XNAS:WASH Washington Trust Bancorp Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
 x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended JUNE 30, 2012 or
 o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______.

Commission file number:  001-32991

WASHINGTON TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)

RHODE ISLAND
 
05-0404671
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
23 BROAD STREET
 
 
WESTERLY, RHODE ISLAND
 
02891
(Address of principal executive offices)
 
(Zip Code)

(401) 348-1200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xYes          oNo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes          o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Mark one)
 
Large accelerated filer  o
 
Accelerated filer  x
Non-accelerated filer  o
 
Smaller reporting company  o
(Do not check if a smaller reporting company)
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes          xNo

The number of shares of common stock of the registrant outstanding as of August 3, 2012 was 16,363,048.



FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
For the Quarter Ended June 30, 2012
 
 
 
TABLE OF CONTENTS
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




2


PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Dollars in thousands,
CONSOLIDATED BALANCE SHEETS (unaudited)
except par value)
 
 
June 30,
2012
 
December 31,
2011
Assets:
 
 
 
 
Cash and due from banks
 

$66,702

 

$82,238

Short-term investments
 
3,913

 
4,782

Mortgage loans held for sale, at fair value; amortized cost $22,708 in 2012 and $19,624 in 2011
 
23,530

 
20,340

Securities:
 
 
 
 
Available for sale, at fair value; amortized cost $452,733 in 2012 and $524,036 in 2011
469,167

 
541,253

Held to maturity, at cost; fair value $48,220 in 2012 and $52,499 in 2011
 
47,026

 
52,139

Total securities
 
516,193

 
593,392

Federal Home Loan Bank stock, at cost
 
40,418

 
42,008

Loans:
 
 
 
 
Commercial
 
1,191,995

 
1,124,628

Residential real estate
 
702,019

 
700,414

Consumer
 
319,828

 
322,117

Total loans
 
2,213,842

 
2,147,159

Less allowance for loan losses
 
30,448

 
29,802

Net loans
 
2,183,394

 
2,117,357

Premises and equipment, net
 
27,223

 
26,028

Investment in bank-owned life insurance
 
54,746

 
53,783

Goodwill
 
58,114

 
58,114

Identifiable intangible assets, net
 
6,528

 
6,901

Other assets
 
60,289

 
59,155

Total assets
 

$3,041,050

 

$3,064,098

Liabilities:
 
 
 
 
Deposits:
 
 
 
 
Demand deposits
 

$321,488

 

$339,809

NOW accounts
 
263,124

 
257,031

Money market accounts
 
388,686

 
406,777

Savings accounts
 
264,772

 
243,904

Time deposits
 
892,383

 
878,794

Total deposits
 
2,130,453

 
2,126,315

Federal Home Loan Bank advances
 
523,989

 
540,450

Junior subordinated debentures
 
32,991

 
32,991

Other borrowings
 
481

 
19,758

Other liabilities
 
60,402

 
63,233

Total liabilities
 
2,748,316

 
2,782,747

Commitments and contingencies
 


 


Shareholders’ Equity:
 
 
 
 
Common stock of $.0625 par value; authorized 30,000,000 shares; issued and outstanding 16,359,394 shares in 2012 and 16,292,471 shares in 2011
 
1,022

 
1,018

Paid-in capital
 
90,022

 
88,030

Retained earnings
 
203,726

 
194,198

Accumulated other comprehensive loss
 
(2,036
)
 
(1,895
)
Total shareholders’ equity
 
292,734

 
281,351

Total liabilities and shareholders’ equity
 

$3,041,050

 

$3,064,098



The accompanying notes are an integral part of these unaudited consolidated financial statements.
3


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Dollars and shares in thousands,
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
except per share amounts)
 
 
Three Months
 
Six Months
Periods ended June 30,
2012
 
2011
 
2012
 
2011
Interest income:
 
 
 
 
 
 
 
Interest and fees on loans

$25,344

 

$24,707

 

$50,707

 

