Washington Trust Announces First Quarter 2011 Earnings Up 31% from First Quarter 2010

Washington Trust Bancorp, Inc. (NASDAQ Global Select^®; symbol: WASH), parent company of The Washington Trust Company, today announced first quarter 2011 net income of $6.8 million, or 42 cents per diluted share, up by 31% from the $5.2 million, or 32 cents per diluted share, reported for the first quarter of 2010. As compared to the linked quarter, first quarter 2011 results declined by $411 thousand, or 2 cents per diluted share, reflecting decreased residential mortgage banking activity.

Joseph J. MarcAurele, Washington Trust Chairman, President and CEO, stated "Washington Trust posted solid results for the first quarter and I’m pleased with the momentum that we’ve maintained over the past several quarters. All of our lines of business performed well and we are excited about the growth opportunities presented by our new Burlington, Massachusetts, mortgage office and the East Providence branch office, which will open later this year.”

Financial Highlights:

• Net interest margin continued an upward trend to 3.16%, compared to 3.05% for the fourth quarter of 2010 and 2.78% for the first quarter of 2010.
• Wealth management revenues increased by $242 thousand, or 4%, on a linked quarter basis and by $774 thousand, or 12%, from the first quarter of 2010. Assets under administration increased by 4% in the quarter and by 6% in the last twelve months.
• Due to an increase in market interest rates, residential mortgage refinancing and sales activity declined from the high levels experienced in latter half of 2010. Net gains on loan sales and commissions on loans originated for others declined by $1.6 million on a linked quarter basis and by $35 thousand from the first quarter of 2010.
• Total loan growth amounted to $34 million, or 2%, in the first quarter of 2011, with commercial loan growth of $29 million.
• Total deposits grew by $13 million, or 1%, in the first quarter of 2011, including a $46 million, or 20%, increase in demand deposits.

• The overall level of nonperforming assets remained fairly stable in the quarter, with total nonperforming assets at 0.77% of total assets at March 31, 2011, compared to 0.79% at December 31, 2010.

Net Interest Income

Net interest income totaled $20.3 million for the first quarter of 2011, up by $74 thousand from the fourth quarter of 2010 and up by $2.3 million from the first quarter of 2010.

The net interest margin for the first quarter of 2011 was 3.16%, up by 11 basis points from the fourth quarter of 2010, reflecting a 7 basis point increase in the yield on interest-earning assets. The net interest margin increased by 38 basis points over the first quarter of 2010, due in large part to a reduction in funding costs.

Noninterest Income

Noninterest income totaled $11.7 million for the first quarter of 2011, down by $1.7 million, or 13%, on a linked quarter basis, primarily due to lower levels of residential mortgage refinancing and sales activity. On a year over year basis, noninterest income was up by $1.2 million, or 12%, reflecting increases in wealth management revenues and merchant processing fees.

Wealth management revenues for the first quarter of 2011 increased by $774 thousand, or 12%, over the first quarter of 2010. Wealth management assets under administration totaled $4.119 billion at March 31, 2011, up by $152 million, or 4%, from December 31, 2010 and up by $250 million, or 6%, from March 31, 2010.

Merchant processing fees for the first quarter of 2011 were up by $338 thousand, or 21%, from the first quarter of 2010 primarily due to growth in the volume of transactions processed for existing and new customers. Washington Trust also experienced a corresponding increase of $312 thousand, or 23%, in merchant processing costs (included in noninterest expenses), for third-party costs directly attributable to handling of merchant credit card transactions.

Noninterest Expenses

Noninterest expenses totaled $20.7 million for the first quarter of 2011. In the fourth quarter of 2010 Washington Trust made a $350 thousand contribution to its charitable foundation. Excluding this fourth quarter charitable contribution, noninterest expenses decreased by $706 thousand, or 3%, on a linked quarter basis, reflecting lower commissions and incentives and foreclosed property costs. On a year over year basis, noninterest expenses were up by $1.1 million, or 5%.

Income tax expense amounted to $3.0 million for the first quarter of 2011, compared to $3.2 million for the fourth quarter of 2010 and $2.1 million for the first quarter of 2010. The effective tax rate for the first quarter was 30.5%, compared to 30.4% for the fourth quarter of 2010 and 29.1% for the first quarter of 2010.

Asset Quality

Nonperforming assets (nonaccrual loans, nonaccrual investment securities and property acquired through foreclosure or repossession) amounted to $22.3 million, or 0.77% of total assets, at March 31, 2011. Nonperforming assets declined by $666 thousand from the balance of $23.0 million, or 0.79% of total assets, at December 31, 2010, due to a $1.5 million decrease in property acquired through foreclosure or repossession, which was offset, in part, by an $869 thousand net increase in nonaccrual loans.

