Securities

The following tables present the amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of securities by major security type and class of security at March 31, 2012 and December 31, 2011.



(Dollars in thousands)
March 31, 2012	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value
Securities Available for Sale:
Obligations of U.S. government-sponsored enterprises		$29,437		$3,182		$—			$32,619
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	339,934		19,290		—			359,224
States and political subdivisions	71,344		5,011		—			76,355
Trust preferred securities:
Individual name issuers	30,648		—		(7,476		)	23,172
Collateralized debt obligations	4,047		—		(3,298		)	749
Corporate bonds	13,880		784		(28		)	14,636
Perpetual preferred stocks (2)	1,855		202		—			2,057
Total securities available for sale		$491,145		$28,469		($10,802	)		$508,812
Held to Maturity:
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises		$49,472		$570		$—			$50,042
Total securities held to maturity		$49,472		$570		$—			$50,042
Total securities		$540,617		$29,039		($10,802	)		$558,854



(Dollars in thousands)
December 31, 2011	Amortized Cost (1)		Unrealized Gains		Unrealized Losses			Fair Value
Securities Available for Sale:
Obligations of U.S. government-sponsored enterprises		$29,429		$3,404		$—			$32,833
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	369,946		19,712		—			389,658
States and political subdivisions	74,040		5,453		—			79,493
Trust preferred securities:
Individual name issuers	30,639		—		(8,243		)	22,396
Collateralized debt obligations	4,256		—		(3,369		)	887
Corporate bonds	13,872		813		(403		)	14,282
Perpetual preferred stocks (2)	1,854		—		(150		)	1,704
Total securities available for sale		$524,036		$29,382		($12,165	)		$541,253
Held to Maturity:
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises		$52,139		$360		$—			$52,499
Total securities held to maturity		$52,139		$360		$—			$52,499
Total securities		$576,175		$29,742		($12,165	)		$593,752

(1) Net of other-than-temporary impairment losses.

(2) Callable at the discretion of the issuer.

Securities available for sale (“AFS”) and held to maturity (“HTM”) with a fair value of $492.0 million and $516.8 million were pledged in compliance with state regulations concerning trust powers and to secure borrowings, certain public deposits and certain interest rate swap agreements at March 31, 2012 and December 31, 2011, respectively. See Note 7 for additional disclosure regarding Federal Home Loan Bank of Boston (“FHLBB”) borrowings. Securities available for sale with a fair value of $28.3 million and $20.6 million were pledged for potential use at the Federal Reserve Bank discount window at March 31, 2012 and December 31, 2011. There were no borrowings with the Federal Reserve Bank at either date. As of March 31, 2012 and December 31, 2011, securities available for sale with a fair value of $7.0 million and $7.5 million, respectively, were designated in rabbi trusts for nonqualified retirement plans. In addition, securities available for sale with a fair value of $13.4 million were pledged to secure Treasury Tax and Loan deposits at December 31, 2011.

The following table presents a roll forward of the balance of credit-related impairment losses on debt securities, for which a portion of an other-than-temporary impairment was recognized in other comprehensive income:



(Dollars in thousands)
Three months ended March 31,	2012		2011
Balance at beginning of period		$3,104		$2,913
Credit-related impairment loss on debt securities for which an other-than-temporary impairment was not previously recognized	—		—
Additional increases to the amount of credit-related impairment loss on debt securities for which an other-than-temporary impairment was previously recognized	209		33
Balance at end of period		$3,313		$2,946

For the three months ended March 31, 2012 and 2011, credit-related impairment losses recognized in earnings on a pooled trust preferred debt security totaled $209 thousand and $33 thousand, respectively. The anticipated cash flows expected to be collected from these debt securities were discounted at the rate equal to the yield used to accrete the current and prospective beneficial interest for each security. Significant inputs included estimated cash flows and prospective defaults and recoveries. Estimated cash flows are generated based on the underlying seniority status and subordination structure of the pooled trust preferred debt tranche at the time of measurement. Prospective default and recovery estimates affecting projected cash flows were based on analysis of the underlying financial condition of individual issuers, and took into account capital adequacy, credit quality, lending concentrations, and other factors.

All cash flow estimates were based on the underlying security’s tranche structure and contractual rate and maturity terms. The present value of the expected cash flows was compared to the current outstanding balance of the tranche to determine the ratio of the estimated present value of expected cash flows to the total current balance for the tranche. This ratio was then multiplied by the principal balance of Washington Trust’s holding to determine the credit-related impairment loss. The estimates used in the determination of the present value of the expected cash flows are susceptible to changes in future periods, which could result in additional credit-related impairment losses.

