Washington Trust Bancorp
Annual Report 2004

Plain-text annual report

6405_wtrust_04_cover.qxd 3/15/05 7:31 PM Page 1 23 Broad Street, Westerly, RI 02891 www.washtrust.com 2004 Annual Report Washington Trust Bancorp, Inc. Corporate Profile Washington Trust Bancorp, Inc. (Washington Trust or the Bancorp) 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. Unless the context other- wise requires, the word “Corporation” herein refers to the Bancorp and the Bank. At December 31, 2004, the Bank had 442 employees. The Bank has adopted an Affirmative Action Plan and is an Equal Opportunity Employer. The Bank is also a member of the FDIC and an Equal Housing Lender. Market and Dividend Information Washington Trust’s common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market® under the symbol WASH. As of December 31, 2004, there were 2,170 shareholders of record. 2004 Quarters Stock prices: High Low Close Dividend declared 2003 Quarters Stock prices: High Low Close Dividend declared 1 2 3 4 $27.60 23.80 26.40 .17 $27.56 24.28 25.99 .17 $26.81 23.20 26.15 .17 $30.50 25.82 29.31 .17 1 2 3 4 $20.61 19.36 20.21 .15 $24.17 19.80 23.02 .15 $28.49 22.60 24.01 .16 $29.42 23.94 26.20 .16 Auditors: KPMG LLP, Providence, Rhode Island Counsel: Goodwin Procter LLP, Boston, Massachusetts 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 loan demand, reductions in deposit levels necessitating increased borrowing to fund loans and investments, changes in loan default and charge-off rates, changes in the size and nature of the Corporation’s competition, changes in legislation or regulation and accounting principles, policies and guidelines and changes in the assumptions used in making such forward-looking statements. Annual Meeting of Shareholders: Tuesday, April 26, 2005, 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.proxyvoting.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. W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T Contents Corporate Profile .........................inside front cover Letter to Shareholders ............................................2 2004 Financial Highlights........................................4 The Year In Highlights.............................................6 Consolidated Balance Sheets ................................18 Consolidated Statements of Income ....................19 Consolidated Statements of Changes in Shareholders’ Equity .........................................20 Report of Independent Registered Public Accounting Firm .........................................21 Shareholder Information ......................................21 Corporate Directory...............................................22 Washington Trust Locations..................................24 1 Letter to Shareholders W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T the best products, aggressively marketing our capabilities, and continuing to provide the excellent service we are known for. Our momentum reflects the success of that strategy. We are attracting new customers and deepening our relationship with existing ones, across all lines. Momentum, in part, is due to the Bank’s expansion into the Warwick, Cranston, and Providence markets, where we have gained significant traction. Taken together, deposits in these branches were up 41% in 2004, with Warwick reaching $61 million after only 20 months of operation. The growth of our geographic franchise in the last five years has been timely, especially given the Fleet/Bank of America merger within our market area. It has enabled us to emerge as Rhode Island’s banking institution of choice. People want to do business with us. The Bank’s total retail deposits grew 18% in 2004, fueled by a free checking account packed with value added features, including free online banking and bill pay. We also made it easier for our customers to do business with us, with significant expansion of our ATM network through a partnership with Brooks Pharmacy. We posted striking numbers in consumer lending, as well, growing our loan business by 40% over 2003. Our home equity products were the major Washington Trust’s performance in 2004 reflects a company with significant momentum, as the theme for this year’s report suggests. At $20.8 million, net income was up 10% for the year. We posted solid returns for our shareholders throughout the year, and declared cash dividends totaling 68 cents per share. The market value of our common stock rose 12% during 2004. What’s more, we were pleased to increase our dividend for the twelfth consecutive year. As impressive as our 2004 figures are, they only tell part of the story. When you look at the Bank’s progress over the last five years, you get an even better sense of the momentum your Corporation has generated. At the end of 1999, total assets for the company were $1.1 billion; at the close of 2004, they stood at $2.3 billion. Deposits were $661 million five years ago; they now exceed $1.4 billion. Loans have grown to $1.2 billion, from $549 million. In 1999, trust and investment management revenues totaled $9.3 million; in 2004 they totaled $13 million. Clearly, Washington Trust is a company on the move. We have committed