$48,966

Interest on securities:
Taxable
4,069

 
4,869

 
8,446

 
9,642

 
Nontaxable
682

 
758

 
1,375

 
1,527

Dividends on corporate stock and Federal Home Loan Bank stock
78

 
66

 
155

 
133

Other interest income
17

 
13

 
37

 
37

Total interest income
30,190

 
30,413

 
60,720

 
60,305

Interest expense:
 

 
 

 
 

 
 

Deposits
3,385

 
4,030

 
6,819

 
8,232

Federal Home Loan Bank advances
3,998

 
4,685

 
8,083

 
9,417

Junior subordinated debentures
391

 
392

 
783

 
782

Other interest expense
5

 
242

 
239

 
483

Total interest expense
7,779

 
9,349

 
15,924

 
18,914

Net interest income
22,411

 
21,064

 
44,796

 
41,391

Provision for loan losses
600

 
1,200

 
1,500

 
2,700

Net interest income after provision for loan losses
21,811

 
19,864

 
43,296

 
38,691

Noninterest income:
 

 
 

 
 

 
 

Wealth management services:
 

 
 

 
 

 
 

Trust and investment advisory fees
5,819

 
5,822

 
11,597

 
11,498

Mutual fund fees
1,002

 
1,135

 
2,027

 
2,258

Financial planning, commissions and other service fees
652

 
553

 
1,034

 
834

Wealth management services
7,473

 
7,510

 
14,658

 
14,590

Service charges on deposit accounts
764

 
909

 
1,523

 
1,841

Merchant processing fees
2,732

 
2,682

 
4,720

 
4,626

Card interchange fees
626

 
581

 
1,169

 
1,068

Income from bank-owned life insurance
477

 
482

 
963

 
958

Net gains on loan sales and commissions on loans originated for others
3,015

 
537

 
6,112

 
1,062

Net realized gains on securities
299

 
226

 
299

 
197

Net (losses) gains on interest rate swap contracts
(4
)
 
(35
)
 
24

 
41

Equity in earnings (losses) of unconsolidated subsidiaries
124

 
(145
)
 
87

 
(289
)
Other income
668

 
538

 
1,060

 
921

Noninterest income, excluding other-than-temporary impairment losses
16,174

 
13,285

 
30,615

 
25,015

Total other-than-temporary impairment losses on securities

 

 
(85
)
 
(54
)
Portion of loss recognized in other comprehensive income (before tax)

 

 
(124
)
 
21

Net impairment losses recognized in earnings

 

 
(209
)
 
(33
)
Total noninterest income
16,174

 
13,285

 
30,406

 
24,982

Noninterest expense:
 

 
 

 
 

 
 

Salaries and employee benefits
14,451

 
12,398

 
28,911

 
24,226

Net occupancy
1,527

 
1,236

 
3,053

 
2,557

Equipment
1,143

 
1,070

 
2,250

 
2,119

Merchant processing costs
2,320

 
2,345

 
3,983

 
4,014

Outsourced services
895

 
875

 
1,815

 
1,747

FDIC deposit insurance costs
426

 
464

 
884

 
1,187

Legal, audit and professional fees
519

 
467

 
1,001

 
959

Advertising and promotion
478

 
427

 
850

 
780

Amortization of intangibles
186

 
237

 
373

 
475

Foreclosed property costs
170

 
338

 
468

 
504

Debt prepayment penalties
961

 
221

 
961

 
221

Other expenses
2,152

 
2,186

 
4,078

 
4,215

Total noninterest expense
25,228

 
22,264

 
48,627

 
43,004

Income before income taxes
12,757

 
10,885

 
25,075

 
20,669

Income tax expense
4,044

 
3,320

 
7,924

 
6,304

Net income

$8,713

 

$7,565

 

$17,151

 

$14,365

 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
16,358

 
16,252

 
16,344

 
16,225

Weighted average common shares outstanding - diluted
16,392

 
16,284

 
16,381

 
16,257

Per share information:
Basic earnings per common share

$0.53

 