At March 31, 2011, total past due loans amounted to $27.3 million, or 1.34% of total loans, up by $2.0 million from the $25.3 million, or 1.27% of total loans, at December 31, 2010. The net increase in past due loans included one commercial real estate loan 37 days past due with a carrying value of $1.2 million that was also classified as a troubled debt restructured loan at March 31, 2011. In April, payments were received on this loan, bringing it current with its restructured terms.

At March 31, 2011, loans classified as troubled debt restructurings totaled $21.1 million, down by $1.3 million from the $22.4 million balance at December 31, 2010, reflecting payoffs and declassification from troubled debt restructuring status.

The loan loss provision charged to earnings amounted to $1.5 million for the first quarter of 2011, unchanged from the fourth quarter 2010 and first quarter 2010 levels. Net charge-offs remained relatively stable and amounted to $974 thousand in the first quarter of 2011 compared to $1.1 million in the fourth quarter of 2010 and $1.2 million in the first quarter of 2010. The allowance for loan losses was $29.1 million, or 1.43% of total loans, at March 31, 2011, compared to 1.43% of total loans at December 31, 2010.

Loans

Total loans grew by $34 million, or 2%, in the first quarter and totaled $2 billion at March 31, 2011. The growth was primarily in the commercial loan portfolio which increased by $29 million in the first quarter.

Deposits

Total deposits amounted to $2 billion at March 31, 2011, up by $13 million, or 1%, from the balance at December 31, 2010, including a $46 million increase in demand deposits.

Capital Management

Capital levels remain comfortably above the regulatory minimums to be considered well capitalized, with total risk-based capital ratio of 12.92% at March 31, 2011 and 12.79% at December 31, 2010. Total shareholder’s equity was $273.9 million at March 31, 2011, up by $5.0 million from the balance at December 31, 2010.

Dividends Declared

The Board of Directors declared a quarterly dividend of 22 cents per share for the quarter ended March 31, 2011. This was an increase of one cent per share over the most recent dividend rate. The dividend was paid on April 14, 2011 to shareholders of record on March 31, 2011.

Conference Call

Washington Trust will host a conference call on Monday, April 25, 2011 at 10:00 a.m. Eastern Time to discuss first quarter results. This call is being webcast and can be accessed through the Investor Relations section of the Washington Trust web site, www.washtrust.com. Individuals may dial in to the call at 1-877-317-6789. The international dial-in number is 1-412-317-6789 and the Canada dial-in number is 1-866-605-3852. A replay of the call will be posted in this same location on the web site shortly after the conclusion of the call. To listen to a replay of the conference call, dial 1-877-344-7529. For international access, dial 1-412-317-0088. The Conference Number for either replay is 449909. The replay will be available until 9:00 a.m. on May 10, 2011.

Background

Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company, a Rhode Island state-chartered bank founded in 1800. Washington Trust offers personal banking, business banking and wealth management services through its offices in Rhode Island, eastern Massachusetts and southeastern Connecticut. Washington Trust Bancorp, Inc.’s common stock trades on the NASDAQ Global Select^® Market under the symbol "WASH.” Investor information is available on the Corporation’s web site: www.washtrust.com.

Forward-Looking Statements

This press release contains certain statements that are "forward-looking statements”. We may also make written or oral forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe”, "expect”, "anticipate”, "intend”, "estimate”, "assume”, "outlook”, "will”, "should”, and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of Washington Trust. These risks, uncertainties and other factors may cause the actual results, performance or achievements of Washington Trust to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following, changes in general national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets, volatility and disruption in national and international financial markets, government intervention in the U.S. financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectibility, default and charge-off rates, changes in the size and nature of Washington Trust’s competition, changes in legislation or regulation and accounting principles, policies and guidelines such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under "Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission and as updated by our Quarterly Reports on Form 10-Q, may result in these differences. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this press release, and Washington Trust assumes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Supplemental Information – Explanation of Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles ("GAAP”), this press release contains certain non-GAAP financial measures. Washington Trust’s management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity and tangible assets, is utilized by regulators and market analysts to evaluate a company’s financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

(1) Commercial real estate loans consist of commercial mortgages and construction and development loans. Commercial mortgages are loans secured by income producing property.

The following tables present average balance and interest rate information. Tax-exempt income is converted to a fully taxable equivalent basis using the statutory federal income tax rate adjusted for applicable state income taxes, net of the related federal tax benefit. For dividends on corporate stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency. Unrealized gains (losses) on available for sale securities are excluded from the average balance and yield calculations. Nonaccrual and renegotiated loans, as well as interest earned on these loans (to the extent recognized in the Consolidated Statements of Income) are included in amounts presented for loans.

Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency: