Washington Trust Bancorp
Annual Report 2006

Plain-text annual report

Trus ted Advisor t r o p e R l a u n n A 6 0 0 2 . c n I , p r o c n a B t s u r T n o t g n i h s a W Letter to Shareholders....................................4 Corporate Profile ............................................6 2006 Financial Highlights ...............................7 The Year In Highlights ....................................8 Consolidated Balance Sheets .......................20 Consolidated Statements of Income............21 Consolidated Statements of Changes in Shareholders’ Equity.................................22 Report of Independent Registered Public Accounting Firm.................................23 Shareholder Information..............................23 Corporate Directory ......................................24 Washington Trust Locations .........................26 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. All statements, other than statements of historical facts, including statements regarding our strategy, effectiveness of investment programs, evaluations of future interest rate trends and liquidity, expectations as to growth in assets, deposits and results of operations, success of acquisitions, future operations, market position, financial position, and prospects, plans, goals and objectives of management are forward-looking statements. The actual results, performance or achievements of the Corporation could differ materially from those projected in the forward-looking statements as a result of, among other factors, 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. The Corporation assumes no obligation to update forward- looking statements or update the reasons actual results, performance or achievements could differ materially from those provided in the forward-looking statements, except as required by law. 2 Washington Trust Bancorp, Inc., 2006 Annual Report Washington Trust: What’s In A Name? It is altogether fitting that the word trust is part of the Washington Trust name. Of all the words in the English language, trust best describes what is at the root of our relationships with clients and customers. For more than 200 years, people have trusted Washington Trust to help them achieve their financial goals. At dictionary.com, the definition for trust is firm reliance on the integrity, ability, or character of a person or thing. When people are discussing personal or business finances, having an advisor with integrity, ability, and character is essential. For many people in 2006, that trusted advisor was a person at Washington Trust. People turn to us for advice on matters that range from the simple to the complex: • I want to retire at 65, keep my house in Florida, buy a house in Maine, and help my two children get through graduate school. I have all sorts of stock options and restricted stock from my company. How should I proceed? 3 • My business has grown significantly. How can I increase my cash flow and improve its earning power? • How can I earn the most for the deposits my business makes while still maintaining access to the funds? • We’re finally ready to put in our dream kitchen. Are we better off with a home equity loan or line of credit? • How can we align our non-profit organization’s investment portfolio with our mission and values? At Washington Trust, we play the role of trusted advisor in every aspect of our business. L e t t e r t o S h a r e h o l d e r s Washington Trust Bancorp, Inc., 2006 Annual Report 2006 was a solid year for your Corporation. In light of challenging market Our commercial lending group made significant strides in expanding both its conditions and fierce competition, Washington Trust posted excellent earnings capabilities and market presence. A new commercial lending office in the heart and earnings per share. Net income reached $25 million, up 8.7% from 2005. of Providence’s financial district raised our profile and underscored our position For the 14th consecutive year, we increased our dividend, declaring cash dividends as a major resource for a wide range of businesses. From start-up financing to of 19 cents per share. We grew our market share and customer base as well – growth and acquisition funding, to sophisticated, multi-million-dollar deals, clear signs of an organization that continues to gain momentum in all areas we have the experience and capacity to get the job done for our commercial of its business. clients. Within our commercial lending group, our commercial real estate team continued to make significant inroads with developers and real estate Our performance in 2006 is even more satisfying when you put it in the context professionals throughout New England and New York. of our peers. Many banks in our market area reported a decline in earnings for the year. For Washington Trust to have posted an 8.7% increase in