$0.46

 

$1.04

 

$0.88

 
Diluted earnings per common share

$0.53

 

$0.46

 

$1.04

 

$0.88

 
Cash dividends declared per share

$0.23

 

$0.22

 

$0.46

 

$0.44


The accompanying notes are an integral part of these unaudited consolidated financial statements.
4


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Dollars in thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
 

 
 
Three Months
 
Six Months
Periods ended June 30,
 
2012
 
2011
 
2012
 
2011
Net income
 

$8,713

 

$7,565

 

$17,151

 

$14,365

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
 
Unrealized (losses) gains on securities arising during the period
 
(601
)
 
3,537

 
(458
)
 
3,626

Less: reclassification adjustment for net gains on securities realized in net income
 
192

 
145

 
138

 
92

Net unrealized (losses) gains on securities available for sale
 
(793
)
 
3,392

 
(596
)
 
3,534

Reclassification adjustment for change in non-credit portion of OTTI realized losses transferred to net income
 

 

 
80

 
(13
)
Cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized losses on cash flow hedges arising during the period
 
(128
)
 
(468
)
 
(204
)
 
(419
)
Less: reclassification adjustment for amount of gains on cash flow hedges realized in net income
 
112

 
122

 
223

 
245

Net unrealized (losses) gains on cash flow hedges
 
(16
)
 
(346
)
 
19

 
(174
)
Defined benefit plan obligation adjustment
 
171

 
60

 
356

 
120

Total other comprehensive (loss) income, net of tax
 
(638
)
 
3,106

 
(141
)
 
3,467

Total comprehensive income
 

$8,075

 

$10,671

 

$17,010

 

$17,832




The accompanying notes are an integral part of these unaudited consolidated financial statements.
5


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Dollars and shares in thousands)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

 
Common
Shares Outstanding
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Balance at January 1, 2011
16,172

 

$1,011

 

$84,889

 

$178,939

 

$4,025

 

$268,864

Net income
 
 
 
 
 
 
14,365

 
 
 
14,365

Total other comprehensive income, net of tax
 
 
 
 
 
 
 
 
3,467

 
3,467

Cash dividends declared
 
 
 
 
 
 
(7,226
)
 
 
 
(7,226
)
Share-based compensation
 
 
 
 
680

 
 
 
 
 
680

Exercise of stock options, issuance of other compensation-related equity instruments and related tax benefit
73

 
4

 
787

 
 
 
 
 
791

Shares issued – dividend reinvestment plan
21

 
2

 
482

 
 
 
 
 
484

Balance at June 30, 2011
16,266

 

$1,017

 

$86,838

 

$186,078

 

$7,492

 

$281,425



 
Common
Shares Outstanding
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Balance at January 1, 2012
16,292

 

$1,018

 

$88,030

 

$194,198

 

($1,895
)
 

$281,351

Net income
 
 
 
 
 
 
17,151

 
 
 
17,151

Total other comprehensive loss, net of tax
 
 
 
 
 
 
 
 
(141
)
 
(141
)
Cash dividends declared
 
 
 
 
 
 
(7,623
)
 
 
 
(7,623
)
Share-based compensation
 
 
 
 
876

 
 
 
 
 
876

Deferred compensation plan
10

 
1

 
145

 
 
 
 
 
146

Exercise of stock options, issuance of other compensation-related equity instruments and related tax benefit
57

 
3

 
971

 
 
 
 
 
974

Balance at June 30, 2012
16,359

 

$1,022

 

$90,022

 

$203,726

 

($2,036
)
 

$292,734




The accompanying notes are an integral part of these unaudited consolidated financial statements.
6


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
(Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 
Six months ended June 30,
2012

 
2011

Cash flows from operating activities:
 
 
 
Net income

$17,151

 

$14,365

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
1,500

 
2,700

Depreciation of premises and equipment
1,584

 
1,540

Foreclosed and repossessed property valuation adjustments
171

 
392

Net gain on sale of bank property
(348
)
 