The following table summarizes temporarily impaired securities at March 31, 2012, segregated by length of time the securities have been in a continuous unrealized loss position:



(Dollars in thousands)	Less than 12 Months					12 Months or Longer					Total
March 31, 2012	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Trust preferred securities:
Individual name issuers	—		$—		$—	11		$23,172		$7,476	11		$23,172		$7,476
Collateralized debt obligations	—	—		—		2	749		3,298		2	749		3,298
Corporate bonds	2	4,972		28		—	—		—		2	4,972		28
Total temporarily impaired securities	2		$4,972		$28	13		$23,921		$10,774	15		$28,893		$10,802

The following table summarizes temporarily impaired securities at December 31, 2011, segregated by length of time the securities have been in a continuous unrealized loss position:



(Dollars in thousands)	Less than 12 Months					12 Months or Longer					Total
December 31, 2011	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses
Trust preferred securities:
Individual name issuers	—		$—		$—	11		$22,396		$8,243	11		$22,396		$8,243
Collateralized debt obligations	—	—		—		2	887		3,369		2	887		3,369
Corporate bonds	3	5,203		403		—	—		—		3	5,203		403
Subtotal, debt securities	3	5,203		403		13	23,283		11,612		16	28,486		12,015
Perpetual preferred stocks	2	1,704		150		—	—		—		2	1,704		150
Total temporarily impaired securities	5		$6,907		$553	13		$23,283		$11,612	18		$30,190		$12,165

Unrealized losses on debt securities generally occur as a result of increases in interest rates since the time of purchase, a structural change in an investment or deterioration in credit quality of the issuer. Management evaluates impairments in value whether caused by adverse interest rates or credit movements to determine if they are other-than-temporary.

Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, a continuation or worsening of the current economic downturn, or additional declines in real estate values, among other things, may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods, and the Corporation may incur additional write-downs.

Trust Preferred Debt Securities of Individual Name Issuers

Included in debt securities in an unrealized loss position at March 31, 2012 were 11 trust preferred security holdings issued by seven individual companies in the financial services/banking industry. The aggregate unrealized losses on these debt securities amounted to $7.5 million at March 31, 2012. Management believes the decline in fair value of these trust preferred securities primarily reflects investor concerns about global economic growth and how it will affect the recent and potential future losses in the financial services industry. These concerns resulted in increased risk premiums for securities in this sector. Based on the information available through the filing date of this report, all individual name trust preferred debt securities held in our portfolio continue to accrue and make payments as expected with no payment deferrals or defaults on the part of the issuers. As of March 31, 2012, trust preferred debt securities with an amortized cost of $11.8 million and unrealized losses of $3.3 million were rated below investment grade by Standard & Poors, Inc. (“S&P”). Management reviewed the collectibility of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, credit ratings including ratings in effect as of the reporting period date as well as credit rating changes between the reporting period date and the filing date of this report and other information. We noted no additional downgrades to below investment grade between the reporting period date and the filing date of this report. Based on these analyses, management concluded that it expects to recover the entire amortized cost basis of these securities. Furthermore, Washington Trust does not intend to sell these securities and it is not more likely than not that Washington Trust will be required to sell these securities before recovery of their cost basis, which may be maturity. Therefore, management does not consider these investments to be other-than-temporarily impaired at March 31, 2012.

Trust Preferred Debt Securities in the Form of Collateralized Debt Obligations

Washington Trust has two pooled trust preferred holdings in the form of collateralized debt obligations with a total amortized cost of $4.0 million and aggregate unrealized losses of $3.3 million at March 31, 2012. These pooled trust preferred holdings consist of trust preferred obligations of banking industry companies and, to a lesser extent, insurance industry companies. For both of these pooled trust preferred securities, Washington Trust’s investment is senior to one or more subordinated tranches which have first loss exposure. Valuations of the pooled trust preferred holdings are dependent in part on cash flows from underlying issuers. Unexpected cash flow disruptions could have an adverse impact on the fair value and performance of pooled trust preferred securities. Management believes the unrealized losses on these pooled trust preferred securities primarily reflect investor concerns about global economic growth and how it will affect the recent and potential future losses in the financial services industry and the possibility of further incremental deferrals of or defaults on interest payments on trust preferred debentures by financial institutions participating in these pools. These concerns have resulted in a substantial decrease in market liquidity and increased risk premiums for securities in this sector. Credit spreads for issuers in this sector have remained wide during recent months, causing prices for these securities holdings to remain at low levels.

