.5 12.2 11.5 1.01 .95 .40 6.66 21.50 486.0 415.5 995.2 627.8 78.4 1.31 1.24 16.09 15.21 .61 2.21 (1) The following table presents a reconciliation of financial results presented in accordance with accounting principles generally accepted in the United States of America and operating basis results: Net income Nonoperating items, net of tax: Acquisition costs Litigation settlement, net of insurance recovery Pro-forma income taxes on pre-acquisition earnings of acquired company (2) Net gain on sale of credit card portfolio Total nonoperating items Net income - operating basis 2002 2001 2000 1999 1998 $ 16.8 $ 13.1 $ 13.2 $ 12.5 $ 12.2 .4 2.5 1.1 (.4) .4 17.2 $ 2.5 15.6 $ .7 13.9 $ $ 1.3 (.7) (.3) .3 12.8 (.7) (.7) 11.5 $ (2) Phoenix Investment Management Company, Inc. operated as a sub-S corporation prior to the June 26, 2000 acquisition. The acquisition was accounted for as a pooling of interests. Corporate Profile Washington Trust Bancorp, Inc. (the Corporation) is the publicly-owned holding company of The Washington Trust Company (the Bank), a Rhode Island-chartered bank founded in 1800. The Bank offers a broad range of services, including trust and investment management, through its branch offices in Rhode Island and southeastern Connecticut. At December 31, 2002, Washington Trust had 443 employees. Washington Trust has adopted an Affirmative Action Plan and is an Equal Opportunity Employer. The Bank is a member of the FDIC and an Equal Housing Lender. Corporate Offices Washington Trust Bancorp, Inc. 23 Broad Street Westerly, Rhode Island 02891-1868 401-348-1200 1-800-475-2265 Website: www.washtrust.com Market Leadership • $1.7 Billion in Total Assets • Oldest Community Bank in the Nation • Largest Independent Bank in Rhode Island • 16 Branches (including Warwick branch, scheduled to open in the spring of 2003) • 53% Deposit Share in Washington County, RI Balanced Earnings Stream Washington Trust understands the importance of having a balanced stream of earnings. Our success depends upon our ability to grow our core lines of business by providing competi- tively priced products, superior service and technology that supports our business needs. Key Performance Measures • 10 Consecutive Years of Dividend Increases • ROA Consistently Above 1% • Strong Asset Quality Strong Track Record Washington Trust is committed to enhancing shareholder value. We do this by meeting the needs of our customers, employees, shareholders and the communities we serve. Core Lines of Business • Business Banking • Asset Management • Trust Services • Personal Banking • Mortgage Banking 2002 Accomplishments • Completed Acquisition of First Bank and Trust • Set Record Mortgage Volume • Achieved Record Deposit Growth • Increased Commercial Loan Activity • Supported Hundreds of Local Nonprofits with Financial and Volunteer Support • Commenced Construction of Warwick Branch Location Market and Dividend Information Washington Trust Bancorp, Inc.’s common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market® under the symbol WASH. As of December 31, 2002, there were 2,214 shareholders of record. 2002 Quarters Stock prices: High Low Dividend declared 2001 Quarters Stock prices: High Low Dividend declared 1 2 3 4 $19.72 18.00 .14 $24.11 19.05 .14 $23.83 19.12 .14 $21.20 19.10 .14 1 2 3 4 $17.75 13.75 .13 $22.62 16.35 .13 $22.14 16.69 .13 $19.73 17.76 .13 Auditors: KPMG LLP, Providence, Rhode Island Counsel: Goodwin Procter LLP, Boston, Massachusetts Annual Meeting of Shareholders: Tuesday, April 29, 2003, 11:00 a.m., Westerly Public Library, 44 Broad Street, Westerly, Rhode Island 02891 Vote Your Proxy Online For your convenience, you can vote your shares online. Have your proxy card ready and go to the website http://www.eproxy.com/wash. You will be prompted to enter your control number located on your card. Then, follow the instructions to create and submit an electronic ballot. Total Assets $1,745.7 Net Loans $779.6 $995.2 $1,105.6 $1,218.1 $1,362.2 $486.0 $536.7 $584.0 $592.1 Total Deposits $1,110.5 $816.9 $627.8 $660.8 $735.7 Shareholders’ Equity $128.7 $97.9 $89.2 $78.4 $78.2 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 dollars in millions dollars in millions dollars in millions dollars in millions washington trust locations Rhode Island Offices WESTERLY Main Office 23 Broad Street, Westerly, RI 02891 401-348-1200 Franklin Street Office 126 Franklin Street, Westerly, RI 02891 401-348-1367 McQuade’s Marketplace 106 Main Street, Westerly, RI 02891 401-348-1201 RICHMOND Richmond Office 1200 Main Street, Wyoming, RI 02898 401-539-2427 BLOCK ISLAND Block Island Office Ocean Avenue, Block Island, RI 02807 401-466-7710 CHARLESTOWN Charlestown Office 4137 Old Post Road, Charlestown, RI 02813 401-364-4000 NARRAGANSETT Sweet Meadows Office 20 Point Judith Road, Narragansett, RI 02882 401-782-1000 Bonnet Shores Office 885 Boston Neck Road, Narragansett, RI 02882 401-782-4800 SOUTH KINGSTOWN Wakefield Office 730 Kingstown Road, Wakefield, RI 02879 401-782-4200 NORTH KINGSTOWN North Kingstown Office 7625 Post Road, North Kingstown, RI 02852 401-295-4700 PROVIDENCE Providence Office 180 Washington Street, Providence, RI 02903 401-421-3600 Providence Trust and Investment Services Office 66 South Main Street, Providence, RI 02903 401-861-8440 Phoenix Investment Management 68 South Main Street, Providence, RI 02903 401-331-6650 CRANSTON Cranston Office 645 Reservoir Avenue, Cranston, RI 02910 401-946-1004 WARWICK Warwick Office 236 Centerville Road, Warwick, RI 02886 401-739-2353 (Opening Spring 2003) Mystic Office Olde Mistick Village Mystic, CT 06355 860-536-1200 Connecticut Offices MYSTIC A&P Super Foodmart 179 Stonington Road Mystic, CT 06355 860-572-7100 McQuade’s Marketplace 14 Clara Drive Mystic, CT 06355 860-572-2058 Account Information Center 401-348-1200 or toll-free 1-800-475-2265 In Connecticut, call 860-443-1508 XPress Banking Bank by phone 24 hours a day, 7 days a week at 401-348-1399 or toll-free 1-800-226-5877 Online Banking Bank via the Internet 24 hours a day, 7 days a week at www.washtrust.com Website Current information available at www.washtrust.com Washington Trust Bancorp, Inc. 2002 Annual Report Letter to Shareholders ear Shareholders: The best way to describe the year 2002 is to say that it was a time when we embraced opportunities and met the challenges of a unique year. It was a year in which interest rates were at 40-year lows, the unstable geopolitical environment depressed both the economy and the financial markets, and the corporate world was often in turmoil. Yet, powered by the elements that comprise our community banking strategy – strong management, growth, market leadership, and a balanced earnings stream – we achieved record earnings. In April, we completed a significant strategic acquisition expanding our Rhode Island market area. We acquired First Financial Corp. (First Bank and Trust), with branches in key market locations, including Cranston and Providence, Rhode Island. That addition has already been a success. In late 2002, we broke ground for our sixteenth branch office located in Warwick, a major city in central Rhode Island. Scheduled to open in the spring of 2003, the 7,300+ square foot branch will house commercial lending, asset management, trust services, and mortgage banking specialists, as well as offering full-service retail banking services. The growth potential for us is important when you consider that the Providence and Kent County markets, where our new branches are located, have more than six times the number of households and businesses as the Washington County market. While