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Republic First Bancorp Inc.R elationships matter at Washington Trust. Our success is rooted in the strong and enduring relationships that exist among the people we touch every day. We believe in the principle that if you treat people well and with respect, they will return the favor. When we provide excellent service, it creates a lasting, positive impression. It also helps drive more relationships, as our customers pass our name along to friends and associates. And as their needs grow, so does their relationship with us. 2 3 TABLE OF CONTENTS Washington Trust Profile Market and Dividend Information Annual Meeting of Shareholders As of December 31, 2005 $2.4 billion in assets $350 million in market capitalization Washington Trust Bancorp, Inc. is the publicly-owned holding company of The Washington Trust Company (the Bank), a Rhode Island-chartered commercial bank founded in 1800. Through the Bank and its other subsidiaries, Washington Trust offers a broad range of financial services, including wealth management, by way of its branch offices in Rhode Island, Massachusetts and southeastern Connecticut. At December 31, 2005, Washington Trust had 478 employees. The Corporation has an Affirmative Action Plan and is an Equal Opportunity Employer. Washington Trust is also a member of the FDIC and an Equal Housing Lender. 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, 2005, there were 2,170 shareholders of record. Tuesday, April 25, 2006, 11:00 a.m. Westerly Public Library 44 Broad Street Westerly, Rhode Island 02891 Vote Your Proxy Online Or By Phone For your convenience, you can vote your shares online or by phone. Have your proxy card ready and go to the website http://www.voteproxy.com or call 800-PROXIES (800-776-9437). You will be prompted to enter your control number located on your card. Then, follow the instructions to create and submit an electronic ballot. 2005 Quarters Stock prices: High Low Close Dividend declared 2004 Quarters Stock prices: High Low Close Dividend declared 1 $29.99 27.00 27.48 .18 1 $27.60 23.80 26.40 .17 2 3 4 $28.81 23.94 27.67 .18 $30.38 26.08 27.19 .18 $29.98 25.77 26.18 .18 2 3 4 $27.56 24.28 25.99 .17 $26.81 23.20 26.15 .17 $30.50 25.82 29.31 .17 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 wealth management and trust assets under administration, 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. Corporate Profile .....................................................2 Letter to Shareholders ............................................4 2005 Financial Highlights........................................6 The Year In Highlights.............................................8 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 4 LETTER TO SHAREHOLDERS When you consider the 2005 economic environment, Washington Trust’s achieve- ments are even more impressive. Increases in short-term interest rates and a flat yield curve put considerable pressure on margins. However, by successfully managing our core lines of business – wealth manage- ment, commercial lending and business banking, and personal banking – we were able to generate a balanced stream of earnings at record levels. In 2005, we continued to grow our capabilities and geographic franchise with the acquisition of Weston Financial Group of Wellesley, Massachusetts. We expect to open two new branches in the greater Providence market by the first half of 2007. In addition, we brought new talent and leadership to our wealth management and commercial lending teams. We recognize that wealth management is a discipline unto itself, requiring its own expertise. Our strategic acquisition of Weston Financial Group sent a clear message to the investment community: Washington Trust is a major player in wealth management. The Weston Financial acquisition significantly bolstered our position as a unique resource for investors, combining world-class expertise and consistent results with local, personalized service. Our wealth management group continued to provide important noninterest income in 2005. With revenues up 26%, wealth management and trust services accounted for 18% of our total revenues. Moving forward, we are confident that our wealth management group’s contributions to the Corporation’s success will only grow. B y every measure, 2005 was an outstanding year for your Corporation, with both record earnings and earnings per share. Net income was up 11% from 