-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, asb/ubUlZf4HmHJrEHTy3nCwPUI4JwsJMe/NZAJ8YSMCBwu3R88l8X4H0KRT4Gm6 KjoFpDUQUuiSufz3ribp7g== 0000737468-95-000004.txt : 19950516 0000737468-95-000004.hdr.sgml : 19950516 ACCESSION NUMBER: 0000737468-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASHINGTON TRUST BANCORP INC CENTRAL INDEX KEY: 0000737468 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 050404671 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13091 FILM NUMBER: 95538831 BUSINESS ADDRESS: STREET 1: 23 BROAD ST CITY: WESTERLY STATE: RI ZIP: 02891 BUSINESS PHONE: 4013481200 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 ------------------------------------------ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from ________________ to _____________ Commission file Number 0-13091 ----------------------------------------------- WASHINGTON TRUST BANCORP, INC. - --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0404671 - ------------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23 BROAD STREET, WESTERLY, RHODE ISLAND 02891 - --------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (401) 348-1200 ------------- N/A - --------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of 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. [ X ] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the close of May 5, 1995. Class Outstanding at May 5, 1995 ------------------------------ -------------------------- Common stock, $.0625 par value 2,825,313 Shares Page 1 WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995 CONTENTS -------- Page No. PART I. ITEM 1. Financial Information -------- - -------------------------------------- Consolidated Balance Sheets March 31, 1995, March 31, 1994, and December 31, 1994 3 Consolidated Statements of Income Three Months Ended March 31, 1995 and 1994 4 Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 1995 and 1994 5 Consolidated Statements of Cash Flows Three Months Ended March 31, 1995 and 1994 6 Condensed Notes to Consolidated Financial Statements 7 PART I. ITEM 2. - ---------------- Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II. Other Information 19 - --------------------------- Signatures 20 - ---------- -2- WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
March 31, March 31, December 31, ASSETS 1995 1994 1994 - ------ ---------- ---------- ---------- Cash and due from banks $ 12,973,602 $ 14,614,253 $ 15,172,421 Federal funds sold 8,952,785 906,713 3,232,489 Securities available for sale, at market value; cost $28,923,719, $33,461,122 and $31,846,965 at March 31, 1995 and 1994, and December 31, 1994, respectively 34,565,969 39,379,482 36,516,115 Mortgage loans held for sale 330,352 79,532 203,750 Investment securities, at cost; market value $49,961,126, $51,743,604 and $49,395,262 at March 31, 1995 and 1994, and December 31, 1994, respectively 51,781,957 52,228,024 52,496,616 Loans 395,695,934 368,855,841 393,926,200 Less reserve for possible loan losses 8,742,225 9,219,536 9,327,942 ----------- ----------- ----------- Net loans 386,953,709 359,636,305 384,598,258 Premises and equipment, net 14,802,228 14,360,066 14,779,903 Accrued interest receivable 3,561,387 3,008,680 3,232,211 Other real estate owned, net 1,993,859 3,531,049 2,007,212 Other assets 3,501,586 2,319,200 3,440,988 ----------- ----------- ----------- Total assets $ 519,417,434 $ 490,063,304 $ 515,679,963 =========== =========== =========== LIABILITIES Demand deposits $ 47,737,913 $ 43,044,884 $ 53,373,386 Savings deposits 176,031,059 193,042,414 192,653,937 Time deposits 219,122,728 178,243,954 194,703,819 ----------- ----------- ----------- Total deposits 442,891,700 414,331,252 440,731,142 Dividends payable 621,514 468,497 564,686 Securities sold under agreement to repurchase -- 3,745,000 -- Federal Home Loan Bank advances 22,076,707 23,551,500 23,522,343 Accrued expenses and other liabilities 6,219,227 5,221,485 5,078,808 ----------- ----------- ----------- Total liabilities 471,809,148 447,317,734 469,896,979 ----------- ----------- ----------- SHAREHOLDERS' EQUITY Common stock of $.0625 par value; authorized 10,000,000 shares; issued 2,880,000 shares 180,000 120,000 180,000 Paid-in capital 2,874,005 2,852,642 2,869,135 Retained earnings 41,831,095 37,054,202 40,613,979 Unrealized gain on securities available for sale, net of tax 3,385,350 3,551,018 2,801,490 Treasury stock, at cost; 54,940 shares at March 31, 1995, 69,047 shares at March 31, 1994 and 56,570 shares at December 31, 1994 (662,164) (832,292) (681,620) ----------- ----------- ----------- Total shareholders' equity 47,608,286 42,745,570 45,782,984 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 519,417,434 $ 490,063,304 $ 515,679,963 =========== =========== ===========
See accompanying notes to consolidated financial statements. - 3 - WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1995 1994 - ---------------------------- ---------- ---------- Interest income: Interest and fees on loans $ 8,737,731 $7,246,159 Investment securities and securities available for sale: Interest 1,114,785 1,125,067 Dividends 190,601 194,079 Federal funds sold 101,283 50,614 ---------- --------- Total interest income 10,144,400 8,615,919 ---------- --------- Interest expense: Savings deposits 994,100 1,070,141 Time deposits 2,498,335 1,917,840 Other 408,691 319,282 ---------- --------- Total interest expense 3,901,126 3,307,263 ---------- --------- Net interest income 6,243,274 5,308,656 Provision for loan losses 150,000 333,365 ---------- --------- Net interest income after provision for loan losses 6,093,274 4,975,291 ---------- --------- Noninterest income: Trust income 777,823 801,520 Service charges on deposit accounts 470,287 383,357 Merchant processing fees 76,529 57,568 Gains on sales of securities available for sale -- 681,558 Gains (losses) on loan sales 21,989 (43,726) Other income 254,446 185,050 ---------- --------- Total noninterest income 1,601,074 2,065,327 ---------- --------- Noninterest expense: Salaries and employee benefits 2,590,921 2,459,221 Net occupancy 301,097 307,985 Equipment 309,445 292,036 Deposit taxes and assessments 308,117 298,356 Foreclosed property costs, net 53,328 108,846 Office supplies 129,603 181,040 Advertising and promotion 109,546 142,070 Credit and collection 122,443 169,401 Charitable contributions -- 699,897 Other 919,218 751,139 ---------- --------- Total noninterest expense 4,843,718 5,409,991 ---------- --------- Income before income taxes 2,850,630 1,630,627 Applicable income taxes 1,012,000 526,000 ---------- --------- Net income $ 1,838,630 $1,104,627 ========== ========= Weighted average shares outstanding - fully diluted 2,879,382 2,859,041 Weighted average shares outstanding - primary 2,876,668 2,837,781 Earnings per share - fully diluted $ .64 $ .39 Earnings per share - primary $ .64 $ .39 Cash dividends declared per share $ .22 $ .16
See accompanying notes to consolidated financial statements. - 4 - Washington Trust Bancorp, Inc. and Subsidiary Consolidated Statements of Changes in Shareholders' Equity
Three months ended March 31, 1995 1994 - --------------------------------------------------------------------------------- Common Stock - ------------ Balance at end of period $ 180,000 $ 120,000 - --------------------------------------------------------------------------------- Paid-in Capital - --------------- Balance at beginning of year 2,869,135 2,822,908 Issuance of common stock for dividend reinvestment and stock option plans 4,870 29,733 - --------------------------------------------------------------------------------- Balance at end of period 2,874,005 2,852,641 - --------------------------------------------------------------------------------- Retained Earnings - ----------------- Balance at beginning of year 40,613,979 36,418,073 Net income 1,838,630 1,104,627 Cash dividends declared (621,514) (468,497) - --------------------------------------------------------------------------------- Balance at end of period 41,831,095 37,054,203 - --------------------------------------------------------------------------------- Unrealized Gain on Securities Available for Sale - ------------------------------------------------ Balance at beginning of year 2,801,490 -- Adoption of SFAS No. 115 -- 4,910,522 Change in unrealized gain on securities available for sale, net of tax 583,860 (1,359,504) - --------------------------------------------------------------------------------- Balance at end of period 3,385,350 3,551,018 - --------------------------------------------------------------------------------- Treasury Stock - -------------- Balance at beginning of year (681,620) (898,056) Issuance of common stock for dividend reinvestment and stock option plans 19,456 65,764 - --------------------------------------------------------------------------------- Balance at end of period (662,164) (832,292) - --------------------------------------------------------------------------------- Total Shareholders' Equity $47,608,286 $42,745,570 =================================================================================
