Share-Based Compensation Arrangement

6 Months Ended

Jun. 30, 2011

Share-Based Compensation Arrangement [Abstract]

(12) Share-Based Compensation Arrangement

Washington Trust has two share-based compensation plans, Bancorp’s 2003 Stock Incentive Plan, as amended, and Bancorp’s 1997 Equity Incentive Plan, as amended, (collectively “the Plans”).

Amounts recognized in the consolidated financial statements for share options, nonvested share units, nonvested share awards and nonvested performance shares are as follows:

(Dollars in thousands)

	Three Months				Six Months
Periods ended June 30,	2011		2010		2011		2010
Share-based compensation expense	$	352	$	218	$	680	$	395
Related tax benefit	$	125	$	78	$	242	$	141

Compensation expense for share options and nonvested share units and shares is recognized over the service period based on the fair value at the date of grant. Nonvested performance share compensation expense is based on the most recent performance assumption available and is adjusted as assumptions change. If the goals are not met, no compensation cost will be recognized and any recognized compensation costs will be reversed.

Share Options

During the six months ended June 30, 2011 and 2010, the Corporation granted 57,450 and 83,700 non-qualified share options, respectively. The share options awarded were granted to certain key employees with three-year cliff vesting and provide for accelerated vesting upon a change in control, death or retirement (as defined in the plans).

The fair value of the share option awards granted were estimated on the date of grant using the Black-Scholes Option-Pricing Model based on assumptions noted in the following table. Washington Trust uses historical data to estimate share option exercise and employee departure behavior used in the option-pricing model; groups of employees that have similar historical behavior are considered separately for valuation purposes. The expected term of options granted was derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. Expected volatility was based on historical volatility of Washington Trust shares. The risk-free rate for periods within the contractual life of the share option was based on the U.S. Treasury yield curve in effect at the date of grant.

Six months ended June 30,	2011	2010
Expected term (years)	9.0	9.0
Expected dividend yield	3.33%	3.16%
Weighted average expected volatility	41.90	41.95
Expected forfeiture rate	0%	0%
Weighted average risk-free interest rate	3.05%	3.42%

The weighted average grant-date fair value of the share options awarded during the six months ended June 30, 2011 and 2010 was $7.46 and $6.29, respectively.

A summary of share option activity under the Plans as of June 30, 2011, and changes during the six months ended June 30, 2011, is presented below:

(Dollars in thousands)	Number			Weighted		Weighted Average
	Of			Average		Remaining	Aggregate
	Share			Exercise		Contractual	Intrinsic
	Options			Price		Term (Years)	Value
Outstanding at January 1, 2011		795,257		$	22.46
Granted		57,450			21.71
Exercised		(83,426	)		18.38
Forfeited or expired		(21,150	)		23.65
Outstanding at June 30, 2011		748,131		$	22.82	4.4 years	$	1,354
As of June 30, 2011:
Options exercisable		591,799		$	23.81	3.2 years	$	748
Options expected to vest in future periods		156,332		$	19.09	9.2 years	$	606

The total intrinsic value (which is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date) of share options exercised during the six months ended June 30, 2011 and 2010 was $359 thousand and $212 thousand, respectively.

Nonvested Shares and Share Units

The Corporation granted 31,950 and 46,500 nonvested share units to directors and certain key employees during the six months ended June 30, 2011 and 2010, respectively. The nonvested share units awarded were granted with one to three-year cliff vesting and also provide for accelerated vesting if there is a change in control, death or retirement (as defined in the plans).

A summary of the status of Washington Trust’s nonvested shares as of June 30, 2011, and changes during the six months ended June 30, 2011, is presented below:

				Weighted
	Number			Average
	of			Grant Date
	Shares			Fair Value
Nonvested at January 1, 2011		85,907		$	20.11
Granted		31,950			22.25
Vested		(25,400	)		23.93
Forfeited		–			–
Nonvested at June 30, 2011		92,457		$	19.80

Nonvested Performance Shares

Performance share awards are granted providing the opportunity to earn shares of common stock of the Corporation, the number of which will be determined pursuant to, and subject to the attainment of, performance goals during a specified measurement period. The number of shares awarded upon vesting will range from zero to 200% of the target number of shares dependent upon the Corporation’s core return on equity and core earnings per share growth ranking compared to an industry peer group.

During the six months ended June 30, 2011, performance share awards were granted to certain executive officers providing the opportunity to earn shares of common stock of the Corporation ranging from zero to 73,502 shares. The performance shares awarded were valued at $21.62, the fair market value at the date of grant, and vest over a three-year period. The current assumption based on the most recent peer group information results in the shares vesting at 155% of the target, or 56,966 shares.

During the six months ended June 30, 2010, a performance share award was granted to an executive officer providing the opportunity to earn shares of common stock of the Corporation ranging from zero to 25,000 shares. The performance shares awarded were valued at $15.11, the fair market value at the date of grant, and vest over a three-year period. The current assumption based on the most recent peer group information results in the shares vesting at 155% of the target, or 19,375 shares.

A summary of the status of Washington Trust’s performance share awards as of June 30, 2011, and changes during the six months ended June 30, 2011, is presented below:

			Weighted
	Number		Average
	of		Grant Date
	Shares		Fair Value
Performance shares at January 1, 2011		16,500	$	15.11
Granted		59,841		21.31
Vested		–		–
Forfeited		–		–
Performance shares at June 30, 2011		76,341	$	19.97

As of June 30, 2011, there was $3.2 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (including share options, nonvested share awards and performance share awards) granted under the Plans. That cost is expected to be recognized over a weighted average period of 2.5 years.