2004, reaching $23 million. We declared cash dividends totaling 72 cents per share, and we were pleased to increase our dividend for the thirteenth consecutive year. Taking a longer view, in 2005 we continued the significant momentum that has been built over the last ten years. Since 1995, Washington Trust’s assets have grown almost fivefold, from $576 million to $2.4 billion. Wealth management assets under administration have increased dramatically, from $467 million in 1995 to more than $3 billion. We are truly a company on the move. 5 Washington Trust Bancorp, Inc. 2005 Annual Report The story behind Washington Trust’s impressive accomplishments and key strategic initiatives in 2005 is a very human one. As this year’s annual report theme states, relationships matter at Washington Trust. In the last 205 years, we have earned a reputation for providing exceptional service, and that reflects the genuine commitment that our people have to helping others. At the center of our business are relationships, not transactions. Our success is the result of the countless interactions that our people take part in every day. Whether it is with a customer, a fellow employee, a professional associate, or any member of the community, treating others with respect, courtesy, and a willingness to assist is the culture at Washington Trust. Moving forward, we will remain focused on continuing our earnings momentum, capitalizing on growth opportunities and maintaining strong asset quality. We appreciate the relationship that we enjoy with our shareholders. From all of us at Washington Trust, thank you for your ongoing support. Sincerely, John C. Warren Chairman and Chief Executive Officer John F. Treanor President and Chief Operating Officer The hiring of Galan G. Daukas as Executive Vice President, Wealth Management, further underscored our commitment. Galan’s career has been devoted to investment management. As our wealth management capabilities grow, we look forward to his leadership in this important part of our business. In commercial lending, the recognition of Washington Trust as a significant resource, capable of making multi-million dollar loans and facilitating complex financial deals, continued to grow in 2005. As a result, we were involved in major commercial real estate projects throughout New England, providing loans By striving to be the best in everything we do, we enrich the lives of those we serve while infusing our work with a strong sense of purpose and accomplishment. The year 2005 was terrific for all of our lines of business. In an increasingly competitive marketplace, Washington Trust grew deposit market share in Rhode Island – no small achievement, especially with no new branch openings. We were well served by the exceptional job that our employees did at our branches every day, nurturing existing relationships and establishing new ones. We had another very good year in retail lending. Although mortgage volume slowed as interest rates rose, mortgage activity was stronger than anticipated. Part of our strong performance in this line of business can be attributed to the long-term relationships that we have established with customers and centers of influence. In a very competitive rate environment, it is often the relationship that makes the difference in retaining business. for multi-use urban renewal developments in Providence and Boston, as well as being the key lender in a New Hampshire development. We are committed to pursuing growth in our commercial lending business while maintaining excellent asset quality. At the end of the fourth quarter, total nonperforming assets were $2.4 million or 0.10% of total assets, the lowest year-end level that we have reported in several years. Washington Trust earned national recognition in 2005, receiving the Award for Excellence in Workplace Volunteer Programs from the Points of Light Foundation. Other recipients included Aetna, Cisco Systems, The Home Depot, and Federated Department Stores. We also were named one of the 10 Best Companies for Employee Financial Security by The Principal Financial Group. 