See accompanying notes to consolidated financial statements. -5- WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, ------------------------- 1995 1994 ---------- ---------- Cash flows from operating activities: Net income $ 1,838,630 1,104,627 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 150,000 333,365 Provision for valuation of other real estate owned 7,712 17,760 Depreciation of premises and equipment 325,000 330,182 Amortization of net deferred loan fees and costs (196,421) (159,258) Gains on sales of securities available for sale -- (681,558) Losses on sales of other real estate owned 1,914 6,731 Losses (gains) on loan sales (21,989) 43,726 Proceeds from sales of loans 1,949,853 9,201,632 Loans originated for sale (2,054,467) (5,615,391) Increase in accrued interest receivable (329,176) (137,769) Increase in other assets (449,838) (361,942) Increase in accrued expenses and other liabilities 1,140,419 641,679 Other, net 22,322 56,320 ---------- ---------- Net cash provided by operating activities 2,383,959 4,780,104 ---------- ---------- Cash flows from investing activities: Securities available for sale: Purchases (88,200) (8,000) Proceeds from sales of equity securities -- 3,449,897 Maturities 3,000,000 -- Investment securities: Purchases -- (1,161,852) Maturities and principal repayments 701,730 1,416,634 Loan originations in excess of principal collected on loans (2,304,086) (11,730,619) Proceeds from sales and other reductions of other real estate owned 1,905 22,635 Purchases of premises and equipment (348,393) (335,117) ---------- ---------- Net cash provided by (used in) investing activities 962,956 (8,346,422) ---------- ---------- Cash flows from financing activities: Net increase (decrease) in deposits 2,160,558 (9,043,368) Net increase in securities sold under agreement to repurchase -- 3,745,000 Proceeds from Federal Home Loan Bank advances 12,564,839 3,051,500 Payments of Federal Home Loan Bank advances (14,010,475) -- Proceeds from issuance of commmon stock from treasury 24,326 95,497 Cash dividends paid (564,686) (411,473) ---------- ---------- Net cash provided by (used in) financing activities 174,562 (2,562,844) ---------- ---------- Net increase (decrease) in cash and cash equivalents 3,521,477 (6,129,162) Cash and cash equivalents at beginning of period 18,404,910 21,650,128 ---------- ---------- Cash and cash equivalents at end of period $ 21,926,387 15,520,966 ========== ========== Noncash Investing Activities: Transfers from loans to other real estate owned $ 88,428 282,363 Loans charged off 807,274 266,772 Loans made to facilitate the sale of OREO 90,250 90,000 Change in unrealized gain on securities available for sale, net of tax 583,860 3,551,018 Supplemental Disclosures: Interest payments $ 1,859,443 1,789,504 Income tax payments 117,250 481,009
See accompanying notes to consolidated financial statements. -6- WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1995 AND 1994 (1) BASIS OF PRESENTATION - ------------------------- The accounting and reporting policies of Washington Trust Bancorp, Inc. (the Corporation) are in accordance with generally accepted accounting principles and conform to general practices within the banking industry. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normally recurring accruals) necessary to present fairly the Corporation's financial position as of March 31, 1995 and 1994 and the results of operations and cash flows for the interim periods presented. The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The Washington Trust Company. All significant intercompany balances and transactions have been eliminated. Certain amounts in the 1994 consolidated financial statements have been reclassified to conform to the current reporting format. The unaudited consolidated financial statements of Washington Trust Bancorp, Inc. presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1994, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. (2) IMPAIRED LOANS - ------------------ Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". These statements establish accounting standards for measuring impairment on loans for which it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. SFAS No. 114 requires impairment to be measured on a discounted cash flow method, or at the loan's observable market price, or at the fair value of the collateral if the loan is collateral dependent. However, impairment must be measured based on the fair value of the collateral if it is determined that foreclosure is probable. SFAS No. 114 also narrows the definition of in-substance foreclosures to include only those loans for which the Corporation has taken possession of the collateral, but has not completed legal foreclosure proceedings. Accordingly, loans classified as in-substance foreclosure are treated as impaired loans rather than other real estate owned (OREO) under these pronouncements. Upon adoption of SFAS No. 114 and No. 118, the Corporation reclassified in- substance foreclosed loans of $3,792,728 from OREO to loans, and a related valuation reserve of $492,035 from OREO to the reserve for loan losses. Comparable amounts reclassified as of March 31, 1994 were loans amounting to $5,179,693 and a related valuation reserve of $389,485. -7- Impaired loans consist of all nonaccrual commercial loans. When a loan is placed on nonaccrual status and identified as impaired, interest previously accrued, but not collected is reversed against current period income, and further recognition of accrued interest is suspended. Subsequent cash receipts on impaired loans are applied to the outstanding principal balance of the loan, or recognized as interest income depending on management's assessment of the ultimate collectibility of the loan. At March 31, 1995, the recorded investment in impaired loans was $6,670,000, including $4,672,000 which had a related allowance amounting to $920,000. The balance of impaired loans which did not require an allowance was $1,998,000. During the three months ended March 31, 1995, the average recorded investment in impaired loans was $6,938,000. Also during this period, interest income recognized on impaired loans amounted to approximately $92,000. Interest income on impaired loans is recognized on a cash basis only. (3) SECURITIES AVAILABLE FOR SALE - --------------------------------- Securities available for sale are those which the Corporation intends to use as part of its asset/liability strategy or that may be sold as a result of changes in market conditions, changes in prepayment risk, rate fluctuations, liquidity or capital requirements. Securities available for sale are summarized as follows: Amortized Unrealized Unrealized Market March 31, 1995 Cost Gains Losses Value -------------- ---------- ---------- ---------- ----------- U.S. Treasury obligations $22,048,034 240,802 (359,816) $21,929,020 Corporate stocks 3,880,685 5,771,726 (10,462) 9,641,949 Federal Home Loan Bank stock 2,995,000 -- -- 2,995,000 ----------- ---------- --------- ---------- $28,923,719 6,012,528 (370,278) $34,565,969 =========== ========== ========= =========== Amortized Unrealized Unrealized Market March 31, 1994 Cost Gains Losses Value -------------- ---------- ---------- --------- ----------- U.S. Treasury obligations $25,105,567 550,944 (158,516) $25,497,995 Corporate debt securities 1,000,000 -- -- 1,000,000 Corporate stocks 5,374,755 5,609,121 (83,189) 10,900,687 Federal Home Loan Bank stock 1,980,800 -- -- 1,980,800 ----------- ---------- --------- ---------- $33,461,122 6,160,065 (241,705) $39,379,482 =========== ========== ========= =========== Included in corporate stocks at March 31, 1995 and 1994 were $500,000 and $2.0 million, respectively, of auction rate preferred stocks. These are preferred stock instruments whose dividend rate is reset by auction every 49 days to a market rate which results in a market value of par. U.S. Treasury obligations with a carrying value of $2,993,770 and $3,026,560 were pledged to secure public deposits and for other purposes at March 31, 1995 and 1994, respectively. U.S. Treasury obligations with a carrying value of $3,660,790 were pledged as collateral against securities sold under agreements to repurchase at March 31, 1994. -8- There were no sales of corporate stocks for the quarter ended March 31, 1995. For the quarter ended March 31, 1994, proceeds from sales of corporate stocks and gains realized on these sales amounted to $3,449,897 and $681,558, respectively. No losses were realized on these sales. Realized gains from sales of corporate stocks were determined using the average cost method. (4) INVESTMENT SECURITIES - ------------------------- Those debt securities that the Corporation has the ability and intent to hold until maturity are classified as investment securities. Debt securities held in the investment portfolio are carried at cost, adjusted for amortization of premium and accretion of discount. The amortized cost and market values of investment securities are summarized as follows:
Carrying Unrealized Unrealized Market March 31, 1995 Value Gains Losses Value -------------- ---------- ---------- ---------- ----------- U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $20,411,979 -- (1,217,889) $19,194,090 Mortgage-backed securities 21,359,718 -- (468,415) 20,891,303 States and political subdivisions 10,010,260 19,330 (153,857) 9,875,733 ----------- ---------- --------- ----------- $51,781,957 19,330 (1,840,161) $49,961,126 =========== ========== ========= =========== Carrying Unrealized Unrealized Market March 31, 1994 Value Gains Losses Value -------------- ---------- ---------- ---------- ----------- U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $19,419,051 11,816 (353,593) $19,077,274 Mortgage-backed securities 24,094,454 64,665 (140,413) 24,018,706 States and political subdivisions 8,714,519 42,231 (109,126) 8,647,624 ----------- ---------- --------- ----------- $52,228,024 118,712 (603,132) $51,743,604 =========== ========== ========= ===========
Investment securities with a carrying value of $1,399,501 and $999,683 were pledged to secure public deposits and for other purposes at March 31, 1995 and 1994, respectively. There were no sales or transfers of investment securities during the quarters ended March 31, 1995 and 1994. -9- (5) LOAN PORTFOLIO - ------------------ The following is a summary of loans: March 31, ------------------------- 1995 1994 ----------- ----------- Residential real estate: Mortgages $172,465,660 $159,422,264 Homeowner construction 5,561,805 5,512,610 ----------- ----------- Total residential real estate 178,027,465 164,934,874 ----------- ----------- Commercial: Mortgages 56,004,297 52,508,040 Construction and development 13,641,295 9,905,562 Other 101,705,852 105,241,466 ----------- ----------- Total commercial 171,351,444 167,655,068 ----------- ----------- Installment 46,317,025 36,265,899 ----------- ----------- $395,695,934 $368,855,841 =========== =========== (6) RESERVE FOR POSSIBLE LOAN LOSSES - ------------------------------------ The following is an analysis of the reserve for possible loan losses: Three months ended March 31, ---------------------- 1995 1994 --------- --------- Balance at beginning of period $9,327,942 $9,089,775 Provision charged to expense 150,000 333,365 Recoveries 71,557 63,168 Loans charged off (807,274) (266,772) --------- --------- Balance at end of period $8,742,225 $9,219,536 ========= ========= Prior period amounts presented have been restated as a result of the implementation of SFAS No. 114 and No. 118. See Note 2 to the Consolidated Financial Statements for additional discussion. (7) NONACCRUAL LOAN POLICY - -------------------------- Loans, with the exception of credit card loans and certain residential mortgage loans, 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. Interest previously accrued, but not collected on such loans is reversed against current period income. Cash receipts 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 -10- collectibility 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 the repayment terms, and when, in management's option, the loans are considered to be fully collectible. Effective January 1, 1995, residential mortgages are placed on nonaccrual status when they are 90 days or more overdue, unless in management's judgment the value of the underlying collateral is sufficient to preclude any loss of principal and interest. Previously, all residential mortgages were placed on nonaccrual status when they became 90 days past due. The effect of this change on the results of operations was insignificant. (8) INTEREST RATE RISK MANAGEMENT POLICY - ---------------------------------------- The Corporation uses interest rate swaps and interest rate floor contracts as part