ourselves to developing drivers. Armed with the lowest rate in the market, responsibility for the documentation and testing we mounted a strong, ongoing marketing and of internal controls over financial reporting. sales effort. Homeowners took advantage of the terrific offer. Looking ahead in 2005, we are confident that the Bank can build on the momentum it currently Our commercial lending team had a banner year, enjoys. As we begin the new year, economic with loans up 24% for the year. Almost a quarter indicators are good, and all of our lines of business of that volume came from commercial real estate are well positioned. The continued commitment activity, where we continue to pursue growth and spirit of our employees help distinguish while maintaining excellent asset quality. There is Washington Trust from our competitors, and we a growing awareness that Washington Trust is a are thankful for their efforts. We also thank our player to be reckoned with in the commercial shareholders for the ongoing support that provides arena, as we find ourselves getting invited to the momentum for this Bank to grow and thrive. bigger and better business opportunities. As always, we remain committed to our vision of being The Best Community Bank and Trust Our trust and investment management area Company in New England. provided important non-interest income, with revenue up 21% in 2004. Washington Trust Sincerely, enjoys a growing reputation as a unique niche player in the trust and investment management area, combining proven expertise and results with local decision-making and personalized service. In addition to all these successes, we allotted John C. Warren significant resources, both time and dollars, to the Chairman and Chief Executive Officer implementation and fulfillment of our obligations under the Sarbanes-Oxley Act. Most specifically this year, our efforts were directed to Section 404 of the Act, or SOX 404, as it is nicknamed. The Act deals with both corporate governance and financial John F. Treanor reporting. SOX 404 deals with management’s President and Chief Operating Officer 2 3 On July 28, 2004, John Warren opened The NASDAQ Stock Market in New York City in celebration of the 20th anniversary of Washington Trust’s listing. Financial Highlights (Dollars in millions, except per share amounts) Results as of or for the years ended December 31, Financial Results Net interest income Provision for loan losses Net realized gains on securities Noninterest income, excluding securities gains Noninterest expense Net income Per Share Information Diluted earnings per share Cash dividends declared Book value Tangible book value Closing stock price Financial Condition Securities Loans: Commercial and other Residential real estate Consumer Total loans Allowance for loan losses Total assets Deposits Federal Home Loan Bank advances Shareholders’ equity Ratios (%) Return on average assets Return on average equity Net interest margin (taxable equivalent basis) Nonperforming assets to total assets Nonaccrual loans to total loans Allowance for loan losses to total loans Earnings and Ratios Excluding Special Items (Non-GAAP Financial Information) Net income Diluted earnings per share Return on average assets (%) Return on average equity (%) 2004 2003 2002 2001 2000 $ $ 54.4 .6 .2 26.7 50.4 20.8 1.54 .68 11.44 9.64 29.31 $ $ 48.8 .5 .6 26.1 47.6 18.9 1.41 .62 10.46 8.60 26.20 $ $ 44.3 .4 .7 22.6 43.0 16.8 1.30 .56 9.87 7.93 19.53 $ $ 39.4 .6 .3 21.1 41.7 13.1 1.07 .52 8.15 8.10 19.00 $ $ 37.9 1.2 .8 19.0 37.5 13.2 1.09 .48 7.43 7.36 14.00 $ 890.1 $ 839.4 $ 795.8 $ 629.1 $ 511.5 507.7 513.7 228.3 1,249.7 16.8 2,307.8 1,457.9 672.7 151.9 0.97 14.40 2.74 .21 .38 1.34 408.5 389.9 162.6 961.0 15.9 1,973.8 1,206.1 607.1 138.1 1.03 14.15 2.89 .14 .29 1.66 382.1 280.9 132.1 795.1 15.5 1,745.7 1,110.5 480.1 128.7 1.07 14.25 3.10 .24 .53 1.95 260.6 235.4 109.6 605.6 13.6 1,362.2 816.9 431.5 97.9 1.01 13.86 3.30 .28 .63 2.24 239.8 251.0 106.4 597.2 13.1 1,218.1 735.7 377.4 89.2 1.14 16.14 3.55 .28 .58 2.20 $ $ 20.8 1.54 0.97 14.40 $ $ 19.6 1.46 1.06 14.64 $ $ 17.2 1.33 1.09 14.60 $ $ 15.6 1.28 1.20 16.54 $ $ 13.9 1.15 1.20 16.98 W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T (Dollars in millions, except per share amounts) Results as of or for the years ended December 31, Reconciliation Table – Non-GAAP Financial Information Net income, including special items Add back (deduct) special items, net of tax: Debt prepayment penalties Acquisition related Litigation settlement, net of insurance recovery Net income, excluding special items Diluted earnings per share Effect of special items, net of tax Diluted earnings per share, excluding special items Ratios (%) Return on average assets Effect of special items, net of tax Return on average assets, excluding special items 2004 2003 2002 2001 2000 $ 20.8 $ 18.9 $ 16.8 $ 13.1 $ 13.2 $ $ $ – – – 20.8 1.54 – 1.54 0.97 – 0.97 $ $ $ .7 – – 19.6 1.41 .05 1.46 1.03 .03 1.06 $ $ $ – .4 – 17.2 1.30 .03 1.33 1.07 .02 1.09 $ $ $ – – 2.5 15.6 1.07 .21 1.28 1.01 .19 1.20 $ $ $ – .7 – 13.9 1.09 .06 1.15 1.14 .06 1.20 Return on average equity Effect of special items, net of tax Return on average equity, excluding