we face a greater number of competitors in these areas, we enter them equipped with an excellent reputation for both service quality and banking expertise. Challenged by a difficult economy, all areas of the Bank worked to contribute to the bottom line in 2002. Our commercial lending area – already established as one of the top commercial lenders in Washington County – benefited from our First Bank and Trust acquisition by adding new clients and establishing a presence as a statewide lender. As a result, commercial loans now comprise almost fifty percent of our total loan portfolio. Phoenix Investment Management and our Trust and Investment Services area expanded their client bases and worked hard to preserve their clients’ wealth in the turbulent 2002 market. Both areas continue to serve as key contributors to noninterest income. Faced with a low interest rate environment, we aggressively pursued refinancing opportunities, the resale market and construction financing, booking a record number of mortgage loans in 2002. We also offered a competitive home equity line rate and saw exceptional growth in that line of business. As a result of the First Bank acquisition and strong advertising, we experienced terrific core deposit growth and exceeded $1 billion in deposits for the first time in the Corporation’s history. At our Annual Meeting on April 23, 2002, we bid a fond farewell to former Washington Trust Bancorp, Inc. Chairman and CEO Joseph J. Kirby, as he retired from the Board of Directors. Joe has spent 39 years with Washington Trust and will continue with us as a member of the Directors’ Advisory Council. At the Meeting last April, we also welcomed Patrick J. Shanahan, Jr., retired Chairman, President and CEO of the former First Financial Corp., as a new member of our Board of Directors. Pat has extensive experience in the banking industry and public company ownership and is a great addition to our board. For more than 200 years, Washington Trust has been guided by boards of directors and management teams who have served as leaders in their respective fields and in the local communities we serve. Our current Board is no different. In addition to Jack Treanor and myself, it includes 14 non-employee directors, each of whom brings a wealth of talent and diversity to our Corporation. We have always taken corporate governance seriously. Each of our major board committees is chaired by independent board members, including our Audit Committee which is composed solely of outside directors. In addition, for many years, the independent directors have chosen a Lead Director to chair the Board on any issues appropriately handled only by the independent directors. Your Corporation matters to us. The financial results posted on these pages reflect our commitment to the vision to be the Best Community Bank and Trust Company in New England. We continue our progress toward fulfillment of that vision and accomplishment of our mission, which is to provide our shareholders with the highest possible value. We thank you for your ongoing support and look forward to continuing our relationship with you in the years to come. Sincerely, John C. Warren Chairman and Chief Executive Officer John F. Treanor President and Chief Operating Officer one New Markets he year 2002 was full of opportunities – opportunities to grow our market area, to meet and exceed our customers’ expectations, and to deepen our roots in the communities we serve. For 202 years, Washington Trust’s primary market area has been Washington County and southeastern Connecticut. Our expansion into Providence and Kent Location, location, location. This familiar axiom for business success proved true for Washington Trust in 2002, when the acquisition of First Bank and Trust provided the Bank with a firm new foothold in central Rhode Island and Providence. a full range of new products and services at their disposal, including mortgages and home equity loans, trust and investment services, and merchant services. In addition, they appreciated the conveniences of an expanded ATM network and online banking services for personal and business accounts. Our new First Bank customers enjoyed a seamless transition to Washington Trust, and as a result, we retained virtually every customer. We accomplished this by The “Welcome to Washington Trust” brochure for former First Bank customers included 25 pages of comprehensive information on all Washington Trust products, easy-to-read grids for account comparison, and coupons for discounts on banking services. Counties significantly increases our The spring 2002 addition of the First allowing those customers to keep their market area. Bank branches in Cranston and Providence account numbers and checks, making the and the consolidation of the First Bank changeover hassle-free from their perspective. branches in North Kingstown and Richmond, Nor were there any noticeable personnel Rhode Island, generated some 5,000 new changes among the friendly faces that Washington Trust customers. greeted them on the teller line or in the Those new customers discovered customer service area. Washington Trust’s new location at the corner of Park and Reservoir Avenues in Cranston, Rhode Island benefits from being at the crossroads of one of the state’s busiest traffic intersections. two Washington Trust Bancorp, Inc. 2002 Annual Report financial support for nonprofit institutions and organizations such as Kent County Hospital, the Boys & Girls Clubs of Warwick and the Sargent Rehabilitation Center, as well as building relationships with groups such as the Central Rhode Island Chamber of Commerce. The addition of retail branches in Cranston, Providence and Warwick provides Washington Trust with locations within densely populated neighborhoods and In the fall of 2002, Washington Trust Chairman and CEO John C. Warren was joined by some two dozen dignitaries for a “vault signing” ceremony at the new branch. In his remarks, Mr. Warren encouraged everyone present to write something that might inspire thriving business districts that are key to the Bank’s future leaders, should the vault be uncovered and the signatures exposed when Washington Trust turns 300 years old in the year 2100. our future growth. To celebrate our expansion into With construction of the new branch Providence County, we embarked on a bank- well underway, Washington Trust has begun wide promotion of our relationship accounts. serving this new community. Members of The program helped to generate some $75 the Bank’s commercial lending, retail million in deposits, of which approximately banking, and trust and investment 80% were new to Washington Trust. management division have been Commonly known as the “Crossroads proactively reaching out to new of Rhode Island,” Kent County – and specifi- prospects, in anticipation of the cally the City of Warwick – is the dynamic, branch’s opening. We have extended burgeoning economic region that links our community outreach to the Washington County in the south to Warwick area by providing Providence County and other points north. It is precisely for these reasons that Washington Trust selected this spot in central Rhode Island as the home for its 16th branch location, to open in the spring of 2003. The acquisition of First Bank provided Washington Trust with a solid business banking portfolio, including Mediterraneo, a renowned Italian restaurant in the City of Providence. three Business Banking Already one of the leading commercial lenders in Washington County, Rhode Island and southeastern Connecticut, our expansion into central Rhode