6 FINANCIAL HIGHLIGHTS 7 Washington Trust Bancorp, Inc. 2005 Annual Report (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 (%) 2005 2004 2003 2002 2001 $ $ 60.7 1.2 .4 30.6 56.4 23.0 1.69 .72 11.86 7.79 26.18 $ $ 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 $ 783.9 $ 890.1 $ 839.4 $ 795.8 $ 629.1 554.7 582.7 264.5 1,401.9 17.9 2,402.0 1,639.3 545.3 158.4 0.98 14.80 2.79 .10 .17 1.28 507.7 513.7 228.3 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 $ $ 23.5 1.72 1.00 15.08 $ $ 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 (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: Acquisition related Debt prepayment penalties 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 2005 2004 2003 2002 2001 $ 23.0 $ 20.8 $ 18.9 $ 16.8 $ 13.1 $ $ $ .5 – – 23.5 1.69 .03 1.72 0.98 .02 1.00 $ $ $ – – – 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 Return on average equity Effect of special items, net of tax Return on average equity, excluding special items 14.80 .28 15.08 14.40 – 14.40 14.15 .49 14.64 14.25 .35 14.60 13.86 2.68 16.54 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”). Washington Trust’s (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 2005 Financial Highlights section of this annual report. $ 0$ 300$ 600 $ 900$1,200$1,500$1,249.7$1,401.9$961.0$795.1$605.6Total Loans2001 2002 2003 2004 2005In Millions$1,800$1,500$1,200 $ 900$ 600$ 300 $ 0$1,457.9$1,639.3$1,206.1$1,110.5$816.9Total Deposits2001 2002 2003 2004 2005In Millions$ 0$ 5$10 $15$20$25$20.8$23.0$18.9$16.8$13.1Net Income2001 2002 2003 2004 2005In Millions$0.00$0.40$0.80 $1.20$1.60$2.00$1.54$1.69$1.41$1.30$1.07Diluted Earnings Per Share2001 2002 2003 2004 200580¢70¢60¢50¢40¢30¢20¢10¢0¢68¢72¢62¢56¢52¢Cash Dividends Declared Per Share2001 2002 2003 2004 2005$3.5$3.0$2.5$2.0$1.5$1.0$0.5$0.0$1.871$3.272$1.742$1.524$1.578Assets Under AdministrationIn Billions2001 2002 2003 2004 2005 8 9 ENHANCING OUR WEALTH MANAGEMENT CAPABILITIES Wealth Management Washington Trust Bancorp, Inc. 2005 Annual Report INTEGRATING WESTON FINANCIAL GROUP’S PLANNING EXPERTISE INTO WASHINGTON TRUST’S WEALTH MANAGEMENT GROUP HAS STRENGTHENED OUR POSITION AS A PREMIER AND COMPREHENSIVE RESOURCE FOR INVESTORS. SHOWN BELOW LEFT TO RIGHT, COUNSELORS SUSAN K. ARNOLD AND MARIA A. STAFFIERE, WESTON FINANCIAL, EXECUTIVE VICE PRESIDENT GALAN G. DAUKAS, WASHINGTON TRUST WEALTH MANAGEMENT, AND COUNSELOR KERRY FALCO, WESTON FINANCIAL. and nurture client relationships has been a key to their success. Comprehensive investment options The acquisition of Weston Financial Group provided a natural complement to Washington Trust’s existing wealth management groups: 1800 Asset Management, Washington Trust Investors (formerly Phoenix Investment Management), and Trust and Estate Services. We now offer clients three distinct asset management solutions. Weston Financial gives us sophisticated financial planning capabilities, as well as an open architec- ture investment platform, featuring separately managed accounts, custom- designed portfolios, and mutual funds. This approach enables clients to access The Weston Financial acquisition boosted our assets under administration to more than $3 billion. Wealth Management is a key line of business for us, and a major source of revenues. It is also an area in which we have a reputation for expertise and consistent investment performance. We are one of the premier wealth management providers in New England. This is a significant growth area for our company and in 2005 we expanded our presence with several key strategic initiatives. Financial planning expertise In August, we acquired Weston Financial Group, a registered investment advisor with assets under management in excess of $1.2 billion. Located in Wellesley, Massachusetts, the firm specializes in helping high net worth clients address complex financial planning issues. These include individuals with many forms of assets, executives at companies undergoing change due to a merger or acquisition, and those planning for retirement. Founded in 1979, Weston Financial serves clients in the Boston metropolitan area, New England, and throughout the country. The Weston Financial acquisition boosted our assets under administration to more than $3 billion. As part of the acquisition, Washington Trust retained all of Weston Financial’s employees, including the six senior principals who have worked together for 20 years. Like Washington Trust, Weston Financial’s ability to build Weston Financial’s Managing Directors: front, left to right, Ronald A. Sugameli, Joseph Robbat, Jr., and Douglas A. Biggar; back, left to right, Wayne M. Grzecki, Robert I. Stock, and I. Richard Horowitz. 