special items 14.40 – 14.40 14.15 .49 14.64 14.25 .35 14.60 13.86 2.68 16.54 16.14 .84 16.98 Non-GAAP Financial Information Disclosure: This annual report contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Corporation’s management uses these non-GAAP measures in its analysis of the Corporation’s performance. These measures typically adjust GAAP performance measures to exclude the effects of charges and expenses related to the consummation of acquisitions and costs related to the integration of merged entities. These non-GAAP measures also may exclude other significant gains or losses that are unusual in nature. Because these items and their impact on the Corporation’s performance are difficult to predict, management believes that presentations of financial measures excluding the impact of these items provide useful supplemental information that is essential to a proper understanding of the operating results of the Corporation’s core businesses. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other corporations. A quantitative reconciliation of the differences between the non-GAAP financial information discussed herein and the most directly comparable financial information calculated and presented in accordance with GAAP is contained in the Financial Highlights section of this annual report. Total Loans Total Deposits Net Income Diluted Earnings Per Share Cash Dividends Declared Per Share 4 5 $0$300$600 $ 900$1,200$1,500$1,249.7$597.2$961.0$795.1$605.62000 2001 2002 2003 2004In Millions70¢60¢50¢40¢30¢20¢10¢0¢48¢52¢56¢62¢68¢2000 2001 2002 2003 2004$0$5$10$15$20$25$20.8$13.2$18.9$16.8$13.12000 2001 2002 2003 2004In Millions$1.60$1.20$0.80$0.40$0.00$1.09$1.07$1.54$1.412000 2001 2002 2003 2004$1.30$0$300$600$900$1,200$1,500$1,457.9$735.7$1,206.1$1,110.5$816.92000 2001 2002 2003 2004In MillionsMomentum = 18% increase in retail deposits Cranston branch employees Dot Bogosian, Head Teller, and Desmond Ranglin, Senior Customer Service Representative, were members of the branch network that enhanced the Bank’s presence in new markets. Washington Trust Cranston Branch Cranston, RI Washington Trust earns consistently high satisfaction ratings due to our outstanding customer service. Pictured here are representatives of our retail network who work closely with customers on a day-to-day basis: (l-r) Deneane Spaziano, Teller; Peggy Wood, Customer Service Representative; Carolyn Cullinane, Teller; Patricia Cole, AIC Representative and Debra Thomas, AIC Supervisor; Vanessa Dillon, Warwick Branch Manager; and Vincent Moretti, Cranston Branch Manager. 6 W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T Building Momentum pay – that made it the best in the market. Backed by on-going print, radio, and outdoor advertising How do you build momentum? By having the support, our free checking campaign enabled us to right people, being in the right places, offering the garner more than our fair share of new deposits. best products, and marketing them aggressively. While interest rates were at low levels industry-wide, When everything works in unison, the result is we offered attractively priced certificates of deposit momentum. And Washington Trust achieved that (CDs) and money market accounts. Outstanding momentum in 2004. products gave customers good reason to do business with Washington Trust. And once they did, the Great Products, Superior Delivery way we delivered those products strengthened our relationship with them. In the face of a highly competitive marketplace, a less-than-robust local economy, and industry We know that our best sales people are our consolidation, Washington Trust grew retail deposits existing customers. In 2004, we saw first-hand 18% in 2004 to $1.3 billion. That success reflects how positive “word-of-mouth” translates directly the Bank’s focus on our customers. At all times, into momentum, as 10% of our new checking our goal is to make doing business with accounts were the result of referrals by existing Washington Trust rewarding, convenient, and bank customers. Washington Trust customers who enjoyable. referred a friend to the Bank for free checking received a delicious thank you: a complimentary Great products drove new business to the Bank. cake from Gregg’s, one of our key business Our new free checking product included special banking customers. value-added features – free online banking and bill The cross-functional team approach to selling, introduced in 2003, delivered significant results in its second year, with increased sales between various departments. New software allowed us to track internal referrals and incorporate the data into our overall sales incentive program. It’s all part of the Bank’s effort to better recognize top 7 Momentum = 24% increase in commercial loans W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T performers. “We shifted a percentage of our profit-sharing plan to reward employees based on individual performance,” says B. Michael Rauh, Senior Vice President of Corporate Sales, Planning and Delivery. “Now we are more directly connecting compensation to the achievement of individual goals.” As part of our footprint expansion strategy, we installed ATMs in 46 Brooks Pharmacy locations statewide and in several stores in Southeastern Massachusetts and Connecticut. We also won a contract with the State of Rhode Island to have Washington Trust ATMs placed at the Division of Motor Vehicles, state colleges, universities and administrative offices, and various other state buildings. By significantly bolstering our ATM network, we are making it easier for customers to do business with us and we are increasing our presence in both new and existing markets. At The Table, Closing The Deal It was a banner year for Commercial Lending. In 2003, our rallying cry to the marketplace was “Put us on the list,” as we built awareness for our key business products and overall capabilities. In 2004, we saw the fruits of our labor. Not only did a growing number of commercial prospects put us on their list; more often than ever, they asked us to come to the table and close the deal. The result was a record year in terms of new dollar originations and commitments, up more than 45% over last year. A healthy mix of new and existing customers drove our commercial lending business. “The first order of business is taking care of our customers,” says James M. Vesey, Senior Vice President and Chief Credit Officer. “40% of our new dollar originations and commitments in 2004 came from companies that were already doing business with us. This reflects our commitment to relationship lending.” In addition, we generated excellent new business activity throughout our market area. The Commercial Real Estate Group delivered outstanding results in the past twelve months, accounting for 24% of our total commercial lending volume. High-profile big-ticket projects like the Gardens Office Park in West Warwick Washington Trust is a leading resource for commercial loans and commercial real estate projects up to $10 million. The Bank offers construction, intermediate-term, and long-term financing for commercial real estate transactions throughout New England involving everything from office parks and shopping centers to residential and industrial buildings. Washington Trust is proud to have provided $2.5 million in financing to Coventry Lumber for relocation and expansion in Coventry, Rhode Island. Michael Durand, Owner of Eagle Lumber and Coventry Lumber, chose Washington Trust to finance the construction, relocation and expansion of the Coventry Lumber location. Above: Michael Durand, Ken Jones, General Contractor, and Jim Vesey, Washington Trust Senior Vice President and Chief Credit Officer, view the project under construction this winter. Coventry Lumber Nooseneck Hill Road Coventry, RI 8 9 Momentum = 26% increase in business core deposits Kentucky Fried Chicken Owner John Daluz celebrates the reconstruction of his second KFC location with Dave Kmetz, Vice President, Commercial Lending. KFC 160 Granite Street Westerly, RI W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T boosted our visibility and made people aware of made becoming a Washington Trust customer a the scope of our lending capabilities. “The quick and easy process. Commercial Real Estate Group has been a terrific initiative for us,” Vesey points out. “We will A new credit card processing system enhanced continue to grow this business while maintaining our relationships with our merchant customers. our excellent asset quality standards.” In 2004, we provided them with a variety of value- Solutions for Small Business Owners on-line access to statements, and faster transaction added options, including gift cards, convenient processing via DSL technology. By constantly Small business owners are unique. In 2004, we expanding our service offering to merchants, we let this important segment know that Washington make it easier for them to do business with their Trust understands their financial needs by customers and reconfirm why doing business with introducing a suite of products and services Washington Trust is a smart decision. designed specifically for them. The Freedom Business Partners™ Account featured a free Our commitment to the small business community business checking account, preferred loan rates, was underscored by our SBA lender ranking, which and special discounts available exclusively to by November 30th had risen to #2 in Rhode Island. small business owners. A highly visible marketing Many times, smaller businesses have the vision campaign, including print and radio advertising, and cash flow required for starting up or expanding, direct mail, and on-going calling, helped open the but may lack the necessary collateral. As an door to new sales opportunities. And once we SBA preferred lender, we are able to help these met with prospects, our Small Business Switch Kit businesses start up, prosper, and grow. And because of our demonstrated commitment to the small business market in Rhode Island, the SBA approved us for expansion into Massachusetts and Connecticut. Washington Trust is one of the top small business lenders in Rhode Island, serving businesses of all types and sizes, including Ray Willis Toys and Bikes, Dunn’s Corners Market, Guytanno’s Cafe, Velvet Crush, Chariho Furniture, and Westerly Urgent Care. 10 11 Momentum = 40% increase