earnings Despite a challenging interest rate environment, Washington Trust grew reflects the strength of our brand, the stability of our business model, the deposit market share. Timely direct mail promotions attracted new deposits wisdom of our recent strategic initiatives, and the excellence of our people. and relationships to the Bank. We were also the first to aggressively market Key to our achievements in 2006 was our ability to balance the stream of reverse mortgages, an innovative new solution for seniors looking to maintain earnings from our core lines of business – personal banking, business banking, their homes and quality of life. and wealth management. Washington Trust shines in a larger regional context as well. A recent report and, in 2006, our employees continued this strong legacy of reaching out to by Keefe, Bruyette & Woods, a leading analyst of financial institutions, ranked help others. The majority of our employees volunteered their time and talent to Washington Trust 11th out of 70 banks in the northeastern United States for organizations involved with housing and economic development, health and performance from the third quarter ’04 through the third quarter ’06. Your human services, the arts, youth and family, education, and the environment. Corporation is operating at the top of its class, among the premier financial What’s more, Washington Trust executives provided board leadership for many Washington Trust has been a trusted advisor to the community since its founding, institutions in the region. organizations, including The United Way, the Rhode Island Chapter of the American Red Cross, Meeting Street School, and the Greater Providence YMCA. At the heart of our success is our position as trusted advisor to clients, customers, and the community at large. It is a role we embrace and affirm each day through Looking forward to 2007, we eagerly anticipate the opening of our second thousands of interactions at every level of the Bank’s business – in commercial Cranston branch, broadening our presence in that community and bringing our loan closings, in meetings with high net worth clients, in the lobbies of our 16 branch location total to 17. We will continue to pursue growth opportunities in branches, and in board meetings for non-profit organizations where we serve all our lines of business while adhering to our philosophy of maintaining strong as directors. Relationships matter at Washington Trust. Our employees are asset quality. We appreciate the ongoing commitment and efforts of our genuinely committed to helping people achieve their life goals, and that employees, for they are the “trusted advisors” who connect Washington Trust commitment drives the continued success of your Corporation. with customers and nurture those relationships every day. Thank you, as well, to our shareholders for the trust that you place in us and for your support. It is 2006 was a record-setting year for our wealth management group, providing a privilege to lead and direct your Corporation. “ At the heart of our success is our position as trusted advisor to clients, customers, and the community at large. It is a role that we embrace and affirm each day through thousands of interactions at every level of the Bank’s business. ” 4 John C. Warren Chairman and Chief Executive Officer a resounding affirmation of our strategic initiatives in this area in recent years. Generating important non-interest income, the group’s revenues were up 58% and accounted for 25% of the Bank’s overall revenues. Our wealth management group has firmly established itself as a unique resource for investors, combining world-class expertise and consistent results with local, personalized service. “ A recent report by Keefe, Bruyette & Woods, a leading analyst of financial institutions, ranked Washington Trust 11th out of 70 banks in the northeastern United States for performance from the third quarter ’04 through the third quarter ’06. Your Corporation 5 is operating at the top of its class, among the premier financial institutions in the region. ” John F. Treanor President and Chief Operating Officer C o r p o r a t e P r o f i l e F i n a n c i a l H i g h l i g h t s Washington Trust Bancorp, Inc., 2006 Annual Report Washington Trust Profile As of December 31, 2006 $2.4 billion in assets $373 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, 2006, Washington Trust had 465 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. Market and Dividend Information Washington Trust’s common stock trades on the Nasdaq Global Market® under the symbol WASH. As of December 31, 2006, there were 2,090 shareholders of record. Auditors: KPMG LLP, Providence, Rhode Island Counsel: Goodwin Procter LLP, Boston, Massachusetts Annual Meeting of Shareholders Tuesday, April 24, 2007, 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 con- trol number located on your card. Then, follow the instructions to create and submit an electronic ballot. 