10 11 DEVELOPING INTEGRATED SOLUTIONS FOR CLIENTS Wealth Management Washington Trust Bancorp, Inc. 2005 Annual Report Client relationships are enhanced by the natural synergies that exist within our expanded wealth management group. the best money managers in the world. Our 1800 Asset Management group, located in Westerly, is client-driven, providing custom investment solutions to meet each individual client’s needs and tax situation. Washington Trust Investors, located in Providence, uses a thematic approach with multi-cap portfolios. The group employs a proprietary investment discipline, which has a proven track record of maximizing returns for clients. Trust and Estate Services provides essen- tial trust management services, including estate planning and executor services. An increasing number of high net worth individuals understand the benefits of having a single “quarterback” with access to a broad array of top managers and services to provide a more coordinated wealth management plan. In 2005, with the acquisition of Weston Financial Group, we put ourselves in a stronger position to be that resource. We can now develop integrated solutions for clients, encompassing all aspects of their financial health. What’s more, these client relation- ships are enhanced and strengthened by the natural synergies that exist within our expanded wealth management group. Custom solutions, localized service In investment management, clients do not know the returns in advance. All they can know is what level of service their advisors provide and what kind of rapport they have with them. In other words, it is the relationship that matters. In this area, Washington Trust’s wealth management group has a significant competitive advantage. Our size, structure, and business philosophy allow our advisors to get to know clients personally and to truly under- stand what they are trying to achieve. We know that one investment style does not fit all. With our range of options, we are able to respond to a client’s investment preferences with a custom approach that will deliver the results he or she desires. By combining world-class investment vehicles with a top-notch advisor who will meet with you at your convenience, we are giving investors a very compelling reason to do business with us. Gary J. Friedmann, Vice President, Investment Officer, advises students at a local school where Washington Trust sponsored The Stock Market Game™ as part of its Financial Literacy Program. WITH FINANCIAL PLANNING EXPERTISE, THREE DISTINCT ASSET MANAGEMENT STYLES, AND TRUST MANAGEMENT SERVICES, WASHINGTON TRUST IS WELL POSITIONED TO BE A SINGLE, LONG-TERM RESOURCE FOR CLIENTS. SHOWN ABOVE LEFT TO RIGHT, ROGEAN MAKOWSKI, SENIOR VICE PRESIDENT AND TRUST OFFICER; MARIE LANGLOIS, MANAGING DIRECTOR, WASHINGTON TRUST INVESTORS; AND MARY MCGOLDRICK, SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICER, 1800 ASSET MANAGEMENT. 12 13 TEAMING UP TO FIND THE BEST SOLUTIONS Banking Washington Trust Bancorp, Inc. 2005 Annual Report EXCELLENT WORKING RELATIONSHIPS ACROSS ALL LINES OF BUSINESS ENABLE US TO PROVIDE CUSTOMERS WITH THE RIGHT SOLUTIONS FOR BOTH THEIR BUSINESS AND PERSONAL FINANCES. SHOWN BELOW LEFT TO RIGHT AT PEARL STREET LOFTS, AN $8.5 MILLION RESIDENTIAL AND COMMERCIAL RESTORATION PROJECT IN PROVIDENCE, B. MICHAEL RAUH, JR., EXECUTIVE VICE PRESIDENT, CORPORATE SALES, PLANNING, AND DELIVERY; STEPHEN M. BESSETTE, EXECUTIVE VICE PRESIDENT, RETAIL LENDING; AND JAMES M. VESEY, SENIOR VICE PRESIDENT, COMMERCIAL LENDING AND CHIEF CREDIT OFFICER. Good customer relationships are critical to retaining and growing our business. In 2005, our outstanding service helped nurture relationships with customers, strengthening our competitive position and ultimately contributing to our profitability. Cultivating long-term banking relationships We have seen a direct correlation between service quality and increased business and profitability in our banking lines. With the implementation of comprehensive service quality programs in recent years, all of the following metrics have risen: accounts per household, services per household, referrals, retention rates, households from new market areas, and customer satisfaction ratings. In a survey of our customers, 97.6% said they were very satisfied or satisfied with Washington Trust’s service. This compares with a 90.5% rating for peer banks. The combination of outstanding service and great products enabled us to grow customer deposits by 12% in 2005. What’s more, Washington Trust increased deposit market share in Rhode Island – no small feat, especially with no new