in consumer loans Record Low Lending Rates the state’s leading loan originators. What’s more, Fuel Growth construction activity emerged as an excellent source of leads for consumer loans, as builders referred us Our Consumer Lending business in 2004 was to their clients in need of financing options. distinguished by remarkable growth. Consumer loans grew by 40% from the previous year. What The Value of a Trusted Advisor drove such impressive performance? “It was our competitive products, especially our home equity In 2004, having a reliable and trusted investment line of credit,” says Phil Friend, Senior Vice counselor was more important than ever. Clearly, President, Retail Lending. “In ads and direct mail, based on the performance of our trust and asset we continually promoted the fact that we were management group, investors found what they offering our lowest home equity line rate ever. were looking for at Washington Trust. Strong By combining record-setting rates with our growth in new assets managed resulted from the outstanding service delivery, we gave consumers a increased recognition of the Bank as a premier very compelling reason to do business with us.” provider of a comprehensive range of financial New technology greatly enhanced customer services. service in Consumer Lending in 2004. We On their own, the numbers generated by the accelerated application processing to the point group were impressive, reflecting consistent, out- where we could approve equity lines and loans standing investment performance and strong fee within an hour. The world moves faster these revenue. But what makes those figures even more days, and Washington Trust is helping our noteworthy is the fact that they were produced in customers keep pace by giving them the information they need in a timely fashion. Refinancing activity was steady again in 2004, spurred by continued low mortgage rates. With our expanded geographic presence and the addition of origination and processing staff in Warwick, we strengthened our position among W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T One of the area’s major retail lenders, Washington Trust provided homeowners and first-time homebuyers with home equity loans and lines of credit, construction loans, new mortgages, and mortgage refinancing. Residential Remodeling Project West Greenwich, RI 12 13 Washington Trust’s home equity products once again proved to be a popular choice for borrowers looking for competitive rates and quick approvals to finance home improvement projects, consolidate debt and fund major purchases. Momentum = 21% increase in investment management revenues Front row: (l-r) Mary M. McGoldrick, Gerald J. Fogarty, Marie J. Langlois, Dickson G. Boenning, Rogean B. Makowski. Back row: (l-r) Peter J. Miniati, Paul D. Nunes, Robert G. Salmonsen, Richard E. Cavanagh, Gloria J. Miner, Charles P. Roberts, Carl Y. Chern, Gary J. Friedmann, Barbara S. Williams, Russel W. Burgess. Washington Trust Wealth Management W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T a challenging investment environment. “Many knowledgeable, experienced, local staff. With outside factors influenced market performance,” Washington Trust, clients knew their money was observes Mary M. McGoldrick, Senior Vice President not being managed from a distance.” and Chief Investment Officer. “Concerns about terrorism, the outcome of the presidential election, Well-versed in all aspects of wealth management, and changing policy at the Federal Reserve all Washington Trust advisors were proactive through- contributed to investor concern.” Against this out 2004 in their efforts to serve the needs of backdrop, our performance history and the strong successful individuals. Investors also enjoyed the relationships that we enjoy with individuals, convenience of accessing a variety of everyday families, and institutions served us well. financial services through the Bank, including checking accounts, mortgages, and equity lines. New customers came from three principal sources: referrals from existing clients, new business Looking forward, our wealth management advisors, presentations to prospects and key professional previously separated into two groups – Trust & advisors, and relationships established through Investment Services and Phoenix Investment the various boards that our employees serve on. Management – will now all be marketed under “Clients and key influencers recognized us as an the Washington Trust brand umbrella. “One of attractive niche resource for trust and asset the long-term goals of the Bank is to build the management services,” says Rogean B. Makowski, Washington Trust brand,” say Managing Directors Senior Vice President, Trust Officer. “A key Marie J. Langlois and Gerald J. Fogarty. “Bringing competitive strength was our emphasis on providing all of our investment and trust services under the a high-quality, professional service through a Washington Trust name strengthens the brand and expands the breadth and depth of services offered under its banner.” Washington Trust’s team of professionals proactively assisted clients in achieving goals, such as preserving wealth for future generations, ensuring assets for a comfortable retirement, and providing sufficient funding for children’s education. 