(203
)
Net amortization of premium and discount
1,113

 
664

Net amortization of intangibles
373

 
475

Share-based compensation
876

 
680

Income from bank-owned life insurance
(963
)
 
(958
)
Net gains on loan sales and commissions on loans originated for others
(6,112
)
 
(1,062
)
Net realized gains on securities
(299
)
 
(197
)
Net impairment losses recognized in earnings
209

 
33

Net gains on interest rate swap contracts
(24
)
 
(41
)
Equity in (earnings) losses of unconsolidated subsidiaries
(87
)
 
289

Proceeds from sales of loans
213,852

 
52,714

Loans originated for sale
(198,824
)
 
(46,587
)
(Increase) decrease in other assets
(3,108
)
 
2,291

Decrease in other liabilities
(2,932
)
 
(5,888
)
Net cash provided by operating activities
24,132

 
21,207

Cash flows from investing activities:
 

 
 

Purchases of mortgage-backed securities available for sale

 
(90,855
)
Proceeds from sale of:
Mortgage-backed securities available for sale
6,247

 
42,783

 
Other investment securities available for sale
6,338

 
1,000

Maturities and principal payments of:
Mortgage-backed securities available for sale
57,196

 
54,494

 
Other investment securities available for sale
681

 

 
Mortgage-backed securities held to maturity
4,842

 

Remittance of Federal Home Loan Bank stock
1,590

 

Net increase in loans
(76,517
)
 
(60,274
)
Purchases of loans, including purchased interest
(3,047
)
 
(3,116
)
Proceeds from the sale of property acquired through foreclosure or repossession
1,883

 
1,675

Purchases of premises and equipment
(3,453
)
 
(1,239
)
Net proceeds from the sale of bank property
1,571

 
1,279

Equity investments in real estate limited partnerships

 
(294
)
Net cash used in investing activities
(2,669
)
 
(54,547
)
Cash flows from financing activities:
 

 
 

Net increase (decrease) in deposits
4,138

 
(40,287
)
Net decrease in other borrowings
(19,277
)
 
(1,354
)
Proceeds from Federal Home Loan Bank advances
362,930

 
248,078

Repayment of Federal Home Loan Bank advances
(379,391
)
 
(188,360
)
Proceeds from the issuance of common stock under dividend reinvestment plan

 
484

Proceeds from the exercise of stock options and issuance of other compensation-related equity instruments
1,007

 
725

Tax benefit from stock option exercises and issuance of other compensation-related equity instruments
113

 
68

Cash dividends paid
(7,388
)
 
(7,005
)
Net cash (used in) provided by financing activities
(37,868
)
 
12,349

Net decrease in cash and cash equivalents
(16,405
)
 
(20,991
)
Cash and cash equivalents at beginning of period
87,020

 
92,736

Cash and cash equivalents at end of period

$70,615

 

$71,745

 
 
 
 
 
Noncash Investing and Financing Activities:
 
 
 
Loans charged off

$1,377

 

$2,096

Loans transferred to property acquired through foreclosure or repossession
1,810

 
801

Securities proceeds due from broker
760

 

 
 
 
 
 
Supplemental Disclosures:
 
 
 
 
Interest payments

$15,602

 

$18,710

Income tax payments
7,744

 
5,836


The accompanying notes are an integral part of these unaudited consolidated financial statements.
7


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



(1)
General Information
Washington Trust Bancorp, Inc. (the “Bancorp”) is a publicly-owned registered bank holding company and financial holding company.  The Bancorp owns all of the outstanding common stock of The Washington Trust Company (the “Bank”), a Rhode Island chartered commercial bank founded in 1800.  Through its subsidiaries, the Bancorp offers a complete product line of financial services including commercial, residential and consumer lending, retail and commercial deposit products, and wealth management services through its offices in Rhode Island, eastern Massachusetts and Connecticut.

The consolidated financial statements include the accounts of the Bancorp and its subsidiaries (collectively, the “Corporation” or “Washington Trust”).  All significant intercompany transactions have been eliminated.  Certain prior year amounts have been reclassified to conform to the current year classification.  Such reclassifications have no effect on previously reported net income or shareholders’ equity.

The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices of the banking industry.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to change are the determination of the allowance for loan losses and the review of goodwill, other intangible assets and investments for impairment.  The current economic environment has increased the degree of uncertainty inherent in such estimates and assumptions.

In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) and disclosures necessary to present fairly the Corporation’s financial position as of June 30, 2012 and December 31, 2011, respectively, and the results of operations and cash flows for the interim periods presented. Interim results are not necessarily reflective of the results of the entire year.  The unaudited consolidated financial statements of the Corporation presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by GAAP.  The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2011.

(2)
Recently Issued Accounting Pronouncements
Fair Value Measurement – Topic 820
Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“ASU 2011-04”), was issued in May 2011. The amendments in ASU 2011-04 added language to clarify many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements, as well as prescribed additional disclosures for Level 3 fair value measurements and financial instruments not carried at fair value. For many of the requirements, the Financial Accounting Standards Board (“FASB”) did not intend for ASU 2011-04 to result in a change in the application of the requirements in GAAP. The amendments required by ASU 2011-04 were to be applied prospectively and were effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Corporation adopted ASU 2011-04 in the first quarter of 2012, provided the additional disclosures required and made the election to use the exception permitted with respect to measuring counterparty credit risk on our interest rate derivative contracts. See Note 10 to the Consolidated Financial Statements for additional information. The adoption of ASU 2011-04 did not have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

Comprehensive Income – Topic 220
Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), was issued in June 2011.  The FASB issued ASU 2011-05 to improve the comparability and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”), was issued in December 2011. ASU 2011-12 deferred the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated



8


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


other comprehensive income into net income. No other requirements in ASU 2011-05 were affected by this amendment. The provisions of ASU 2011-05, exclusive of the provisions pertaining to the reclassification adjustments deferred by ASU 2011-12, were to be applied retrospectively and were effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Corporation adopted these provisions of ASU 2011-05 in the first quarter of 2012 and elected to present comprehensive income in a separate financial statement, the Consolidated Statements of Comprehensive Income. The adoption of these provisions of ASU 2011-05 did not have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

Intangibles-Goodwill and Other – Topic 350
Accounting Standards Update No. 2011-08, “Testing for Goodwill Impairment” (“ASU 2011-08”), was issued in September 2011. The objective of ASU 2011-08 was to simplify the testing of goodwill for impairment by allowing entities to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative test. There will no longer be a requirement to calculate the fair value of a reporting unit unless it is determined, based on a qualitative assessment, that it is more-likely-than-not that its fair value is less than its carrying amount. The more-likely-than-not threshold was defined as having a likelihood of more than 50 percent. The provisions of ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

Balance Sheet - Topic 210
Accounting Standards Update No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”), was issued in December 2011 and was intended to enhance current disclosure requirements on offsetting financial assets and liabilities. The requirements in ASU 2011-11 enables users to compare balance sheets prepared under U.S. GAAP and International Financial Reporting Standards (“IFRS”), which are subject to different offsetting models. The requirements affect all entities that have financial instruments that are either offset in the balance sheet or subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 will be effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The required disclosures shall be provided retrospectively for all comparative periods presented. The adoption of ASU 2011-11 is not expected to have a material impact on the Corporation’s consolidated financial position, results of operations or cash flows.

(3)
Cash and Due from Banks
The Bank is required to maintain certain average reserve balances with the Board of Governors of the Federal Reserve System.  Such reserve balances amounted to $4.0 million at both June 30, 2012 and December 31, 2011 and are included in cash and due from banks in the Consolidated Statements of Condition.

As of June 30, 2012 and December 31, 2011, cash and due from banks included interest-bearing deposits in other banks of $22.4 million and $41.6 million, respectively.




9


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


(4)
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 June 30, 2012 and December 31, 2011.