2006 Quarters Stock prices: High Low Close Dividend declared 1 2 3 4 $29.49 25.45 28.07 .19 $28.93 24.07 27.72 .19 $27.44 24.01 26.51 .19 $29.30 25.31 27.89 .19 2005 Quarters 1 2 3 4 Stock prices: High Low Close Dividend declared $29.99 27.00 27.48 .18 $28.81 23.94 27.67 .18 $30.38 26.08 27.19 .18 $29.98 25.77 26.18 .18 6 Shareholder Return Performance Presentation Set forth at right is a line graph comparing the cumulative total shareholder return on the Corporation’s Common Stock against the cumulative total return of The NASDAQ Stock Market (U.S.) and the NASDAQ Bank Stocks index for the five years ended December 31. The historical information set forth below is not necessarily indicative of future performance. Washington Trust Bancorp, Inc. Nasdaq Bank Stocks The Nasdaq Stock Market (U.S.) 2001 $100.00 $100.00 $100.00 2002 $105.59 $102.37 $69.13 2003 $146.50 $131.69 $103.36 2004 $168.07 $150.71 $112.49 2005 $154.15 $147.23 $114.88 2006 $168.93 $165.21 $126.22 The results presented assume that the value of the Corporation’s Common Stock and each index was $100.00 on December 31, 2001. The total return assumes reinvestment of dividends. (Dollars in thousands, except per share amounts) At or for the years ended December 31, Financial Condition Total assets Total loans Allowance for loan losses Securities Deposits Shareholders’ equity Financial Results Net interest income Provision for loan losses Noninterest income Noninterest expense Net income Per Share Information Diluted earnings per share Cash dividends declared Book value Tangible book value Closing stock price Selected Ratios Return on average assets Return on average equity Net interest margin (taxable equivalent basis) Noninterest income as a percentage of total revenue Nonperforming assets to total assets Allowance for loan losses to total loans Other Selected Data Wealth management assets under administration Number of ATMs 2006 2005 2004 $2,399,165 1,459,986 18,894 703,851 1,677,997 173,056 $2,402,003 1,401,908 17,918 783,941 1,639,258 158,446 $2,307,820 1,249,676 16,771 890,058 1,457,885 151,852 $61,474 1,200 42,183 65,335 25,031 $1.82 .76 12.89 8.61 27.89 $60,656 1,200 30,946 56,393 23,024 $1.69 .72 11.86 7.79 26.18 $54,441 610 26,905 50,373 20,829 $1.54 .68 11.44 9.64 29.31 1.04% 0.98% 0.97% 14.99 2.80 40.69 0.11 1.29 14.80 2.79 33.78 0.10 1.28 14.40 2.74 33.07 0.21 1.34 $3,694,813 132 $3,271,756 124 $1,870,510 102 7 Diluted Earnings Per Share Cash Dividends Declared Per Share Wealth Management Assets Under Administration 100150200$0$50$100$150$20012/31/01 12/31/02 12/31/03 12/31/0412/31/05 12/31/06Washington Trust Bancorp, Inc.NASDAQBank StocksThe NASDAQStockMarket (U.S.) B a n k i n g Washington Trust Bancorp, Inc., 2006 Annual Report Moving Beyond Transactions Companies turn to Washington Trust when they need money – but in their relationship with us, they are usually looking for more than transactions. Some may want a sounding board for an idea that they have. Others may want an opinion on strategy from a person outside of their organization. Still others may be looking for a referral to another professional resource. No matter what their reason is, these companies all have one thing in common: they want to connect with a person they can trust. Many commercial clients come to Washington Trust through a referral from an attorney, accountant, or professional peer, or through an existing relationship with a commercial lender who has now become part of the Washington Trust team. Amid the recent consolidation of the banking industry in our region, Washington Trust’s commercial lending team continues to distinguish itself through its experience, accessibility, and commitment to outstanding client service. John Regan Vice President and Team Leader Commercial Lending We are a “ relationship-oriented bank. In commercial lending, that means we make individualized 9 While attractive terms and innovative structure get us in the door with decisions. If there is a company clients, service is what keeps them with us. Knowledgeable, personalized service nurtures relationships, and in this area, Washington Trust excels. More than one commercial client has said to us that they only heard from their previous bank when something went wrong. They soon discovered that business as usual is different at Washington Trust. They have a relationship with a local banking professional who knows and cares about their business, and is easy to communicate with – by phone, email, and/or in person – whenever the need arises. Local decision-making we believe in that needs a deal structured in a particular way, we have the flexibility and willingness to think outside of the box for them. ” 8 Dominion Diagnostics is a rapidly growing national