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:



(Dollars in thousands)
December 31, 2013	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Securities Available for Sale:
Obligations of U.S. government-sponsored enterprises		$54,474		$720		($79	)		$55,115
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	230,387		8,369		(401		)	238,355
States and political subdivisions	60,659		2,200		—			62,859
Trust preferred securities:
Individual name issuers	30,715		—		(6,031		)	24,684
Collateralized debt obligations	547		—		—			547
Corporate bonds	11,128		231		(16		)	11,343
Total securities available for sale		$387,910		$11,520		($6,527	)		$392,903
Held to Maturity:
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises		$29,905		$14		($54	)		$29,865
Total securities held to maturity		$29,905		$14		($54	)		$29,865
Total securities		$417,815		$11,534		($6,581	)		$422,768



(Dollars in thousands)
December 31, 2012	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Securities Available for Sale:
Obligations of U.S. government-sponsored enterprises		$29,458		$2,212		$—			$31,670
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	217,136		14,097		—			231,233
States and political subdivisions	68,196		4,424		—			72,620
Trust preferred securities:
Individual name issuers	30,677		—		(5,926		)	24,751
Collateralized debt obligations	4,036		—		(3,193		)	843
Corporate bonds	13,905		476		—			14,381
Total securities available for sale		$363,408		$21,209		($9,119	)		$375,498
Held to Maturity:
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises		$40,381		$1,039		$—			$41,420
Total securities held to maturity		$40,381		$1,039		$—			$41,420
Total securities		$403,789		$22,248		($9,119	)		$416,918

At December 31, 2013 and 2012, securities available for sale and held to maturity with a fair value of $397.5 million and $386.5 million, respectively, were pledged as collateral for FHLBB borrowings and letters of credit, potential borrowings with the FRB, certain public deposits and for other purposes. See Note 11 for additional discussion of FHLBB borrowings.

The schedule of maturities of debt securities available for sale and held to maturity is presented below. Mortgage-backed securities are included based on weighted average maturities, adjusted for anticipated prepayments. All other debt 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.



	December 31, 2013
(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		$54,474			$—			$—			$—			$54,474
Weighted average yield	4.04		%	—		%	—		%	—		%	4.04		%
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
Amortized cost	53,902			107,955			46,983			21,547			230,387
Weighted average yield	4.19		%	3.66		%	2.73		%	2.20		%	3.46		%
State and political subdivisions:
Amortized cost	13,977			46,682			—			—			60,659
Weighted average yield	3.84		%	3.92		%	—		%	—		%	3.91		%
Trust preferred securities:
Amortized cost	—			—			—			31,262			31,262
Weighted average yield	—		%	—		%	—		%	1.57		%	1.57		%
Corporate bonds:
Amortized cost	5,023			5,703			402			—			11,128
Weighted average yield	6.64		%	2.82		%	2.45		%	—		%	4.53		%
Total debt securities available for sale:
Amortized cost		$127,376			$160,340			$47,385			$52,809			$387,910
Weighted average yield	4.19		%	3.71		%	2.73		%	1.83		%	3.49		%
Fair value		$127,764			$162,785			$48,800			$53,554			$392,903
Securities Held to Maturity:
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
Amortized cost		$5,376			$13,892			$7,652			$2,985			$29,905
Weighted average yield	2.85		%	2.75		%	2.56		%	1.11		%	2.56		%
Fair value		$5,369			$13,873			$7,642			$2,981			$29,865

Included in the above table were debt securities with an amortized cost balance of $106.8 million and a fair value of $102.3 million at December 31, 2013 that are callable at the discretion of the issuers. Final maturities of the callable securities range from twenty-one months to twenty-three years, with call features ranging from one month to three years.

Other-Than-Temporary Impairment Assessment

The Corporation assesses whether the decline in fair value of investment securities is other-than-temporary on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer. Management evaluates impairments in value both qualitatively and quantitatively to assess whether they are other-than-temporary.

The following tables summarizes temporarily impaired investment securities at December 31, 2013 and December 31, 2012, segregated by length of time the securities have been continuously in an unrealized loss position.