(Dollars in thousands)
 
 
 
 
 
 
 
June 30, 2012
Amortized Cost (1)
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
Securities Available for Sale:
 
 
 
 
 
 
 
Obligations of U.S. government-sponsored enterprises

$29,443

 

$2,876

 

$—

 

$32,319

Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises
305,757

 
18,535

 

 
324,292

States and political subdivisions
68,939

 
4,784

 

 
73,723

Trust preferred securities:
 
 
 
 
 
 
 
Individual name issuers
30,658

 

 
(7,038
)
 
23,620

Collateralized debt obligations
4,047

 

 
(3,280
)
 
767

Corporate bonds
13,889

 
659

 
(102
)
 
14,446

Total securities available for sale

$452,733

 

$26,854

 

($10,420
)
 

$469,167

Held to Maturity:
 
 
 
 
 
 
 
Mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises

$47,026

 

$1,194

 

$—

 

$48,220

Total securities held to maturity

$47,026

 

$1,194

 

$—

 

$48,220

Total securities

$499,759

 

$28,048

 

($10,420
)
 

$517,387


(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.



10


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


Securities available for sale (“AFS”) and held to maturity (“HTM”) with a fair value of $469.1 million and $558.2 million, respectively, were pledged to secure borrowings with the Federal Home Loan Bank of Boston ("FHLBB"), potential borrowings with the Federal Reserve Bank, certain public deposits and for other purposes at June 30, 2012 and 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
 
Six Months
Periods ended June 30,
2012
 
2011
 
2012
 
2011
Balance at beginning of period

$3,313

 

$2,946

 

$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

 

$3,313

 

$2,946


There were no credit-related impairment losses recognized in earnings on debt securities in both the three months ended June 30, 2012 and 2011. For the six months ended June 30, 2012 and 2011, credit-related impairment losses recognized in earnings on debt securities totaled $209 thousand and $33 thousand, respectively. The anticipated cash flows expected to be collected from these pooled trust preferred 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 June 30, 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
June 30, 2012
#

 
Fair
Value
 
Unrealized
Losses
 
#

 
Fair
Value
 
Unrealized
Losses
 
#

 
Fair
Value
 
Unrealized
Losses
Trust preferred securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individual name issuers

 

$—

 

$—

 
11

 

$23,620

 

($7,038
)
 
11

 

$23,620

 

($7,038
)
Collateralized debt obligations

 

 

 
2

 
767

 
(3,280
)
 
2

 
767

 
(3,280
)
Corporate bonds
3

 
5,505

 
(102
)
 

 

 

 
3

 
5,505

 
(102
)
Subtotal, debt securities
3

 
5,505

 
(102
)
 
13

 
24,387

 
(10,318
)
 
16

 
29,892

 
(10,420
)
Total temporarily impaired securities
3

 

$5,505

 

($102
)
 
13

 

$24,387

 

($10,318
)
 
16

 

$29,892

 

($10,420
)



11


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


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 June 30, 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 $7.0 million at June 30, 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 June 30, 2012, trust preferred debt securities with an amortized cost of $11.8 million and unrealized losses of $2.5 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 June 30, 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 June 30, 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



12


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


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 June 30, 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 June 30, 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 the first quarter of 2012, reflecting adverse changes in the expected cash flows for this security. As of June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 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.

Corporate Bonds:
At June 30, 2012, Washington Trust had three corporate bond holdings with unrealized losses of $102 thousand. These investment grade corporate bonds, maturing in three years, represent large financial corporations with potential exposure to the European markets. The unrealized losses on these securities are attributable to the increased risk premium required in the current economic environment.