branch openings. On the personal banking side of our business, Washington Trust remained the dominant player in Washington County, Rhode Island, with more than a 50% deposit market share. Much of our recent expansion and future growth has been in Kent and Providence Counties, where both the population and the number of businesses far exceed those in Washington County. In recent years, we have added three branches in these key markets, with plans for two more to be opened by early 2007. Our consumer loan portfolio, comprised of primarily home equity loans and lines of credit, continued to grow. In 2005, we had an increase of $36 million, or 16%. With attractive rates and flexible terms, our home equity products are very popular, increasing over 600% in the last ten years, from $33 million in 1995 to $233 million in 2005. Mortgage volume slowed during the year as interest rates rose, but we still garnered a good share of mortgage loan originations. In 2005, we made renovations to several Washington Trust branch offices for added convenience and accessibility. Washington Trust increased deposit market share in Rhode Island in 2005. Enhancing relationships in person and online Taking care of existing customers is as important as attracting new ones. That means responding to their ongoing needs and finding faster, easier, and better ways for them to manage their finances. We made extensive renovations at several branches in 2005. Branches are still the most popular channel for doing business with Washington Trust, visited at least once a month by 77% of our customers. The renovations reflected our commitment to the communities where we are located while enhancing the banking experience for our customers. Online banking continues to grow at an accelerated pace, as more and more people enjoy the convenience of being able to bank anytime, anywhere. In 2005, we enhanced our online banking service so customers can now go online for up- to-the-second, real-time reporting of all transactions. They can also view images of cancelled checks, request debit cards, reorder checks, apply for loans, and open deposit accounts. Maintaining state-of- the-art technology is a priority at Washington Trust. By offering customers the latest conveniences in banking, we are strengthening our relationship with them. 14 15 HANDLING COMPLEX DEALS TO HELP COMPANIES GROW WASHINGTON TRUST PROVIDED EXPANSION CAPITAL TO IRA GREEN, INC., THE LARGEST MANUFACTURER AND DISTRIBUTOR OF UNITED STATES MILITARY INSIGNIA. THE COMPANY EMPLOYS 270 PEOPLE AT ITS STATE- OF-THE-ART, 120,000 SQUARE FOOT MANUFACTURING AND DISTRIBUTION FACILITY IN PROVIDENCE, RHODE ISLAND. ABOVE LEFT TO RIGHT, MICHAEL W. MCALLISTER, PRESIDENT OF IRA GREEN, INC., AND TIMOTHY CADIGAN, VICE PRESIDENT AND COMMERCIAL LENDING TEAM LEADER. Banking Expanding our presence in commercial lending Washington Trust is a major player in the commercial lending arena, and we strengthened our position in 2005. We worked closely with decision-makers on new financings and explored future opportunities in commercial lending and commercial real estate. We continued to generate an awareness of our capabilities among the business community and to build relationships with those who are key referral sources for new business. Closing activity remained solid throughout the year, with a healthy mix of existing and new customers. For example, we provided $6.8 million in acquisition Scott Lajoie, Vice President, Commercial Real Estate Group, visits Joyce R. Gifford, DVM, owner of Abbott Valley Veterinary Center in Cumberland, Rhode Island and SBA 2005 Rhode Island Small Business Person of the Year. We continued to build awareness of our commercial lending capabilities with business leaders and key referral sources. financing for a communications systems integrator in Peace Dale, Rhode Island, and provided expansion capital to the country’s leading manufacturer and distributor of United States military insignia. We also financed quality projects throughout New England, including a shopping plaza on Cape Cod, a CVS on Beacon Street in Boston, and a Walgreen’s in Bedford, New Hampshire. We have an experienced and talented team of lenders who are able to handle complex and sophisticated deals. In 2005, we added several new lenders to bolster our team of representatives in the Providence, Rhode Island, Connecticut, and Massachusetts markets. Relationships play a key role in all of our commercial loans. In many