Island helped establish us as a statewide business bank. ey to unlocking growth opportunities means that Washington Trust is geographically in all aspects of business banking was our positioned to draw from a pool of 21,000 acquisition of First Bank and Trust and potential new business banking customers. resulting expansion into the Providence Our Commercial Lending area is suc- The department’s major accounts represent a and Cranston market areas. Those markets, ceeding in attracting new clients in this part cross-section of the state’s major industries, together with the Kent County market we of the state by providing multi-million dollar ranging from real estate and hospitality to will serve through our new Warwick branch, financing to some well-known businesses. manufacturing and biomedical technology. Washington Trust became a player in the redevelopment of historic downtown Providence in 2002 when we provided a commercial mortgage for Alice Group, LLC, owner of The Alice Building at 236-250 Westminster Street. Located just a few blocks from our Providence branch, the renovated building is now comprised of 38 loft-style apartments on its upper floors and retail space at street level. As financier for this project, Washington Trust joins a group of public and private entities that have invested a total of more than $1 billion to rejuvenate this historically significant section of Rhode Island’s capital city. four Washington Trust Bancorp, Inc. 2002 Annual Report Dominion Diagnostics, a biomedical technology company located near our North Kingstown branch in the Quonset- Davisville Port and Commerce Park, is an example of a business banking relationship that includes commercial loans and equipment leasing. And our relationship with the company doesn’t stop there – a number of their 60+ employees became personal banking customers by opening new personal accounts and obtaining mortgages. Our enhanced online business banking service makes it easy for our clients to manage their accounts right from their own computers. To best serve this growing and our online business banking service we made increasingly diverse client base, we made it possible for our customers to access cash additions and enhancements to our suite of management services over the Internet. business products and services. Through Other upgrades to this service include email alerts for account activity and enhancements to the online bill payment system. To ensure our customers’ understanding of the online banking system and its features, members of the Washington Trust staff began making personal visits to these companies to provide initial training, and follow up with toll-free telephone technical support. Recognizing that leasing can be a cost-effective way for our business clients to manage some of their finances, we promoted our equipment leasing program in 2002. The five Our equipment leasing program provides up to 100 percent financing – including ‘soft costs’ – on new and used equipment ranging from computers and software to medical/dental equipment, portable build- ings, office furniture, and security systems. Business Banking Venerable Westerly, R.I.-based coffee and pastry manufacturer/retailer Bess Eaton had an innovative idea: to be the first company of its kind to introduce the concept program is becoming popular with business owners who want to protect their cash flow of selling hot glazed doughnuts to its market area. To establish an important first and keep their lines of credit open; we are foothold, Bess Eaton designed a flagship store centered on a large bake shop, complete with a glassed-in viewing area where customers could watch the production process. To finance this new phase of Bess Eaton’s business, Washington Trust provided its long-time client with a commercial loan in 2002. Now, when the “heart” light comes on, passers-by know that the hot doughnuts are ready. making the process easier for them by offering rapid pre-approval on leasing lines of credit. To serve our customers who conduct business outside of the United States, we introduced a package of international trade services that are designed to help them to compete in the global marketplace. These include import and export letters of credit, documentary collection, international wire service, and foreign exchange services. Existing business products and services experienced growth in 2002 as well. Working in partnership with retail banking and commercial lending, our merchant services area added more than 150 new businesses to the list of Washington Trust customers who use our merchant credit card processing services. This new business helped us to realize gains in merchant processing revenues, spurring our plans to expand the merchant services product line in 2003. six Washington Trust Bancorp, Inc. 2002 Annual Report In 2002, Washington Trust financed long-time client Waterford Hotel Group’s newest project, a Courtyard by Marriott hotel in Warwick, R.I. The rapid growth of Rhode Island’s T.F. Green State Airport, coupled with the increasing popularity of the City of Providence as a convention and visitor destination, has created a growing need for hotel rooms and visitor amenities in the Greater Providence-Warwick area. Thanks to new changes in our investments, checking accounts, and trust to potential new clients, cross-selling our market area, we were able to embrace new and asset management. With the potential products and services, and brainstorming business opportunities in municipal services. for more new business in 2003, plans are new ideas, our professionals proved that Municipal governments and state agencies underway to expand the range of products teamwork turned the key that unlocked the from Westerly to East Providence have we provide to this specialized market. opportunities we enjoyed in business turned to us for services such as short-term By working together on sales calls banking in 2002. seven Phoenix Investment Management Phoenix Investment Management, acquired by Washington Trust in 2000, has been providing investment management services to individuals and institutions since 1988. During a period of very high market volatility, Phoenix proved once again that financial counsel is not about promises, but performance. Phoenix Investment espite a challenging investment Management’s equity composite, fixed income climate, our Phoenix Investment Management composite, and balanced fund composite division realized further growth. It was a year outperformed the leading market indices marked by strong performance results and and the mutual fund universe in their The Rhode Island Philharmonic Orchestra trusts its endowment to Phoenix Investment Management. The Orchestra provides critically acclaimed and accessible symphonic performances at Providence’s Veteran’s Memorial Auditorium and other venues throughout Rhode Island. Its affiliated Music School offers superior music education for children, adults and families. the division’s best year for new business, as respective categories in 2002, just as they the real value of clients’ capital and individual investors and organizations alike did in 2000 and 2001. generating adequate cash flow for their recognized the value of turning to seasoned Looking forward to 2003, Phoenix individual needs through intensive and money managers with proven track records. remains focused on preserving and increasing effective asset management. A new Phoenix Investment Management client, St. Elizabeth Community operates nursing homes in East Greenwich, Bristol and Providence, R.I. Phoenix manages St. Elizabeth’s employee pension fund and endowment. Here at the new East Greenwich facility, a client enjoys the company of a resident pet. St. Elizabeth’s is also renovating a building in Providence that will become an affordable assisted-living facility. eight Trust & Investment Services 2002 Annual Report With offices in Westerly, Narragansett and Providence, our Trust & Investment Services division is positioned to Services area supported the organization’s work by co-sponsoring a series of seminars that were aimed at educating the nonprofit community and their professional advisors provide professional, client-driven about issues in asset management and asset management, financial trust services. planning and fiduciary services to The division continues to offer clients throughout Rhode Island quality service by coordinating professional and southeastern Connecticut. advisors, fiduciary services and administrative support. We remain committed to a management philosophy that is focused on long-term results. n 2002, our Trust & Investment One good example is our expanded Services division succeeded in attracting relationship with the Rhode Island new clients. Both nonprofit organizations Foundation, a statewide foundation that and private investors increasingly turned to utilizes private philanthropy from a wide our financial experts, whose track records range of donors to meet the needs of the demonstrate that they can set long-term communities it serves. In addition to serving goals, create a plan to reach those goals, as one of the Rhode Island Foundation’s and measure their success. money managers, our Trust & Investment To meet the needs of an expanding client base, our Trust & Investment Services division embraced the opportunity to enhance client service. The division accomplished this by making operational improvements, such as upgrading software and technologies, augmenting employee training, and improving the Bank’s visibility in the nonprofit arena. In November of 2002, Washington Trust was the gold sponsor of the Rhode Island Foundation’s Women’s Forum, an event that introduced a comprehensive study of the status of women in Rhode Island to more than 400 of the state’s business, civic and political leaders. The Women’s Fund, whose mission is to advance equity and social justice for women and girls, is a field of interest fund at the Rhode Island Foundation. nine Personal Banking At Washington Trust we Key to our success was the yearlong know that, more than anything promotion of a low rate home equity line of else, helping people today means providing exceptional service backed by knowledge, experience and personal attention to detail. ith mortgage rates dipping to 40-year lows in 2002, Washington Trust’s retail lending department enjoyed a record year, doubling the projections set forth at the beginning of the year and exceeding the record set in 2001 by nearly one-third. As we entered the traditionally busy late spring and summer months, we successfully introduced our mortgage and home equity line products in our new markets in the greater Providence area and central Rhode Island. While home equity loan/line business was burgeoning through- out our market area, an important portion of that business can be attributed to our new presence in the cities of Providence and Cranston, R.I. ten credit. As a result, our home equity lines increased by 44% over 2001. Washington Trust’s core deposits set a new record, exceeding $1 billion, thanks in part to the acquisition of First Bank and Trust. A bank-wide marketing campaign, launched to promote our new presence in Providence and Cranston, stimulated new business throughout our market area and attracted additional dollars from both new and existing customers. The Bank’s website, www.washtrust.com, took on a new look and feel in 2002, aimed at improving navigation and offering online loan applications. The site’s new Financial Resources section includes articles on subjects pertaining to personal banking, business banking, trust services, and investment services. It also includes a short Housing additions and home improvements were popular with our customers in 2002, as they took advantage of historically low interest rates and skyrocketing home values to refinance or obtain home equity loans and lines of credit. Washington Trust Bancorp, Inc. 2002 Annual Report refinance with us and the rest is on the house Get great rates and the benefits of Freedom PlusSM checking. All the extras are on us – free ATMs, free checks, free online banking and bill pay, and a debit card with travel and merchandise rewards. Plus the personalized service that’s been our hallmark for more than 200 years. Apply at any branch or call 401-348-1200 or 1-800-475-2265 anytime. Mortgage experts on site Wednesdays till 8 p.m. in Cranston, North Kingstown and Narragansett. 15 Year Fixed Rate* Interest Rate 5.250% 5.631% Annual Percentage Rate 30 Year Fixed Rate** Interest Rate 5.750% 5.980% Annual Percentage Rate events, and provided volunteer leadership and other support for organizations ranging from health and human services to youth and family issues, to arts and cultural organizations. Looking forward to 2003, we will continue to embrace opportunities, develop new relationships and partnerships, and provide support to the communities we serve. We remain committed to our core values of quality, integrity and community, and to the fulfillment of our vision, “To Be The Best Community Bank & Trust Company in New England.” To take advantage of the “hot” mortgage market, Washington Trust ran a print campaign to advertise our low interest rates and our combination of superior products and excellent customer service. w w w . w a s h t r u s t . c o m Rate effective as of 9/5/02. *A loan of $150,000 will result in 180 monthly payments of $1,205.82 each with 2 points and 20% downpayment. **A loan of $150,000 will result in 360 monthly payments of $875.36 each with 2 points and 20% downpayment. Rates may change without notice. Please call 401-348-1200 or 1-800-475-2265 for current rates. Loans subject to credit approval. Freedom Plus checking requires a $5,000 combined relationship (includes deposits, loans, and trust & investments). Other banks may charge for ATM use. Free checks are Freedom wallet style. See a Customer Service Representative for details. questionnaire that helps visitors determine which accounts are best for them. As a community bank, part of our mission is to provide financial and public leadership in the communities we serve. During 2002, the Bank provided corporate sponsorship and support to hundreds of organizations located throughout Rhode Island and southeastern Connecticut. Our employees raised money and awareness through participation in walkathons, Each year, Washington Trust sponsors numerous youth athletic teams. In 2002, we presented our local Little League teams with tickets to Washington Trust Night at the AAA Pawtucket Red Sox, featuring the annual Independence housing builds, dress down days and similar Day fireworks display. eleven Financial Statements Consolidated Balance Sheets December 31, (Dollars in thousands) ASSETS: Cash and due from banks Federal funds sold and other short-term investments Mortgage loans held for sale Securities: Available for sale, at fair value Held to maturity, at cost; fair value $250,446 in 2002 and $177,595 in 2001 Total securities Federal Home Loan Bank stock, at cost Loans Less allowance for loan losses Net loans Premises and equipment, net Accrued interest receivable Goodwill and other intangibles Other assets Total assets