14 15 Momentum = more than 2000 employee hours devoted to community service W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T Community Service as Corporate Culture Since our founding 204 years ago, community service has been a core value at Washington Trust. Whether raising funds for those in need, volun- teering time, serving on boards of non-profit organizations statewide, or sponsoring community Among the highlights of our community service events, the Bank and its employees play an active efforts in 2004 was the phenomenal success of and vital role in the neighborhoods where we our PB Xpress program, now in its 4th year. Our work and live. “Community service is more than a program at Washington Trust,” explains Elizabeth B. Eckel, Senior Vice President, Marketing. “It’s an goal was to collect and distribute four tons of peanut butter, to be delivered to the tables of hungry Rhode Islanders. Through the efforts of our employees, customers, and friends in local schools and businesses, seven tons were brought essential part of who we are as a company and in. Talk about momentum! as individuals.” As the Bank grows, so does our opportunity to Momentum Into 2005 reach more people. The challenge is to hold on to These are exciting times for Washington Trust, our the community spirit that distinguishes our corpo- employees, our customers, and our shareholders. rate culture as we expand into new markets. We have a strong brand, an esprit de corps that is Toward that end, the Bank introduced its Reach second to none, a marketplace that welcomes our For The Stars volunteer initiative in 2004. By unique product and service offering, and a proven making on-going volunteerism part of employee growth strategy. Best of all, our success is job descriptions and the review process, it under- grounded in core values that have distinguished scores that helping others is integral to what it the Bank since its founding. With a genuine means to be a Washington Trust employee. We commitment to helping others – our customers, our kicked off our Reach For The Stars program in April by hosting the Volunteer Center of Rhode neighbors, and the larger communities where we work and live – Washington Trust looks forward Island’s National Volunteer Week activities, as well to gaining even more momentum in 2005. as participating in a series of community events. In 2004, Washington Trust employees enthusiastically supported various community groups throughout Rhode Island and southeastern Connecticut, including South County Habitat for Humanity, Rhode Island Community Food Bank, local Adopt-A-Family holiday programs, Rhode Island Community Farm, Pawcatuck Neighborhood Center, and Audubon Society of Rhode Island. John C. Warren (right), Washington Trust Chairman and CEO, was selected as the United Way of Rhode Island’s 2004-05 Campaign Chairman. John and Tony Maione, United Way’s President and CEO, work with a broad array of partners including human service and government agencies, foundations, business leaders, and labor and faith-based organizations to identify the issues that matter most and focus resources on effective solutions for the community. United Way of Rhode Island 224 Waterman Street Providence, RI 16 17 Financial Statements Washington Trust Bancorp, Inc. and Subsidiary 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; amortized cost $724,209 in 2004 and $663,529 in 2003 Held to maturity, at cost; fair value $156,270 in 2004 and $169,401 in 2003 Total securities Federal Home Loan Bank stock, at cost Loans: Commercial and other Residential real estate Consumer Total loans Less allowance for loan losses Net loans Premises and equipment, net Accrued interest receivable Investment in bank-owned life insurance Goodwill Identifiable intangible assets Other assets Total assets Liabilities: Deposits: Demand deposits NOW accounts Money market accounts Savings accounts Time deposits Total deposits Dividends payable Federal Home Loan Bank advances Other borrowings Accrued expenses and other liabilities Total liabilities Commitments and contingencies 2004 2003 $ 34,801 17,280 1,095 $ 40,710 20,400 2,486 735,666 154,392 890,058 34,373 507,711 513,695 228,270 1,249,676 16,771 1,232,905 24,248 9,367 29,249 22,591 1,309 10,544 673,845 165,576 839,421 31,464 408,477 389,855 162,649 960,981 15,914 945,067 24,941 7,911 28,074 22,591 1,953 8,789 $2,307,820 $1,973,807 $189,588 174,727 196,775 251,920 644,875 1,457,885 2,257 672,748 3,417 19,661 $194,144 153,344 83,037 257,497 518,119 1,206,141 2,113 607,104 2,311 18,083 2,155,968 1,835,752 Shareholders’ Equity: Common stock of $.0625 par value; authorized 30 million shares in 2004 and 2003; issued 13,278,685 shares in 2004 and 13,204,024 in 2003 Paid-in capital Retained earnings Unearned stock-based compensation Accumulated other comprehensive income Treasury stock, at cost; 9,309 shares in 2004 and 9,463 shares in 2003 Total shareholders’ equity Total liabilities and shareholders’ equity 830 31,718 113,314 (737) 6,937 (210) 151,852 825 29,868 101,492 (22) 6,101 (209) 138,055 $2,307,820 $1,973,807 