cases, new dollar originations come from companies that are already doing business with us or were referred to us by someone who already has a relationship with Washington Trust. Washington Trust Bancorp, Inc. 2005 Annual Report A commitment to small business Small businesses depend on their local branch to satisfy both personal and business banking needs. In 2005, Washington Trust worked on nurturing the relationship between these businesses and our branches by making it easier for them to do their banking with us. Our Freedom Business Partners™ Account, which features a free business checking account, preferred loan rates, and special discounts, continued to be a popular product for small businesses. We also put an expanded team in place to cater to small business owners. We had a successful year in our merchant services area, as sales volume grew by 21%. While this line of business is extremely price-sensitive, Washington Trust has been successful because our excellent customer service gives us a competitive advantage. Merchant relationships are a key source of fee income and provide new checking account relationships, as well. Our ability to establish multi-product, multi-service relationships with these customers is a key retention strategy. Washington Trust’s commitment to helping small businesses start up, prosper, and grow is reflected in our designation as a Small Business Administration (SBA) preferred lender. In fact, three of the 2005 SBA award winners were Washington Trust customers, including the SBA Rhode Island Business Person of the Year. In addition, the SBA honored us for supporting minority business develop- ment, as we ranked second among the Rhode Island banks that provided SBA loans to minority-owned small businesses. 16 17 REACHING OUT TO THE COMMUNITIES WHERE WE WORK AND LIVE Community Washington Trust Bancorp, Inc. 2005 Annual Report At Washington Trust, community involvement is instrumental to our success. Our achievements as an institution are part and parcel of the achievements of our communities as a whole. We support organizations that are committed to ensuring that our communities thrive. We are part of the economic engine that makes their vital work possible. Our outreach goes well beyond funding. Every day, our people make a difference on both a professional and personal level. Washington Trust truly touches the lives of those around us through the relationships we have with people and organizations in the community. Promoting financial literacy and volunteerism Washington Trust’s 2005 community outreach included a Financial Literacy Program. Through the American Bankers Association’s Teach Kids to Save program, Washington Trust bankers visited schools throughout Rhode Island and Connecticut to teach students about the importance and value of saving. In addition, Washington Trust sponsored the Stock Market Game™, an education program that provides students the opportunity to learn first-hand about the investment world by reading The Providence Journal, investing a simulated $100,000 in the New York, American, and NASDAQ exchanges over a 10-week period, and tracking their trades in an online portfolio. Members of our wealth management team participated in the program, which reached more than 900 students. Throughout Washington Trust’s 205-year history, our employees have consistently demonstrated a willingness and eagerness to lend a hand. In 2005, that commitment to volunteerism earned us the Award for Excellence in Workplace Volunteer Programs from the Points of Light Foundation, the nation’s leading volunteer resource. The international award honors businesses of all sizes and from all indus- tries that have made a commitment to effectively engage employees in volun- teering. Washington Trust was the only bank to receive the award in 2005. Other honorees included Aetna, Cisco Systems, The Home Depot, and Federated Department Stores. Washington Trust also received the Outstanding Commitment to Volunteerism Award from the Volunteer Center of Rhode Island. The employees at Washington Trust take great pride in serving the communities where we live and work. In 2005, we were once again grateful for the opportunity to experience the rewards of helping those in need. In 2005, we were once again grateful for the opportunity to experience the rewards of helping those in need. Washington Trust’s star mascots appear at community events throughout the year. WASHINGTON TRUST ENJOYS RELATIONSHIPS WITH ORGANIZATIONS WHOSE WORK MEANS SO MUCH TO OUR CUSTOMERS, EMPLOYEES, AND NEIGHBORS. IN WESTERLY, WE ARE A MAJOR SUPPORTER OF THE WESTERLY PUBLIC LIBRARY. ABOVE LEFT TO RIGHT, KATHRYN TAYLOR, EXECUTIVE DIRECTOR, WESTERLY PUBLIC LIBRARY; ELIZABETH B. ECKEL, SENIOR VICE PRESIDENT, MARKETING; AND DENNIS L. ALGIERE, SENIOR VICE PRESIDENT, CHIEF COMPLIANCE OFFICER AND DIRECTOR OF COMMUNITY AFFAIRS. 