13


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


As of June 30, 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 June 30, 2012 were debt securities with an amortized cost balance of $91.9 million and a fair value of $85.4 million that are callable at the discretion of the issuers.  Final maturities of the callable securities range from three to twenty-five years, with call features ranging from one month to five 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

$—

 

$29,443

 

$—

 

$—

 

$29,443

Weighted average yield
%
 
5.41
%
 
%
 
%
 
5.41
%
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
 
 
 
 
 
 
 
 
 
Amortized cost
90,411

 
161,311

 
44,625

 
9,410

 
305,757

Weighted average yield
4.29
%
 
3.91
%
 
2.61
%
 
2.34
%
 
3.78
%
State and political subdivisions:
 
 
 
 
 
 
 
 
 
Amortized cost
4,083

 
64,053

 
803

 

 
68,939

Weighted average yield
3.62
%
 
3.90
%
 
3.81
%
 
%
 
3.89
%
Trust preferred securities:
 
 
 
 
 
 
 
 
 
Amortized cost (1)

 

 

 
34,705

 
34,705

Weighted average yield
%
 
%
 
%
 
1.83
%
 
1.83
%
Corporate bonds:
 
 
 
 
 
 
 
 
 
Amortized cost
3,196

 
10,693

 

 

 
13,889

Weighted average yield
6.32
%
 
4.73
%
 
%
 
%
 
5.09
%
Total debt securities available for sale:
 
 
 
 
 
 
 
 
 
Amortized cost

$97,690

 

$265,500

 

$45,428

 

$44,115

 

$452,733

Weighted average yield
4.33
%
 
4.11
%
 
2.63
%
 
1.94
%
 
3.80
%
Fair value

$101,209

 

$275,084

 

$48,189

 

$44,685

 

$469,167

Securities Held to Maturity:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities issued by U.S. government-sponsored enterprises:
 
 
 
 
 
 
 
 
 
Amortized cost

$9,714

 

$23,013

 

$10,631

 

$3,668

 

$47,026

Weighted average yield
2.67
%
 
2.56
%
 
2.44
%
 
1.49
%
 
2.47
%
Fair value

$9,961

 

$23,597

 

$10,901

 

$3,761

 

$48,220

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




14


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


(5)
Loans
The following is a summary of loans:
(Dollars in thousands)
June 30, 2012
 
December 31, 2011
 
Amount

 
%

 
Amount

 
%

Commercial:
 
 
 
 
 
 
 
Mortgages (1)

$664,410

 
30
%
 

$624,813

 
29
%
Construction and development (2)
17,365

 
1

 
10,955

 
1

Other (3)
510,220

 
23

 
488,860

 
22

Total commercial
1,191,995

 
54

 
1,124,628

 
52

Residential real estate:
 
 
 
 
 
 
 
Mortgages (4)
680,772

 
31

 
678,582

 
32

Homeowner construction
21,247

 
1

 
21,832

 
1

Total residential real estate
702,019

 
32

 
700,414

 
33

Consumer:
 
 
 
 
 
 
 
Home equity lines (5)
224,550

 
10

 
223,430

 
10

Home equity loans (5)
40,690

 
2

 
43,121

 
2

Other (6)
54,588

 
2

 
55,566

 
3

Total consumer
319,828

 
14

 
322,117

 
15

Total loans (7)

$2,213,842

 
100
%
 

$2,147,159

 
100
%
(1)
Amortizing mortgages and lines of credit, primarily secured by income producing property. As of June 30, 2012 and December 31, 2011, $99.2 million and $107.1 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 8).
(2)
Loans for construction of residential and commercial properties and for land development.
(3)
Loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate. As of June 30, 2012, $24.3 million and $36.3 million, respectively, of these loans were pledged as collateral for FHLBB borrowings and were collateralized for the discount window at the Federal Reserve Bank.  Comparable amounts for December 31, 2011 were $27.2 million and $42.1 million, respectively (see Note 8).
(4)
As of June 30, 2012 and December 31, 2011, $598.3 million and $611.8 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 8).
(5)
As of June 30, 2012 and December 31, 2011, $190.1 million and $165.4 million, respectively, of these loans were pledged as collateral for FHLBB borrowings (see Note 8).
(6)
Fixed-rate consumer installment loans.
(7)
Includes net unamortized loan origination costs of $6 thousand and $31 thousand, respectively, and net unamortized premiums on purchased loans of $58 thousand and $67 thousand, respectively, at June 30, 2012 and December 31, 2011.