Refer to Washington Trust Bancorp, Inc.’s 2004 Annual Report on Form 10-K for a complete set of consolidated financial statements. W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T Washington Trust Bancorp, Inc. and Subsidiary Consolidated Statements of Income Years ended December 31, (Dollars and shares in thousands, except per share amounts) 2004 2003 2002 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: 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 fees 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 Advertising and promotion Outsourced services Legal, audit and professional fees Amortization of intangibles Debt prepayment penalties Acquisition related expenses 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 $60,828 33,787 2,105 133 96,853 $51,603 32,430 2,081 131 86,245 $49,576 35,571 1,973 219 87,339 22,197 20,153 62 42,412 54,441 610 53,831 13,048 4,483 4,259 1,901 1,175 248 1,791 26,905 28,816 3,201 3,267 3,534 1,748 1,616 1,535 644 – – 6,012 50,373 30,363 9,534 $20,829 13,227.8 13,542.7 $1.57 $1.54 $.68 18,554 18,819 73 37,446 48,799 460 48,339 10,769 4,920 3,410 4,690 1,161 630 1,155 26,735 26,945 2,979 3,380 2,716 1,440 1,333 1,242 719 941 – 5,937 47,632 27,442 8,519 $18,923 13,114.1 13,393.6 $1.44 $1.41 $.62 22,374 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 1,180 1,077 1,893 651 – 605 5,373 42,990 24,150 7,393 $16,757 12,737.3 12,932.4 $1.32 $1.30 $.56 Refer to Washington Trust Bancorp, Inc.’s 2004 Annual Report on Form 10-K for a complete set of consolidated financial statements. 18 19 Financial Statements W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T Washington Trust Bancorp, Inc. and Subsidiary Consolidated Statements of Changes in Shareholders’ Equity Report of Independent Registered Public Accounting Firm (Dollars in thousands) Common Stock Paid-in Capital Retained Earnings Unearned Stock-Based Compensation Accumulated Other Comprehensive Income Treasury Stock Total Balance at January 1, 2002 Net income Unrealized gains on securities, net of $1,629 income tax expense Reclassification adjustments, net of tax Comprehensive income Cash dividends declared Restricted stock award Amortization of restricted stock Shares issued Shares issued for acquisition Shares repurchased Balance at December 31, 2002 Net income Unrealized losses on securities, net of $1,002 income tax benefit Reclassification adjustments, net of tax Minimum pension liability adjustment, net of $153 income tax benefit Comprehensive income Cash dividends declared Restricted stock award Amortization of restricted stock Shares issued Shares repurchased Balance at December 31, 2003 Net income Unrealized gains on securities, net of $383 income tax expense Reclassification adjustments, net of tax Minimum pension liability adjustment, net of $5 income tax benefit Comprehensive income Cash dividends declared Restricted stock unit award Amortization of restricted stock Shares issued Shares repurchased Balance at December 31, 2004 $754 $10,696 $81,114 16,757 $ – $6,416 $(1,043) 3,310 (432) (7,154) 1 (25) 1 (185) 18,255 64 $818 $28,767 $90,717 $(24) $9,294 18,923 (2,499) (410) (284) (8,148) 29 (29) 31 7 1,072 $825 $29,868 $101,492 $(22) $6,101 20,829 24 704 (536) $(851) 851 (209) $(209) $97,937 16,757 3,310 (432) 19,635 (7,154) – 1 519 18,319 (536) $128,721 18,923 (2,499) (410) (284) 15,730 (8,148) – 31 1,930 (209) $138,055 20,829 1,006 (161) 1,006 (161) (9) 850 5 1,000 (9,007) (850) 135 $830 $31,718 $113,314 $(737) $6,937 (9) 21,665 (9,007) – 135 1,159 (155) $(210) $151,852 154 (155) 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 2004 $(248) 87 – – $(161) 2003 $(630) 220 – – $(410) 2002 $(678) 237 13 (4) $(432) Refer to Washington Trust Bancorp, Inc.’s 2004 Annual Report on Form 10-K for a complete set of consolidated financial statements. The Board of Directors and Shareholders Washington Trust Bancorp, Inc.: We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Washington Trust Bancorp, Inc. and subsidiary as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows (not presented herein) for each of the years in a three-year period ended December 31, 2004; and in our report dated March 15, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying 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 March 15, 2005 Shareholder Information Stock Transfer and Dividend Disbursing Agent Mellon Investor Services (Mellon), our stock transfer and dividend disbursing agent, is responsible for our shareholder records, issuance of stock certificates, distribution of dividend checks, and IRS Form 1099. Mellon is also responsible for the Corporation’s Dividend Reinvestment (DRIP) and Stock Purchase Plan, which enables shareholders to reinvest their quarterly dividends in Washington Trust shares. Plan members may also make optional cash purchases of com- mon stock up to $10,000 per quarter. For information, contact Mellon on the toll-free Shareholder Information Line, (800) 852-0354, via the secure Mellon Investor Direct website, https://vault.melloninvestor.com/isd, or by writing to: Mellon Investor Direct Services Corporate Office, 85 Challenger Road, Ridgefield Park, NJ 07660. Copies of our most recent annual and quarterly reports and a copy of our 2004 Annual Report on Form 10-K are available at no charge by contacting Elizabeth B. Eckel, Senior Vice President, Marketing, at 401-348-1566 or 1-800-475-2265. You may write to Ms. Eckel at the Washington Trust Corporate Office, 23 Broad Street, Westerly, RI 02891. The annual report is also available on our website, www.washtrust.com. 20 21 Corporate Directory Washington Trust Bancorp, Inc. Board of Directors Gary P. Bennett, Retired Chairman and Chief Executive Officer, Analysis and Technology, Inc. Steven J. Crandall, Vice President, Ashaway Line & Twine Mfg. Co. Larry J. Hirsch, Esq., Retired President, Westerly Jewelry Co. Barry G. Hittner, Esq., Of Counsel, Cameron & Mittleman, LLP Katherine W. Hoxsie, Vice President, Hoxsie Buick-Pontiac-GMC Truck, Inc. Mary E. Kennard, Esq., Vice President and University Counsel, The American University Edward M. Mazze, Ph.D., Dean, College of Business Administration, University of Rhode Island Kathleen McKeough, Retired Senior Vice President of Human Resources, GTECH Holdings Corporation Victor J. Orsinger, II, Esq., 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. W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T The Washington Trust Company Executive Officers John C. Warren, Chairman and Chief Executive Officer John F. Treanor, President and Chief Operating Officer David V. Devault, Executive Vice President, Secretary, Treasurer and Chief Financial Officer Senior Management Dennis L. Algiere, Senior Vice President, Chief Compliance Officer & Director of Community Affairs Carl M. Amaral, Senior Vice President, Branch Sales and Service Stephen M. Bessette, Senior Vice President, Retail Lending Vernon F. Bliven, Senior Vice President, Human Resources Elizabeth B. Eckel, Senior Vice President, Marketing Gerald J. Fogarty, Jr., Managing Director Philip L. Friend, Senior Vice President, Retail Lending James P. Sullivan, CPA, Retired Finance Officer, Roman Catholic Diocese of Providence William D. Gibson, Senior Vice President, Credit Administration Neil H. Thorp, President, Thorp & 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 Mark K.W. Gim, Senior Vice President, Financial Planning and Asset Liability Management Russell W. Hahn, Senior Vice President, Commercial Lending Marie J. Langlois, Managing Director Joseph E. LaPlume, Senior Vice President, Commercial Lending Rogean B. Makowski, Senior Vice President, Trust Officer Mary M. McGoldrick, Senior Vice President and Chief Investment Officer Barbara J. Perino, CPA, Senior Vice President, Operations and Technology David V. Devault, Executive Vice President, Treasurer and Chief Financial Officer Harvey C. Perry, II, Senior Vice President, Director of Office for Non-Profit Resources Harvey C. Perry, II, Senior Vice President and Secretary The Washington Trust Company Directors’ Advisory Council Alcino G. Almeida, William Atherton, Charles M. Baker, Jr., Charles C. Buffum, David Curtis, Richard A. Grills, Joseph J. Kirby, Jacques de Laporte, James W. McCormick, Jr., Thomas F. Moore, Brendan P. O’Donnell, Joseph H. Potter, Joseph E. Pucci, Anthony J. Rose, Jr., William Blunt White B. Michael Rauh, Jr., Senior Vice President, Corporate Sales, Planning and Delivery Julia Anne M. Slom, Senior Vice President, Commercial Real Estate Group James M. Vesey, Senior Vice President and Chief Credit Officer James J. Walther, Senior Vice President, Director of Internal Audit 22 23 Washington Trust Locations W A S H I N G T O N T R U S T B A N C O R P, I N C . 2 0 0 4 A N N U A L R E P O R T Account Information Center To speak with a customer service representative, call 401-348-1200 or toll-free 1-800-475-2265. In Connecticut, call 860-443-1508. Online Banking Bank and pay bills via the Internet 24 hours a day, 7 days a week at www.washtrust.com. XPress Banking Automated banking by phone 24 hours a day, 7 days a week at 401-348-1399 or toll-free 1-800-226-5877. Website Current company and shareholder information available at www.washtrust.com. RICHMOND Richmond Office 1200 Main Street Wyoming, RI 02898 401-539-2427 SOUTH KINGSTOWN Wakefield Office 730 Kingstown Road Wakefield, RI 02879 401-782-4200 WARWICK Warwick Office 236 Centerville Road Warwick, RI 02886 401-739-2353 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 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 Mystic Office Olde Mistick Village Mystic, CT 06355 860-536-1200 Rhode Island Offices CORPORATE OFFICE 23 Broad Street Westerly, RI 02891 401-348-1200 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 CRANSTON Cranston Office 645 Reservoir Avenue Cranston, RI 02910 401-946-1004 NARRAGANSETT Bonnet Shores Office 885 Boston Neck Road Narragansett, RI 02882 401-782-4800 Sweet Meadows Office 20 Point Judith Road Narragansett, RI 02882 401-782-1000 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 Wealth Management Offices 66-68 South Main Street Providence, RI 02903 401-861-8440 401-331-6650 24 6405_wtrust_04_cover.qxd 3/15/05 7:31 PM Page 1 23 Broad Street, Westerly, RI 02891 www.washtrust.com 2004 Annual Report Washington Trust Bancorp, Inc. 

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