18 FINANCIAL STATEMENTS 19 Washington Trust Bancorp, Inc. 2005 Annual Report Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Income 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 $620,638 in 2005 and $724,209 in 2004 Held to maturity, at cost; fair value $162,756 in 2005 and $156,270 in 2004 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 Junior subordinated debentures Other borrowings Accrued expenses and other liabilities Total liabilities Commitments and contingencies 2005 2004 $ 48,997 17,166 439 $ 34,801 17,280 1,095 619,234 164,707 783,941 34,966 554,734 582,708 264,466 1,401,908 17,918 1,383,990 23,737 10,594 30,360 39,963 14,409 13,441 735,666 154,392 890,058 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 $2,402,003 $2,307,820 $196,102 178,677 223,255 212,499 828,725 1,639,258 2,408 545,323 22,681 9,774 24,113 $189,588 174,727 196,775 251,920 644,875 1,457,885 2,257 672,748 – 3,417 19,661 2,243,557 2,155,968 Shareholders’ Equity: Common stock of $.0625 par value; authorized 30 million shares in 2005 and 2004; issued 13,372,295 shares in 2005 and 13,278,685 in 2004 Paid-in capital Retained earnings Unearned stock-based compensation Accumulated other comprehensive (loss) income Treasury stock, at cost; 10,519 shares in 2005 and 9,309 shares in 2004 Total shareholders’ equity Total liabilities and shareholders’ equity 836 33,676 126,735 (898) (1,653) (250) 158,446 830 31,718 113,314 (737) 6,937 (210) 151,852 $2,402,003 $2,307,820 Refer to Washington Trust Bancorp, Inc.’s 2005 Annual Report on Form 10-K for a complete set of consolidated financial statements. Years ended December 31, (Dollars and shares in thousands, except per share amounts) 2005 2004 2003 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 Junior subordinated debentures Other Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Noninterest income: Wealth management and trust services 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 Legal, audit and professional fees Outsourced services Amortization of intangibles Debt prepayment penalties 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 $78,931 33,820 2,491 451 115,693 $60,828 33,787 2,105 133 96,853 $51,603 32,430 2,081 131 86,245 32,186 22,233 458 160 55,037 60,656 1,200 59,456 16,421 4,502 5,203 1,679 1,110 357 1,674 30,946 32,133 3,460 3,456 4,319 1,977 1,900 1,723 852 – 6,573 56,393 34,009 10,985 $23,024 13,315.2 13,626.7 $1.73 $1.69 $.72 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 1,535 1,616 644 – 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 1,242 1,333 719 941 5,937 47,632 27,442 8,519 $18,923 13,114.1 13,393.6 $1.44 $1.41 $.62 Refer to Washington Trust Bancorp, Inc.’s 2005 Annual Report on Form 10-K for a complete set of consolidated financial statements. 20 FINANCIAL STATEMENTS 21 Washington Trust Bancorp, Inc. 2005 Annual Report Washington Trust Bancorp, Inc. and Subsidiaries 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 (Loss) Treasury Stock Total The Board of Directors and Shareholders Washington Trust Bancorp, Inc.: $818 $28,767 $90,717 18,923 $(24) $9,294 $(851) Balance at January 1, 2003 Net income Unrealized losses on securities, net of $1,002 income tax benefit Reclassification adjustment for net realized gains included in net income, net of $220 income tax expense 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 adjustment for net realized gains included in net income, net of $87 income tax expense 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 Net income Unrealized losses on securities, net of $4,443 income tax benefit Reclassification adjustment for net realized gains included in net income, net of $125 income tax expense Minimum pension liability adjustment, net of $160 income tax benefit (2,499) (410) (284) (8,148) 29 (29) 31 7 1,072 $825 $29,868 $101,492 $(22) $6,101 20,829 1,006 (161) (9) 850 5 1,000 (9,007) (850) 135 $830 $31,718 $113,314 $(737) $6,937 23,024 (8,061) (232) (297) Comprehensive income Cash dividends declared Restricted stock and stock unit awards, net Amortization of restricted stock Shares issued Shares repurchased Balance at December 31, 2005 (9,603) (533) 372 533 6 1,425 $836 $33,676 $126,735 $(898) $(1,653) $128,721 18,923 (2,499) (410) (284) 15,730 (8,148) – 31 1,930 (209) $138,055 20,829 1,006 (161) (9) 21,665 (9,007) – 135 1,159 (155) $151,852 23,024 ( 8,061) 851 (209) $(209) 154 (155) $(210) (232) (297) 14,434 (9,603) – 372 1,460 (69) $(250) $158,446 29 (69) Refer to Washington Trust Bancorp, Inc.’s 2005 Annual Report on Form 10-K for a complete set of consolidated financial statements. 