(Dollars in thousands)	Less than 12 Months							12 Months or Longer							Total
December 31, 2013	#		Fair Value		Unrealized Losses			#		Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses
Obligations of U.S. government-sponsored enterprises	1			$9,909		($79	)	—			$—		$—		1		$9,909		($79	)
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises	7		76,748		(455		)	—		—		—			7	76,748		(455		)
Individual name issuer trust preferred securities	—		—		—			11		24,684		(6,031		)	11	24,684		(6,031		)
Corporate bonds	2	11	407		(16		)	—	—	—		—			2	407		(16		)
Total temporarily impaired securities	10	11		$87,064		($550	)	11			$24,684		($6,031	)	21		$111,748		($6,581	)



(Dollars in thousands)	Less than 12 Months					12 Months or Longer						Total
December 31, 2012	#	Fair Value		Unrealized Losses		#	Fair Value		Unrealized Losses			#	Fair Value		Unrealized Losses
Trust preferred securities:
Individual name issuers	—		$—		$—	11		$24,751		($5,926	)	11		$24,751		($5,926	)
Collateralized debt obligations	—	—		—		2	843		(3,193		)	2	843		(3,193		)
Total temporarily impaired securities	—		$—		$—	13		$25,594		($9,119	)	13		$25,594		($9,119	)

Further deterioration in credit quality of the underlying issuers of the securities, further deterioration in the condition of the financial services industry, a continuation or worsening of the current economic environment, 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.

Obligations of U.S. Government-sponsored Enterprises and Mortgage-backed Securities issued by U.S. Government Agencies

The gross unrealized losses on mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises were primarily attributable to relative changes in interest rates since the time of purchase. The contractual cash flows for these securities are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Based on the assessment of these factors, management believes that the unrealized losses on these debt security holdings are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, the Corporation 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 December 31, 2013.

Trust Preferred Debt Securities of Individual Name Issuers

Included in debt securities in an unrealized loss position at December 31, 2013 were eleven trust preferred security holdings issued by seven individual companies in the financial services industry, specifically, the banking sector. 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 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 December 31, 2013, trust preferred debt securities with an amortized cost of $11.9 million and unrealized losses of $2.2 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 December 31, 2013.

Trust Preferred Debt Securities in the Form of Collateralized Debt Obligations (“CDO”)

Washington Trust had invested in two pooled trust preferred holdings in the form of collateralized debt obligations. The pooled trust preferred holdings consist of trust preferred obligations of banking industry companies and, to a lesser extent, insurance industry companies.

On March 22, 2013, the trustee for one of the pooled trust preferred securities issued a notice that liquidation of the CDO entity would take place at the direction of holders of the CDO tranches senior to the subordinate tranche interest held by Washington Trust. Accordingly, we recognized an other-than-temporary impairment charge in the first quarter of 2013 on the entire $2.8 million carrying value of the security, based on the expectation that proceeds from liquidation would be insufficient to satisfy the amount owed to the subordinate tranche. The liquidation was conducted in August 2013 and was insufficient to satisfy any amount owed to the subordinate tranche.

In December 2013, Washington Trust changed its intent to hold its other CDO investment until recovery of its cost basis and subsequently sold this security in January 2014. As a result, Washington Trust recognized an other-than-temporary impairment loss of $717 thousand on this CDO in December 2013. The amortized cost and fair value of this CDO amounted to $547 thousand at December 31, 2013, which equaled the January 2014 sales price.

Credit-Related Impairment Losses Recognized on Debt Securities

The following table presents a rollforward of the cumulative credit-related impairment losses on debt securities:



(Dollars in thousands)
Years ended December 31,	2013		2012		2011
Balance at beginning of period		$3,325		$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	3,489		221		191
Balance at end of period		$6,814		$3,325		$3,104

The following is a summary of amounts relating to sales of securities:



(Dollars in thousands)
Years ended December 31,	2013		2012			2011
Proceeds from sales (1)		$—		$46,560			$56,461

Gross realized gains (1)		$—		$1,224			$919
Gross realized losses	—		(1		)	(221		)
Net realized gains on securities		$—		$1,223			$698


(1)	Includes a contribution of appreciated equity securities to the Corporation’s charitable foundation in 2011. The cost of the contribution, included in noninterest expenses, amounted to $990 thousand in 2011. This transaction resulted in a realized security gain of $331 thousand for the same period.