15


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


Nonaccrual Loans
Loans, with the exception of certain well-secured residential mortgage loans that are in the process of collection, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest or sooner if considered appropriate by management. Well-secured residential mortgage loans are permitted to remain on accrual status provided that full collection of principal and interest is assured and the loan is in the process of collection. Loans are also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest is doubtful. Interest previously accrued but not collected on such loans is reversed against current period income. Subsequent interest payments received on nonaccrual loans are applied to the outstanding principal balance of the loan or recognized as interest income depending on management's assessment of the ultimate collectability of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management's opinion, the loans are considered to be fully collectible.

The following is a summary of nonaccrual loans, segregated by class of loans, as of the dates indicated:
(Dollars in thousands)
Jun 30,
2012
 
Dec 31,
2011
Commercial:
 
 
 
Mortgages

$2,597

 

$5,709

Construction and development

 

Other
3,405

 
3,708

Residential real estate:
 
 
 
Mortgages
8,659

 
10,614

Homeowner construction

 

Consumer:
 
 
 
Home equity lines
695

 
718

Home equity loans
371

 
335

Other
15

 
153

Total nonaccrual loans

$15,742

 

$21,237

Accruing loans 90 days or more past due

$—

 

$—


As of June 30, 2012 and December 31, 2011, nonaccrual loans of $3.0 million and $3.6 million, respectively, were current as to the payment of principal and interest.




16


WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS    (Continued)


Past Due Loans
Past due status is based on the contractual payment terms of the loan. The following tables present an age analysis of past due loans, segregated by class of loans, as of the dates indicated:

(Dollars in thousands)
Days Past Due
 
 
 
 
 
 
June 30, 2012
30-59
 
60-89
 
Over 90
 
Total Past Due
 
Current
 
Total Loans
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Mortgages

$411

 

$233

 

$2,339

 

$2,983

 

$661,427

 

$664,410

Construction and development

 

 

 

 
17,365

 
17,365

Other
849

 
434

 
1,714

 
2,997

 
507,223

 
510,220

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
Mortgages
4,969

 
1,600

 
4,039

 
10,608

 
670,164

 
680,772

Homeowner construction

 

 

 

 
21,247

 
21,247

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
1,996

 
548

 
139

 
2,683

 
221,867

 
224,550

Home equity loans
482

 
114

 
223

 
819

 
39,871

 
40,690

Other
182

 
15

 

 
197

 
54,391

 
54,588

Total loans

$8,889

 

$2,944

 

$8,454

 

$20,287

 

$2,193,555

 

$2,213,842


(Dollars in thousands)
Days Past Due
 
 
 
 
 
 
December 31, 2011
30-59
 
60-89
 
Over 90
 
Total Past Due
 
Current
 
Total Loans
Commercial:
 
 
 
 
 
 
 
 
 
 
 
Mortgages

$1,621

 

$315

 

$4,995

 

$6,931

 

$617,882

 

$624,813

Construction and development

 

 

 

 
10,955

 
10,955

Other
3,760

 
982

 
633

 
5,375

 
483,485

 
488,860

Residential real estate:
 
 
 
 
 
 
 
 
 
 
 
Mortgages
3,969

 
1,505

 
6,283

 
11,757

 
666,825

 
678,582

Homeowner construction

 

 

 

 
21,832

 
21,832

Consumer:
 
 
 
 
 
 
 
 
 
 
 
Home equity lines
645

 
210

 
525

 
1,380

 
222,050

 
223,430

Home equity loans
362

 
46

 
202

 
610

 
42,511

 
43,121

Other
66

 
7

 
147

 
220

 
55,346

 
55,566

Total loans

$10,423

 

$3,065

 

$12,785

 

$26,273

 

$2,120,886

 

$2,147,159


Included in past due loans as of June 30, 2012 and December 31, 2011, were nonaccrual loans of