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 Subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows (not presented herein) for each of the years in the three-year period ended December 31, 2005; and in our report dated March 15, 2006, 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, 2006 SHAREHOLDER INFORMATION Stock Transfer and Dividend Disbursing Agent American Stock Transfer & Trust Company (AST), 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. AST 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. For information, contact AST on the toll-free Shareholder Information Line, 800-852-0354, via the secure AST Shareholder Services website, http://www.amstock.com, or by writing to: Washington Trust Bancorp, Inc., c/o American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, NY 11219. To receive a duplicate copy of your 2005 IRS Form 1099, please contact Mellon Investor Services at 800-580-0073 or Elizabeth B. Eckel, Senior Vice President, at Washington Trust at 401-348-1566. Copies of our most recent annual and quarterly reports and a copy of our 2005 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 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. 22 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. James P. Sullivan, CPA, Retired Finance Officer, Roman Catholic Diocese of Providence 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 Galan G. Daukas, Executive Vice President, Wealth Management David V. Devault, Executive Vice President, Secretary, Treasurer and Chief Financial Officer The Washington Trust Company Directors’ Advisory Council Alcino G. Almeida, 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 23 Washington Trust Bancorp, Inc. 2005 Annual Report The Washington Trust Company Senior Management John C. Warren, Chairman and Chief Executive Officer John F. Treanor, President and Chief Operating Officer Dennis L. Algiere, Senior Vice President, Chief Compliance Officer and Director of Community Affairs Carl M. Amaral, Senior Vice President, Branch Sales and Service Stephen M. Bessette, Executive Vice President, Retail Lending Vernon F. Bliven, Senior Vice President, Human Resources Galan G. Daukas, Executive Vice President, Wealth Management David V. Devault, Executive Vice President, Secretary, Treasurer and Chief Financial Officer Elizabeth B. Eckel, Senior Vice President, Marketing Gerald J. Fogarty, Jr., Managing Director, Washington Trust Investors Philip L. Friend, Senior Vice President, Retail Lending William D. Gibson, Senior Vice President, Credit Administration 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, Washington Trust Investors 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 Harvey C. Perry, II, Senior Vice President, Director of Office for Non-Profit Resources B. Michael Rauh, Jr., Executive 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 Weston Financial Group, Inc. Galan G. Daukas, Executive Managing Director Douglas A. Biggar, Managing Director Wayne M. Grzecki, Managing Director I. Richard Horowitz, Managing Director Joseph Robbat, Jr., Managing Director Robert I. Stock, Managing Director Ronald A. Sugameli, Managing Director 25 Washington Trust Bancorp, Inc. 2005 Annual Report Notes: 24 WASHINGTON TRUST LOCATIONS 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 66-70 South Main Street Providence, RI 02903 401-861-8440 401-331-6650 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 Massachusetts Office WELLESLEY Weston Financial Group Wellesley Office Park 40 William Street Wellesley, MA 02481 781-235-7055 Account Information Center To speak with a customer service representative, call 401-348-1200 or toll-free 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 800-226-5877. Website Current company and shareholder information available at www.washtrust.com. 23 Broad Street, Westerly, RI 02891 www.washtrust.com
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