LIABILITIES: Deposits: Demand Savings Time Total deposits Dividends payable Federal Home Loan Bank advances Other borrowings Accrued expenses and other liabilities Total liabilities Commitments and contingencies SHAREHOLDERS’ EQUITY: Common stock of $.0625 par value; authorized 30 million shares in 2002 and 2001; issued 13,086,795 shares in 2002 and 12,065,283 in 2001 Paid-in capital Retained earnings Unamortized employee restricted stock Accumulated other comprehensive income Treasury stock, at cost; 44,361 shares in 2002 and 54,102 shares in 2001 Total shareholders’ equity 2002 2001 $39,298 11,750 4,566 553,556 242,277 795,833 24,582 795,126 15,487 779,639 24,415 7,773 25,260 32,545 $30,399 20,500 7,710 453,956 175,105 629,061 23,491 605,645 13,593 592,052 22,102 7,124 669 29,121 $1,745,661 $1,362,229 $157,539 471,354 481,600 1,110,493 1,825 480,080 9,183 15,359 1,616,940 818 28,767 90,717 (24) 9,294 (851) 128,721 $134,783 316,953 365,140 816,876 1,569 431,490 2,087 12,270 1,264,292 754 10,696 81,114 – 6,416 (1,043) 97,937 Total liabilities and shareholders’ equity $1,745,661 $1,362,229 Refer to Washington Trust Bancorp, Inc.’s 2002 Annual Report on Form 10-K for a complete set of consolidated financial statements. twelve Washington Trust Bancorp, Inc. and Subsidiary 2002 Annual Report Consolidated statements of income Years ended December 31, (Dollars in thousands, except per share amounts) Interest income: Interest and fees on loans Interest on securities Dividends on corporate stock and Federal Home Loan Bank stock Interest on federal funds sold and other short-term investments Total interest income Interest expense: Savings deposits Time deposits Federal Home Loan Bank advances Other Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Noninterest income: Trust and investment management Service charges on deposit accounts Merchant processing fees Net gains on loan sales Income from bank-owned life insurance Net realized gains on securities Other income Total noninterest income Noninterest expense: Salaries and employee benefits Net occupancy Equipment Merchant processing costs Legal, audit and professional fees Advertising and promotion Outsourced services Amortization of intangibles Acquisition related expenses Litigation settlement cost, net of insurance recovery Other Total noninterest expense Income before income taxes Income tax expense Net income Weighted average shares outstanding – basic Weighted average shares outstanding – diluted Per share information: Basic earnings per share Diluted earnings per share Cash dividends declared per share 2002 2001 2000 $49,576 35,571 1,973 219 87,339 $50,618 33,988 2,327 594 87,527 $49,423 32,068 2,771 837 85,099 5,598 16,776 20,596 87 43,057 44,282 400 43,882 10,171 3,787 3,002 2,884 1,155 678 1,581 23,258 23,793 2,694 3,333 2,391 1,893 1,180 1,077 651 605 – 5,373 42,990 24,150 7,393 5,127 18,866 24,068 99 48,160 39,367 550 38,817 10,408 3,514 2,642 2,058 1,134 348 1,381 21,485 20,845 2,632 3,375 2,124 1,336 1,237 975 129 – 3,625 5,375 41,653 18,649 5,541 4,383 19,841 22,886 121 47,231 37,868 1,150 36,718 10,544 3,297 2,144 585 1,047 760 1,335 19,712 19,750 2,601 3,592 1,707 1,883 1,196 776 129 1,035 – 4,879 37,548 18,882 5,673 $16,757 12,737.3 12,932.4 $1.32 $1.30 $.56 $13,108 $13,209 12,039.2 12,202.5 $1.09 $1.07 $.52 11,976.9 12,102.6 $1.10 $1.09 $.48 Refer to Washington Trust Bancorp, Inc.’s 2002 Annual Report on Form 10-K for a complete set of consolidated financial statements. thirteen Financial Statements Consolidated statements of changes in shareholders’ equity (Dollars in thousands) Balance at January 1, 2000 Net income Other comprehensive income, net of tax: Unrealized gains on securities, net of $1,919 income tax expense Reclassification adjustment Comprehensive income Cash dividends declared Shares issued Balance at December 31, 2000 Net income Cumulative effect of change in accounting principle, net of tax Other comprehensive income, net of tax: Unrealized gains on securities, net of $1,499 income tax expense Reclassification adjustments Comprehensive income Cash dividends declared Shares issued Shares repurchased Balance at December 31, 2001 Net income Other comprehensive income, net of tax: Unrealized gains on securities, net of $1,629 income tax expense Reclassification adjustments Comprehensive income Cash dividends declared Issuance of employee restricted stock Amortization of employee restricted stock Shares issued Shares issued for acquisition Shares repurchased Balance at December 31, 2002 Common Paid-in Retained Earnings Capital Stock $745 $9,927 $67,686 13,209 Unamortized Accumulated Employee Restricted Comprehensive Income (Loss) Other Stock Treasury Stock Total $ – $(191) $ – 4,712 (494) 5 $750 (6,630) 217 $10,144 $74,265 $ – $4,027 $ – 13,108 (391) 3,000 (220) 4 552 (6,259) $754 $10,696 $81,114 $ – $6,416 16,757 17 (1,060) $(1,043) $78,167 13,209 4,712 (494) 17,427 (6,630) 222 $89,186 13,108 (391) 3,000 (220) 15,497 ( 6,259) 573 (1,060) $97,937 16,757 3,310 (432) (7,154) 1 (25) 1 (185) 18,255 64 $818 $28,767 $90,717 $(24) $ 9,294 24 3,310 (432) 19,635 (7,154) – 1 519 18,319 (536) $(851) $128,721 (536) 704 DISCLOSURE OF RECLASSIFICATION AMOUNT: Years ended December 31, Reclassification adjustment for net gains included in net income Income tax effect on net gains Reclassification adjustment for amortization of unrealized loss on interest rate floor contract included in net income Income tax effect on interest rate floor contract amortization Net reclassification adjustments 2002 2001 2000 $(678) 237 13 (4) $(432) $(348) 122 10 (4) $(220) $(760) 266 – – $(494) Refer to Washington Trust Bancorp, Inc.’s 2002 Annual Report on Form 10-K for a complete set of consolidated financial statements. fourteen Washington Trust Bancorp, Inc. and Subsidiary 2002 Annual Report Consolidated statements of cash flows Years ended December 31, (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses Depreciation of premises and equipment Amortization of premium in excess of (less than) accretion of discount on debt securities Deferred income tax benefit Increase in bank-owned life insurance cash surrender value Depreciation (appreciation) of derivative instruments Net amortization of intangibles Net realized gains on securities Net gains on loan sales Proceeds from sales of loans Loans originated for sale (Increase) decrease in accrued interest receivable (Increase) decrease in other assets (Decrease) increase in accrued expenses and other liabilities Other, net 2002 2001 2000 $16,757 $13,108 $13,209 400 2,988 1,983 (1,262) (1,155) 384 510 (678) (2,647) 126,382 (120,587) (175) (1,981) (733) 248 550 3,036 489 (644) (1,134) (712) 129 (348) (1,686) 98,198 (102,583) 676 (930) 807 517 Net cash provided by operating activities 20,434 9,473 CASH FLOWS FROM INVESTING ACTIVITIES: Securities available for sale: Purchases Proceeds from sales Maturities and principal repayments Securities held to maturity: Purchases Maturities and principal repayments Purchases of Federal Home Loan Bank stock Principal collected on loans (under) over loan originations Purchases of loans Proceeds from sales of other real estate owned Purchases of premises and equipment Proceeds from sale of premises and equipment Cash acquired, net of payment made for acquisition (307,083) 29,964 187,549 (152,157) 84,447 – (12,507) (62,433) 61 (3,400) 638 34,506 (160,774) 238 140,145 (131,570) 37,841 (3,933) 6,394 (15,151) 151 (3,416) – – Net cash used in investing activities (200,415) (130,075) (110,347) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits Net increase (decrease) in other borrowings Proceeds from Federal Home Loan Bank advances Repayment of Federal Home Loan Bank advances Purchase of treasury stock Net effect of common stock transactions Cash dividends paid 156,420 4,242 717,200 (690,695) (536) 397 (6,898) 81,192 (1,140) 1,217,000 (1,162,872) (670) 266 (6,135) Net cash provided by financing activities 180,130 127,641 Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 149 50,899 $51,048 fifteen 7,039 43,860 $50,899 $43,860 (continued) 1,150 3,323 (149) (681) (1,047) – 129 (760) (322) 23,769 (23,437) (1,790) 186 2,857 1,075 17,512 (128,227) 40,288 38,507 (22,745) 14,235 (1,931) (48,756) – 95 (1,813) – – 74,931 (982) 404,500 (379,686) – (201) (6,387) 92,175 (660) 44,520 Financial Statements Consolidated statements of cash flows Years ended December 31, (Dollars in thousands) NONCASH INVESTING AND FINANCING ACTIVITIES: Net transfers from loans to other real estate owned Loans charged off Loans made to facilitate the sale of other real estate owned Increase in unrealized gain on securities available for sale, net of tax Increase in paid-in capital resulting from tax benefits on stock option exercises In conjunction with the April 16, 2002 acquisition of First Financial Corp., assets were acquired and liabilities were assumed as follows: Fair value of assets acquired Less liabilities assumed 2002 2001 2000 $84 497 – 2,878 123 $187 433 – 2,389 307 $109 683 60 4,218 423 $204,762 166,708 SUPPLEMENTAL DISCLOSURES: Interest payments Income tax payments $42,955 8,607 $48,859 5,632 $45,970 5,838 Refer to Washington Trust Bancorp, Inc.’s 2002 Annual Report on Form 10-K for a complete set of consolidated financial statements. independent auditors’ report We have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheets of Washington Trust Bancorp, Inc. and subsidiary as of December 31, 2002 and 2001 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2002 (not presented herein); and in our report dated January 14, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Providence, Rhode Island January 14, 2003 sixteen Washington Trust Bancorp, Inc. and Subsidiary 2002 Annual Report Management’s Responsibility for Financial Statements Scope of Responsibility – Management prepares the accompanying financial statements and related information and is responsible for their integrity and objectivity. The statements were prepared in conformity with accounting principles generally accepted in the United States of America. These financial statements include amounts that are based on management's estimates and judgments. We believe that these statements present fairly the Corporation's financial position and results of operations and that the other information contained in the Annual Report is consistent with the financial statements. Internal Controls – We maintain and rely on systems of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized and recorded. We continually monitor these internal accounting controls, modifying and improving them as business conditions and operations change. Our internal audit department also independently reviews and evaluates these controls. We recognize the inherent limitations in all internal control systems and believe that our systems provide an appropriate balance between the costs and benefits desired. We believe our systems of internal accounting controls provide reasonable assurance that errors or irregularities that would be material to the financial statements are prevented or detected in the normal course of business. Independent Auditors – Our independent auditors, KPMG LLP, have audited the consolidated financial statements. Their audit was conducted in accordance with auditing standards generally accepted in the United States of America, which includes the consideration of our internal controls to the extent necessary to form an independent opinion on the consolidated financial statements prepared by management. Audit Committee – The audit committee of the board of directors, composed solely of outside directors, assists the board of direc- tors in overseeing management's discharge of its financial reporting responsibilities. The committee meets with management, our director of internal audit and representatives of KPMG LLP to discuss significant changes to financial reporting principles and policies and internal controls and procedures proposed or contemplated by management, our internal auditors or KPMG LLP. Additionally, the committee assists the board of directors in the selection, evaluation and, if applicable, replacement of our independent auditors; and in the evaluation of the independence of the independent auditors. Both internal audit and KPMG LLP have access to the audit committee without management's presence. Code of Ethics – We recognize our responsibility for maintaining a strong ethical climate. This responsibility is addressed in the company's written code of ethics. John C. Warren Chairman and Chief Executive Officer David V. Devault Executive Vice President, Treasurer and Chief Financial Officer seventeen Corporate Directory washington trust bancorp, inc. Board of Directors Alcino G. Almeida, Retired Executive Vice President and General Manager The Day Publishing Company Gary P. Bennett, Retired Chairman and Chief Executive Officer Analysis and Technology, Inc. Steven J. Crandall, Vice President Ashaway Line and Twine Manufacturing Company Richard A. Grills, Consultant Bradford Dyeing Association, Inc. Larry J. Hirsch, Retired President Westerly Jewelry Co. Katherine W. Hoxsie, CPA, Vice President Hoxsie Buick-Pontiac-GMC Truck, Inc. Mary E. Kennard, Vice President and University Counsel The American University Edward M. Mazze, Ph.D., Dean, College of Business Administration University of Rhode Island Victor J. Orsinger, II, Partner Orsinger and Nardone, Attorneys at Law H. Douglas Randall, III, President H.D. Randall, Realtors Joyce Olson Resnikoff, Chief Executive Officer Olde Mistick Village Patrick J. Shanahan, Jr., Retired Chairman, President and Chief Executive Officer First Financial Corp. James P. Sullivan, CPA, Retired Finance Officer Roman Catholic Diocese of Providence Neil H. Thorp, President Thorp and Trainer, Inc. John F. Treanor, President and Chief Operating Officer Washington Trust Bancorp, Inc. John C. Warren, Chairman and Chief Executive Officer Washington Trust Bancorp, Inc. Officers of the Corporation John C. Warren, Chairman and Chief Executive Officer John. F. Treanor, President and Chief Operating Officer David V. Devault, Executive Vice President, Treasurer and Chief Financial Officer Harvey C. Perry, II, Senior Vice President and Secretary The Washington Trust Company Directors’ Advisory Council William Atherton Charles M. Baker, Jr. Charles C. Buffum David Curtis Joseph J. Kirby Jacques de Laporte James W. McCormick, Jr. Thomas F. Moore Brendan P. O’Donnell Arthur Perry Joseph H. Potter Joseph E. Pucci Anthony J. Rose, Jr. John F. Sullivan James D. Thornton William Blunt White eighteen Washington Trust Bancorp, Inc. 2002 Annual Report SENIOR MANAGEMENT OF THE WASHINGTON TRUST COMPANY John C. Warren, Chairman and Chief Executive Officer John F. Treanor, President and Chief Operating Officer Financial Administration David V. Devault, Executive Vice President, Secretary, Treasurer and Chief Financial Officer Mark K.W. Gim, Senior Vice President, Financial Planning and Asset Liability Management Commercial Lending James M. Vesey, Senior Vice President and Chief Credit Officer Louis J. Luzzi, Senior Vice President, Commercial Lending Julia Anne Slom, Senior Vice President, Commercial Real Estate Group Compliance Dennis L. Algiere, Senior Vice President, Compliance and Community Affairs Credit Administration William D. Gibson, Senior Vice President, Credit Administration Human Resources Vernon F. Bliven, Senior Vice President, Human Resources Marketing Elizabeth B. Eckel, Senior Vice President, Marketing Non-Profit Resources Harvey C. Perry, II, Senior Vice President, Director of Non-Profit Resources Operations and Technology Barbara J. Perino, CPA, Senior Vice President, Operations and Technology Retail Banking B. Michael Rauh, Jr., Senior Vice President, Retail Banking Joseph E. LaPlume, Senior Vice President, Business Services Carl M. Amaral, Senior Vice President and Regional Manager Russell W. Hahn, Senior Vice President and Regional Manager Retail Lending Stephen M. Bessette, Senior Vice President, Retail Lending Philip L. Friend, Senior Vice President, Retail Lending Trust & Investment Services Rogean B. Makowski, Senior Vice President, Trust Officer Mary M. McGoldrick, Senior Vice President and Chief Investment Officer Phoenix Investment Management Gerald J. Fogarty, Jr., Managing Director, Phoenix Investment Management Marie J. Langlois, Managing Director, Phoenix Investment Management nineteen Shareholder Overview shareholder information Stock Transfer and Dividend Disbursing Agent Mellon Investor Services, our stock transfer and dividend disbursing agent, is responsible for our shareholder records, issuance of stock certificates, distribution of our dividend checks, and IRS Form 1099. You may contact Mellon for assistance with changing your address, transferring a stock certificate, or replacing a lost, stolen or destroyed stock certificate. You may also use one of these methods to obtain information and access your shareholder records: By Telephone: Call the Shareholder Information Line toll-free, 1-800-852-0354. After listening to the menu of options for tax information, you will be cued to press 2 for the Main Menu. From here you may select from the following options: Press to: 1 • Access tax information • Report a change of address • Obtain a W-9 form • Request stock transfer instructions • Obtain enrollment material ABC Press to: 2 • Access account share balance • Obtain your Dividend Reinvestment Plan (DRIP) option status • Obtain information on the status of a dividend check • Request a duplicate plan statement DEF Press to: 3 • Learn the current share price and dividend • Obtain other information from a customer services representative. To speak with a customer service representative, press 1 for other information. You’ll then be directed to press 4. The voice prompt will ask you to punch in your social security number. The system will give you some basic information about your account, and will then automatically direct your call to a customer service representative. On the Internet: Go to the secure Investor Direct site, https://vault.melloninvestor.com/isd. To access your account information, type in your Social Security Number and 4-digit PIN. If you are enrolling for the first time, click the “Establish PIN” button and follow the prompts to select a 4-digit numeric PIN. This will bring you to your personal account status page, where you will be able to perform these account management functions: • Change your primary address • Check your Dividend Reinvestment Plan (DRIP) selection • Obtain a duplicate Form 1099 • View your total number of shares • Download Form W9, Stock Power and other forms • Request online support Via U.S. Mail To transfer a stock certificate, or replace a lost, stolen or destroyed stock certificate, you must submit a request in writing to Mellon Investor Services. To submit your request via registered or overnight mail, send the information to Mellon Investor Services Corporate Office, 85 Challenger Road, Ridgefield Park, NJ 07660. Requests submitted by regular mail delivery should be sent to Mellon Investor Services, PO Box 3315, South Hackensack, NJ 07606-1915. Dividend Reinvestment The Corporation’s Dividend Reinvestment (DRIP) and Stock Purchase Plan enables shareholders to reinvest their quarterly dividends in Washington Trust shares. Plan members are also permitted to make optional cash purchases of common stock up to $10,000 each quarter. Information about the Plan is available on request by contacting Mellon Investor toll-free, 1-800-852-0354, via the Internet at https://vault.melloninvestor.com/isd, or by writing to the Mellon Investor Direct Services Corporate Office at 85 Challenger Road, Ridgefield Park, NJ 07660. Investor Information Copies of our most recent annual or quarterly reports and a copy of our 2002 Annual Report on Form 10-K are available at no charge by contacting Elizabeth B. Eckel, Senior Vice President, Marketing, at 401-348-1309 or 1-800-475-2265. You may write to Ms. Eckel at the Bank’s Corporate Office, 23 Broad Street, Westerly, RI 02891. The annual report is also available on our website, www.washtrust.com. twenty Financial Highlights Corporate Highlights 2002 Annual Report Washington Trust Bancorp, Inc. 2002 Annual Report (Dollars in millions, except per share amounts) 2002 2001 2000 1999 1998 As of or for the years ended December 31, FINANCIAL RESULTS Net interest income Provision for loan losses Noninterest income Net income Net income – operating basis(1) PER SHARE INFORMATION Diluted earnings per share Diluted earnings per share – operating basis(1) Cash dividends declared Book value Market value – closing stock price FINANCIAL CONDITION Net loans Securities Total assets Total deposits Shareholders’ equity RATIOS (%) Return on average assets Return on average assets – operating basis(1) Return on average equity Return on average equity – operating basis(1) Nonperforming assets to total assets Allowance for loan losses to total loans $ $ 44.3 .4 23.3 16.8 17.2 1.30 1.33 .56 9.87 19.53 $ 779.6 795.8 1,745.7 1,110.5 128.7 1.07 1.09 14.25 14.60 .24 1.95 $ $ $ 39.4 .6 21.5 13.1 15.6 1.07 1.28 .52 8.15 19.00 592.1 629.1 1,362.2 816.9 97.9 1.01 1.20 13.86 16.54 .28 2.24 $ $ $ 37.9 1.2 19.7 13.2 13.9 1.09 1.15 .48 7.43 14.00 $ $ 35.6 1.8 18.8 12.5 12.8 1.03 1.06 .44 6.55 17.75 584.0 511.5 1,218.1 735.7 89.2 $ 536.7 446.8 1,105.6 660.8 78.2 1.14 1.20 16.14 16.98 .28 2.20 1.19 1.21 15.73 16.04 .35 2.25 $ $ $ 32.6 1.9 16.5 12.2 11.5 1.01 .95 .40 6.66 21.50 486.0 415.5 995.2 627.8 78.4 1.31 1.24 16.09 15.21 .61 2.21 (1) The following table presents a reconciliation of financial results presented in accordance with accounting principles generally accepted in the United States of America and operating basis results: Net income Nonoperating items, net of tax: Acquisition costs Litigation settlement, net of insurance recovery Pro-forma income taxes on pre-acquisition earnings of acquired company (2) Net gain on sale of credit card portfolio Total nonoperating items Net income - operating basis 2002 2001 2000 1999 1998 $ 16.8 $ 13.1 $ 13.2 $ 12.5 $ 12.2 .4 2.5 1.1 (.4) .4 17.2 $ 2.5 15.6 $ .7 13.9 $ $ 1.3 (.7) (.3) .3 12.8 (.7) (.7) 11.5 $ (2) Phoenix Investment Management Company, Inc. operated as a sub-S corporation prior to the June 26, 2000 acquisition. The acquisition was accounted for as a pooling of interests. Corporate Profile Washington Trust Bancorp, Inc. (the Corporation) is the publicly-owned holding company of The Washington Trust Company (the Bank), a Rhode Island-chartered bank founded in 1800. The Bank offers a broad range of services, including trust and investment management, through its branch offices in Rhode Island and southeastern Connecticut. At December 31, 2002, Washington Trust had 443 employees. Washington Trust has adopted an Affirmative Action Plan and is an Equal Opportunity Employer. The Bank is a member of the FDIC and an Equal Housing Lender. Corporate Offices Washington Trust Bancorp, Inc. 23 Broad Street Westerly, Rhode Island 02891-1868 401-348-1200 1-800-475-2265 Website: www.washtrust.com Market Leadership • $1.7 Billion in Total Assets • Oldest Community Bank in the Nation • Largest Independent Bank in Rhode Island • 16 Branches (including Warwick branch, scheduled to open in the spring of 2003) • 53% Deposit Share in Washington County, RI Balanced Earnings Stream Washington Trust understands the importance of having a balanced stream of earnings. Our success depends upon our ability to grow our core lines of business by providing competi- tively priced products, superior service and technology that supports our business needs. Key Performance Measures • 10 Consecutive Years of Dividend Increases • ROA Consistently Above 1% • Strong Asset Quality Strong Track Record Washington Trust is committed to enhancing shareholder value. We do this by meeting the needs of our customers, employees, shareholders and the communities we serve. Core Lines of Business • Business Banking • Asset Management • Trust Services • Personal Banking • Mortgage Banking 2002 Accomplishments • Completed Acquisition of First Bank and Trust • Set Record Mortgage Volume • Achieved Record Deposit Growth • Increased Commercial Loan Activity • Supported Hundreds of Local Nonprofits with Financial and Volunteer Support • Commenced Construction of Warwick Branch Location Market and Dividend Information Washington Trust Bancorp, Inc.’s common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market® under the symbol WASH. As of December 31, 2002, there were 2,214 shareholders of record. 2002 Quarters Stock prices: High Low Dividend declared 2001 Quarters Stock prices: High Low Dividend declared 1 2 3 4 $19.72 18.00 .14 $24.11 19.05 .14 $23.83 19.12 .14 $21.20 19.10 .14 1 2 3 4 $17.75 13.75 .13 $22.62 16.35 .13 $22.14 16.69 .13 $19.73 17.76 .13 Auditors: KPMG LLP, Providence, Rhode Island Counsel: Goodwin Procter LLP, Boston, Massachusetts Annual Meeting of Shareholders: Tuesday, April 29, 2003, 11:00 a.m., Westerly Public Library, 44 Broad Street, Westerly, Rhode Island 02891 Vote Your Proxy Online For your convenience, you can vote your shares online. Have your proxy card ready and go to the website http://www.eproxy.com/wash. You will be prompted to enter your control number located on your card. Then, follow the instructions to create and submit an electronic ballot. Total Assets $1,745.7 Net Loans $779.6 $995.2 $1,105.6 $1,218.1 $1,362.2 $486.0 $536.7 $584.0 $592.1 Total Deposits $1,110.5 $816.9 $627.8 $660.8 $735.7 Shareholders’ Equity $128.7 $97.9 $89.2 $78.4 $78.2 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 dollars in millions dollars in millions dollars in millions dollars in millions washington trust locations Rhode Island Offices WESTERLY Main Office 23 Broad Street, Westerly, RI 02891 401-348-1200 Franklin Street Office 126 Franklin Street, Westerly, RI 02891 401-348-1367 McQuade’s Marketplace 106 Main Street, Westerly, RI 02891 401-348-1201 RICHMOND Richmond Office 1200 Main Street, Wyoming, RI 02898 401-539-2427 BLOCK ISLAND Block Island Office Ocean Avenue, Block Island, RI 02807 401-466-7710 CHARLESTOWN Charlestown Office 4137 Old Post Road, Charlestown, RI 02813 401-364-4000 NARRAGANSETT Sweet Meadows Office 20 Point Judith Road, Narragansett, RI 02882 401-782-1000 Bonnet Shores Office 885 Boston Neck Road, Narragansett, RI 02882 401-782-4800 SOUTH KINGSTOWN Wakefield Office 730 Kingstown Road, Wakefield, RI 02879 401-782-4200 NORTH KINGSTOWN North Kingstown Office 7625 Post Road, North Kingstown, RI 02852 401-295-4700 PROVIDENCE Providence Office 180 Washington Street, Providence, RI 02903 401-421-3600 Providence Trust and Investment Services Office 66 South Main Street, Providence, RI 02903 401-861-8440 Phoenix Investment Management 68 South Main Street, Providence, RI 02903 401-331-6650 CRANSTON Cranston Office 645 Reservoir Avenue, Cranston, RI 02910 401-946-1004 WARWICK Warwick Office 236 Centerville Road, Warwick, RI 02886 401-739-2353 (Opening Spring 2003) Mystic Office Olde Mistick Village Mystic, CT 06355 860-536-1200 Connecticut Offices MYSTIC A&P Super Foodmart 179 Stonington Road Mystic, CT 06355 860-572-7100 McQuade’s Marketplace 14 Clara Drive Mystic, CT 06355 860-572-2058 Account Information Center 401-348-1200 or toll-free 1-800-475-2265 In Connecticut, call 860-443-1508 XPress Banking Bank by phone 24 hours a day, 7 days a week at 401-348-1399 or toll-free 1-800-226-5877 Online Banking Bank via the Internet 24 hours a day, 7 days a week at www.washtrust.com Website Current information available at www.washtrust.com Washington Trust Bancorp, Inc. 2002 Annual Report Washington Trust Bancorp, Inc. 2002 Annual Report Our Vision: To Be The Best Community Bank And Trust Company In New England Our Mission: Contents Acquisition of Phoenix Investment Management – 2000 Acquisition of First Bank and Trust Company – 2002 Warwick Branch Opening – 2003 Washington Trust Founded – 1800 Acquisition of Pier Bank – 1999 23 Broad Street, Westerly, Rhode Island 02891 www.washtrust.com E m b r a c i n g O p p o r t u n i t i e s 2002 Financial Highlights...................................inside cover Corporate Highlights............................................inside cover Letter to Shareholders .................................................one New Markets ................................................................two Business Banking .......................................................four Phoenix Investment Management ............................eight Trust & Investment Services..................................nine Personal Banking ........................................................ten Consolidated Balance Sheets ....................................twelve Consolidated Statements of Income .......................thirteen Consolidated Statements of Changes in Shareholders’ Equity ..........................................fourteen Consolidated Statements of Cash Flows ...................fifteen Independent Auditors’ Report ..................................sixteen Management’s Responsibility for Financial Statements .............................................seventeen Corporate Directory .................................................eighteen Shareholder Overview...............................................twenty Washington Trust Locations ...........................inside back cover As an independent financial services company, we will provide the highest value to our shareholders by: Delivering superior service to our customers, Providing financial and public service leadership in our communities, Fostering a well-trained and highly motivated staff. This report contains certain statements that may be considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Corporation’s actual results, performance or achievements could differ materially from those projected in the forward- looking statements as a result, among other factors, of changes in general national or regional economic conditions, changes in interest rates, reductions in the market value of trust and investment assets under management, reductions in deposit levels necessitating increased borrowing to fund loans and investments, changes in the size and nature of the Corporation’s competition, changes in loan default and chargeoff rates and changes in the assumptions used in making such forward-looking statements.