As of March 31, 2012, one of the pooled trust preferred securities had an amortized cost of $2.8 million. This security was placed on nonaccrual status in March 2009. The tranche instrument held by Washington Trust has been deferring a portion of interest payments since April 2010. The March 31, 2012 amortized cost was net of $2.1 million of credit-related impairment losses previously recognized in earnings, reflective of payment deferrals and credit deterioration of the underlying collateral. Included in the $2.1 million were credit-related impairment losses of $209 thousand recorded in 2012, reflecting adverse changes in the expected cash flows for this security. As of March 31, 2012, this security has unrealized losses of $2.2 million and a below investment grade rating of “Ca” by Moody’s Investors Service Inc. (“Moody’s”). Through the filing date of this report, there have been no further rating changes on this security. This credit rating status has been considered by management in its assessment of the impairment status of this security.

As of March 31, 2012, the second pooled trust preferred security held by Washington Trust had an amortized cost of $1.3 million. This security was placed on nonaccrual status in December 2008. The tranche instrument held by Washington Trust has been deferring interest payments since December 2008. The March 31, 2012 amortized cost was net of $1.2 million of credit-related impairment losses previously recognized in earnings reflective of payment deferrals and credit deterioration of the underlying collateral. As of March 31, 2012, this security has unrealized losses of $1.1 million and a below investment grade rating of “C” by Moody’s. Through the filing date of this report, there have been no rating changes on this security. This credit rating status has been considered by management in its assessment of the impairment status of this security. The analysis of the expected cash flows for this security as of March 31, 2012 did not negatively affect the amount of credit-related impairment losses previously recognized on this security.

Based on information available through the filing date of this report, there have been no further adverse changes in the deferral or default status of the underlying issuer institutions within either of these trust preferred collateralized debt obligations. Based on cash flow forecasts for these securities, management expects to recover the remaining amortized cost of these securities. Furthermore, Washington Trust does not intend to sell these securities and it is not more likely than not that Washington Trust will be required to sell these securities before recovery of their cost basis, which may be at maturity. Therefore, management does not consider the unrealized losses on these investments to be other-than-temporary.

As of March 31, 2012, the amortized cost of debt securities by maturity is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments. All other securities are included based on contractual maturities. Actual maturities may differ from amounts presented because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties. Yields on tax exempt obligations are not computed on a tax equivalent basis. Included in the securities portfolio at March 31, 2012 were debt securities with an amortized cost balance of $94.2 million and a fair value of $89.3 million that are callable at the discretion of the issuers. Final maturities of the callable securities range from four to twenty-six years, with call features ranging from one month to six years.



(Dollars in thousands)	Within 1 Year			1-5 Years			5-10 Years			After 10 Years			Totals
Securities Available for Sale:
Obligations of U.S. government-sponsored enterprises:
Amortized cost		$—			$29,437			$—			$—			$29,437
Weighted average yield	—		%	5.41		%	—		%	—		%	5.41		%
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
Amortized cost	106,392			176,342			46,382			10,818			339,934
Weighted average yield	4.30		%	3.86		%	2.48		%	2.24		%	3.76		%
State and political subdivisions:
Amortized cost	3,823			65,282			2,239			—			71,344
Weighted average yield	3.68		%	3.90		%	3.90		%	—		%	3.89		%
Trust preferred securities:
Amortized cost (1)	—			—			—			34,695			34,695
Weighted average yield	—		%	—		%	—		%	1.84		%	1.84		%
Corporate bonds:
Amortized cost	—			13,880			—			—			13,880
Weighted average yield	—		%	5.10		%	—		%	—		%	5.10		%
Total debt securities available for sale:
Amortized cost		$110,215			$284,941			$48,621			$45,513			$489,290
Weighted average yield	4.28		%	4.09		%	2.55		%	1.93		%	3.78		%
Fair value		$116,521			$292,697			$51,410			$46,127			$506,755
Securities Held to Maturity:
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
Amortized cost		$11,225			$25,018			$10,213			$3,016			$49,472
Weighted average yield	2.55		%	2.44		%	2.32		%	1.52		%	2.38		%
Fair value		$11,795			$25,018			$10,213			$3,016			$50,042


(1)	Net of other-than-temporary impairment losses.