medical laboratory, offering innovative clinical pharmacological and toxicological testing and support services to healthcare providers in a variety of fields. Viewing the progress on their latest facility expansion above (L to R) are Frank Fornari, Chief Executive Officer; Gwen Bauer, Chief Medical Officer; Stephen Jordan, Chief Operating Officer; and David Siwicki, President. We view Washington Trust as our partner as we grow our business. Their counsel is “ extremely important to Dominion. – Stephen Jordan Chief Operating Officer Dominion Diagnostics ” B a n k i n g Washington Trust Bancorp, Inc., 2006 Annual Report allows us to be more flexible and responsive than our competitors. In fact, it is not unusual for our Chairman or President to visit prospects and customers to discuss their needs and gain a better understanding of their business. Washington Trust connects companies with considerable resources. Our capabilities include multi-million dollar financing and lines of credit, all types of commercial loans, asset-based financing, loan participations and syndications, and a comprehensive suite of cash management services. This offering will be augmented in 2007 with the introduction of our remote deposit capture service, providing our commercial clients increased convenience and enabling us to serve a broader customer base. Awareness of Washington Trust as a major regional player in commercial lending and commercial real estate is growing steadily. We were pleased to open our new commercial lending office in the heart of Providence’s financial district in December 2006, and continue to expand our commercial real estate practice throughout New England and New York. Keeping Banking Personal It is a paradox of our times: as people embrace technology to facilitate all aspects of their financial lives, they also crave human interaction, especially when making important financial transactions. Washington Trust has incorporated technology as an essential part of our overall relationship with customers, but never at the expense of personalized, 10 One of the fastest-growing companies in America, Carousel Industries is a communication systems integrator and reseller that specializes in the design, implementation, and support of strategic integrated communication solutions. Pictured above (L to R) are Jeff Gardner, Chief Executive Officer, and Michael Vickers, President. “ At the end of the day, I know Washington Trust will do the right thing for Carousel. – Jeff Gardner Chief Executive Officer Carousel Industries ” Jennifer Dantu Merchant Sales Representative We take the time “ to get to know a customer’s business. That’s where long-term relationships begin – with a genuine 11 understanding of who they are and what they are trying to accomplish. ” B a n k i n g Washington Trust Bancorp, Inc., 2006 Annual Report one-to-one service. That is our pedigree. It is also the source of significant competitive advantage. At the retail level, online banking, Internet loan applications, and ATMs all make banking more convenient for customers. But how we truly differentiate ourselves is by adding value with advice that enables people to manage their money intelligently and simplify their lives. Helpful everyday interactions earn us loyalty as well as new business, as customers come to trust our counsel and recommend us to their friends. A new product that underscores our role as trusted advisor is reverse mortgages, which we introduced to the market in 2006. This innovative loan is designed for homeowners, age 62 or older, who wish to maintain ownership of their home, but face escalating expenses that make it all but impossible to do so. A reverse mortgage enables seniors to convert their home equity into cash while living at home for as long as they choose. 12 P. Schurman Contractors builds architecturally designed, high-end residences, additions, and renovations. Since 1975, As with any new product, reverse mortgages require significant education the company has constructed some of the most unique homes in South County, Rhode Island. Pictured above in their and explanation before a customer decides to move forward. Our success home are Paul and Barbara Schurman. “ We love the personal touch that we get with Washington Trust. It’s a bank that shows a personal interest in and respect for its customers. – Paul and Barbara Schurman P. Schurman Contractors ” with introducing this innovative product is directly related to the trust we have earned with our customers, their families, and our professional peers. At times, being a trusted advisor means telling people what not to do. We embrace innovation when it will benefit our customers. However, we do not recommend products that we feel create excessive risk. When they are not in the customer’s best interest, it is part of our job to explain why. Lori Dufficy Vice President, Market Manager The true value that we provide is found in the “ various pieces of advice that we give to people and businesses each day. 13 They trust us to help them manage their money and achieve their goals. ” W e a l t h M a n a g e m e n t Washington Trust Bancorp, Inc., 2006 Annual Report The people at Washington Trust have what it takes to be a trusted advisor: knowledge, experience, and a commitment to doing what is best for our customers. Building Bridges When people turn to Washington Trust, they are often looking to go from one place to another. A business wants to expand operations to new markets. Grandparents want to go from generating wealth to passing it on to their heirs. A young couple wants to go from dreaming about a first home to purchasing it. The trusted advisors at Washington Trust provide the bridge that enables people to get to where they want to go. Nowhere is this bridge-building more evident than in our wealth management group, where our advisors help clients navigate the gap Gerald Fogarty Managing Director Washington Trust Investors “ When people turn to us, sure, it’s about money, between their financial resources and their life goals. In most cases, we but it’s really about something I want to preserve my wealth for my a secure retirement, setting up a trust fund for a special-needs child, or are dealing with an individual’s or institution’s financial lifeblood. Our job is to help our client achieve their mission, whatever it may be – living building a non-profit organization’s endowment. When these are the “ children and grandchildren. Washington Trust took the time to get to know what’s important to me, and it shows every time they make stakes, nothing less than the most trusted advisor will do. a recommendation. – Wealth Management Client ” Our wealth management group begins by building a personal relationship with clients while helping them articulate their needs and hopes for much bigger than that. 15 They have a mission – to provide for their heirs, to fund a cause they believe in, to set up an endowment. It is a privilege to help individuals and institutions themselves, their families, community, and career. By thoroughly under- achieve their life goals. standing a client’s goals through the planning process, we can develop ” 14 W e a l t h M a n a g e m e n t Washington Trust Bancorp, Inc., 2006 Annual Report effective strategies to achieve them. The group meets each client’s unique needs with a comprehensive set of wealth management services. Recommendations are built upon our commitment to exceptional service and financial guidance, combined with disciplined investment and fiduciary services. Clients quickly discover that our wealth management group possesses unique qualifications to be their trusted advisor. We combine world-class capabilities with a full range of investment options that are delivered locally by people our clients know and trust. Our larger competitors have resources, certainly, but they cannot provide local, personalized service. Imagine having your life savings to invest and being routed to a call center halfway across the country to speak to a person you will never see. Conversely, the local broker, boutique, or financial planner may offer personalized service, but he or she cannot connect clients with the most sought-after asset managers, mutual funds, and separately managed accounts. Washington Trust’s wealth management group gives clients the best of both worlds – the very best investment options 16 Founded in 1856, Tockwotton Home is a non-profit assisted living residence and nursing home located in Providence. Above (L to R), Robert Martin, Assisted Living Administrator, and Kevin McKay, Executive Director, discuss plans for the and expert service that’s local and personalized. construction of their new location in 2007. “ Washington Trust knows our organization. When the mission is so important, you really have to trust the people who are advising you. ” – Kevin McKay Executive Director Tockwotton Home The significant achievements of our wealth management group in 2006 are a direct result of the trust that our advisors have earned from our clients. Russel Burgess Vice President and Investment Officer “ It really goes way beyond our investment product. Our products are a means to help people achieve 17 their goals, but it’s the relationship that they truly value. ” Y e a r I n R e v i e w Washington Trust Bancorp, Inc., 2006 Annual Report 1 New Cranston Branch 7 Heart Walk Construction progresses on our newest Washington Trust employees raised funds branch, which is slated to open in May 2007 for the American Heart Association by on Oaklawn Avenue. participating in the Rhode Island branch’s Heart Walk in September. 1 5 9 2 6 3 7 4 8 10 11 12 2 Peanut Butter Drive Our sixth annual P.B. Xpress peanut butter 8 Get Smart About Credit Day drive collected a record 11 tons of peanut Washington Trust employees visited local butter for the Rhode Island Community high schools to teach young adults about Food Bank. 3 Best of Rhode Island the importance of establishing and maintaining good credit. We were proud to salute 33 of our business 9 New Commercial Lending Office clients who were featured in Rhode Island In December, our commercial lending team Monthly’s Best of Rhode Island™ issue. relocated to its new office in the heart of Providence’s financial district. 4 Washington Trust Stars Throughout the year, the Washington Trust 10 Domestic Violence Awareness Month Stars made appearances at community More than 400 cell phones were collected events around the region. at our branches in October to benefit the Domestic Violence Resource Center of 5 Worksite Health Award South County. Washington Trust received the Outstanding Award by the Worksite Wellness Council of 11 Free Community Shred Day™ 18 Rhode Island. We offered people a safe and secure way to prevent identity theft with a free Community 19 “ In 2006, Washington Trust continued to gain momentum in all aspects of its business and community outreach. ” – John C. Warren Chairman and Chief Executive Officer 6 Rebuilding Together Shred Day™ in November. In April, a team of Washington Trust employees repaired a home in Providence, 12 Business Leaders Forum Rhode Island as part of a Rebuilding Our September forum on Rhode Island’s Together project. economic and business environment attracted business leaders from throughout the region and featured New England Patriots great Steve Grogan as guest motivational speaker. F i n a n c i a l S t a t e m e n t s Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Balance Sheets Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Income Washington Trust Bancorp, Inc., 2006 Annual Report 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 $525,966 in 2006 and $620,638 in 2005 Held to maturity, at cost; fair value $175,369 in 2006 and $162,756 in 2005 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, net 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 20 Commitments and contingencies Shareholders’ Equity: Common stock of $.0625 par value; authorized 30,000,000 shares in 2006 and 2005; issued 13,492,110 shares in 2006 and 13,372,295 shares in 2005 Paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock, at cost; 62,432 shares in 2006 and 10,519 shares in 2005 Total shareholders’ equity Total liabilities and shareholders’ equity 2006 2005 $ 54,337 17,572 2,148 526,396 177,455 703,851 28,727 587,397 588,671 283,918 1,459,986 18,894 1,441,092 24,307 11,268 39,770 44,558 12,816 18,719 $2,399,165 $186,533 175,479 286,998 205,998 822,989 1,677,997 2,556 474,561 22,681 14,684 33,630 2,226,109 843 35,893 141,548 (3,515) (1,713) 173,056 $2,399,165 $ 48,997 17,166 439 619,234 164,707 783,941 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 $2,402,003 $196,102 178,677 223,255 212,499 828,725 1,639,258 2,408 545,323 22,681 9,774 24,113 2,243,557 836 32,778 126,735 (1,653) (250) 158,446 $2,402,003 Years ended December 31, (Dollars and shares in thousands, except per share amounts) Interest income: Interest and fees on loans Interest on securities Taxable Nontaxable 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 services: Trust and investment advisory fees Mutual fund fees Financial planning, commissions and other service fees Wealth management services Service charges on deposit accounts Merchant processing fees Income from bank-owned life insurance Net gains on loan sales and commissions on loans originated for others Net realized gains on securities Other income Total noninterest income Noninterest expense: Salaries and employee benefits Net occupancy Equipment Merchant processing costs Outsourced services Advertising and promotion Legal, audit and professional fees Amortization of intangibles 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 2006 2005 2004 $ 92,190 $ 78,931 $ 60,828 33,763 1,618 2,842 721 131,134 46,982 20,916 1,352 410 69,660 61,474 1,200 60,274 19,099 4,665 2,616 26,380 4,915 6,208 1,410 1,423 443 1,404 42,183 38,698 3,888 3,370 5,257 2,009 1,894 1,637 1,593 6,989 65,335 37,122 12,091 $ 25,031 13,424.1 13,723.2 $1.86 $1.82 $.76 32,934 886 2,491 451 115,693 32,186 22,233 458 160 55,037 60,656 1,200 59,456 14,407 1,336 919 16,662 4,502 5,203 1,110 1,679 357 1,433 30,946 32,133 3,460 3,456 4,319 1,723 1,977 1,900 852 6,573 56,393 34,009 10,985 $ 23,024 13,315.2 13,626.7 $1.73 $1.69 $.72 33,125 662 2,105 133 96,853 22,197 20,153 - 62 42,412 54,441 610 53,831 12,385 - 663 13,048 4,483 4,259 1,175 1,901 248 1,791 26,905 28,816 3,201 3,267 3,534 1,616 1,748 1,535 644 6,012 50,373 30,363 9,534 $ 20,829 13,227.8 13,542.7 $1.57 $1.54 $.68 21 Refer to Washington Trust Bancorp, Inc.’s 2006 Annual Report on Form 10-K for a complete set of consolidated financial statements. Refer to Washington Trust Bancorp, Inc.’s 2006 Annual Report on Form 10-K for a complete set of consolidated financial statements. F i n a n c i a l S t a t e m e n t s Washington Trust Bancorp, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Report of Independent Registered Public Accounting Firm (Dollars and shares in thousands) Common Shares Outstanding Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total The Board of Directors and Shareholders Washington Trust Bancorp, Inc.: Washington Trust Bancorp, Inc., 2006 Annual Report Balance at January 1, 2004 Net income for 2004 Unrealized gains on securities, net of $383 income tax expense Reclassification adjustments 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 Share-based compensation Deferred compensation plan Exercise of stock options and related tax benefit Shares repurchased Balance at December 31, 2004 Net income for 2005 Unrealized losses on securities, net of $4,443 income tax benefit Reclassification adjustments for net realized gains included in net income, net of $125 income tax expense Minimum pension liability adjustment, net of $160 income tax benefit Comprehensive income Cash dividends declared Share-based compensation Deferred compensation plan Exercise of stock options and related tax benefit 22 13,195 $825 $29,846 $101,492 20,829 $6,101 $(209) 1,006 (161) (9) (9,007) 135 (1) (1) 80 (5) 13,269 5 1,000 $830 $30,981 $113,314 $6,937 125 (125) $(210) 1,130 (125) $151,852 23,024 (9,603) (8,061) (232) (297) (1) 66 4 372 7 814 (40) Shares issued – dividend reinvestment plan and other Balance at December 31, 2005 28 13,362 2 $836 604 $32,778 Net income for 2006 Unrealized gains on securities, net of $843 income tax expense Reclassification adjustments for net realized gains included in net income, net of $322 income tax expense Minimum pension liability adjustment, net of $33 income tax expense Comprehensive income Adjustment to initially apply SFAS No. 158, net of $1,741 income tax benefit $126,735 $(1,653) $(250) 25,031 1,432 (121) 61 (3,234) Cash dividends declared Share-based compensation Deferred compensation plan Exercise of stock options and related tax benefit Shares issued – dividend reinvestment plan Shares repurchased Balance at December 31, 2006 (10,218) 694 7 1,200 1,214 5 2 $843 $35,893 $141,548 $(3,515) (144) 91 (1,410) $(1,713) (5) 77 46 (50) 13,430 Refer to Washington Trust Bancorp, Inc.’s 2006 Annual Report on Form 10-K for a complete set of consolidated financial statements. $138,055 20,829 1,006 (161) (9) 21,665 (9,007) 135 (1) 23,024 (8,061) (232) (297) 14,434 (9,603) 372 (33) 818 606 $158,446 25,031 1,432 (121) 61 26,403 (3,234) (10,218) 694 (137) 1,296 1,216 (1,410) $173,056 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, 2006 and 2005, 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, 2006; and in our report dated March 12, 2007, 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 12, 2007 S h a r e h o l d e r I n f o r m a t i o n Stock Transfer and Dividend Disbursing Agent 23 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: American Stock Transfer, 59 Maiden Lane, Plaza Level, New York, NY 10038. To receive a duplicate copy of your 2006 IRS Form 1099, please visit http://www.amstock.com or call 401-348-1566. Copies of our most recent annual and quarterly reports and a copy of our 2006 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. C o r p o r a t e D i r e c t o r y Washington Trust Bancorp, Inc., 2006 Annual Report 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., Distinguished University Professor 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 24 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 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, Risk Management 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, Wealth Management Client Services 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 25 B. Michael Rauh, Jr., Executive Vice President, Sales, Service 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 W a s h i n g t o n T r u s t L o c a t i o n s Notes: Washington Trust Bancorp, Inc., 2006 Annual Report 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 Reservoir Avenue Office 645 Reservoir Avenue Cranston, RI 02910 401-946-1004 OPENING SPRING 2007 Oaklawn Avenue Office 1203 Oaklawn Avenue Cranston, RI 02920 401-732-0049 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 26 PROVIDENCE Providence Office 180 Washington Street Providence, RI 02903 401-421-3600 Providence Commercial Lending Office 10 Weybosset Street, Suite 100 Providence, RI 02903 401-331-5090 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. 27 23 Broad Street, Westerly, Rhode Island 02891 www.washtrust.com 

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