of its interest rate risk management strategy. Swaps are agreements in which the Corporation and another party agree to exchange interest payments on a notional principal amount. A floor is a purchased contract that entitles the Corporation to receive payment from a counterparty if a rate index falls below a contractual rate. The amount of the payment is the difference between the contractual floor rate and the rate index multiplied by the notional principal amount of the contract. If the contractual rate does not fall below the floor rate, no payment is received. The credit risk associated with these types of transactions is risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate contracts only with creditworthy counterparties. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the Corporation's potential loss exposure. Interest rate risk contracts outstanding at March 31, 1995 are summarized in the following table: Description Notional amount Terms - ----------- --------------- ----- Interest rate swap $10,000,000 Pay 3-month LIBOR; resetting quarterly Receive 6.1% fixed Expiration date: May, 1996 Floor contract $20,000,000 Receive payment if LIBOR falls below 6.1875% Expiration date: February, 2000 Floor contract $30,000,000 Receive payment if Prime falls below 9.0% Expiration date: February, 2000 The purpose of the swap agreement is to convert the fixed rate paid on certain time deposits to a quarterly-resetting rate. The purpose of the floor contracts is to offset the risk of future reductions in interest earned on certain floating rate loans. For swaps and floors that are designated as hedge transactions, the net differential paid or received on the swap, the amortization of the floor premium and any payment received under the floor contract is accounted for as an adjustment to the yield of the balance sheet asset or liability that is hedged. -11- WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarterly Results of Operations - ------------------------------- Net income for the three months ended March 31, 1995 amounted to $1,838,630, 66.4% higher than the $1,104,627 net income recorded in the first quarter of 1994. Earnings per share for the quarter ended March 31, 1995 amounted to $.64, up 64.1% from $.39 per share earned in the quarter ended March 31, 1994. The increase in net income in 1995 is primarily attributable to the increase in net interest income of approximately $935,000. This increase reflects the widening of the interest rate spread which began in 1994. (See additional discussion under the caption "Net Interest Income".) The provision for loan losses amounted to $150,000 for the three months ended March 31, 1995, down from $333,365 in the first quarter of 1994. Total noninterest income for the three months ended March 31, 1995 amounted to $1.6 million, compared to $2.1 million, for the three months ended March 31, 1994. The 1994 amount included gains on sales of securities available for sale of $681,558. These securities gains were taken in connection with a nonrecurring contribution expense of approximately $700,000 recorded in the first quarter of 1994 for the establishment of a charitable trust. There were no sales of securities in the first quarter of 1995. Noninterest income excluding securities gains as well as gains and losses on loan sales rose 10.6% over the prior year due to fee increases and higher transaction volume. Total noninterest expense for the quarter ended March 31, 1995 amounted to $4.8 million, up 2.8% over the 1994 period excluding the nonrecurring contribution expense of approximately $700,000 associated with the establishment of a charitable trust. Included in salaries and benefits in the first quarter of 1994 is the adoption of SFAS No. 112, "Employers' Accounting for Postemployment Benefits". The effect of the adoption was not material to the Corporation's financial position or results of operations. Excluding the effect of the adoption of SFAS No. 112, salaries and employee benefits rose 10.9% in 1995 over the prior year quarter. The increase is attributable to normal salary adjustments and increased staffing levels. Foreclosed property costs were reduced by 51.0% from the prior year quarter and amounted to $53,328 for the three months ended March 31, 1995. This decrease is primarily attributable to fewer number of properties owned. Financial Condition and Liquidity - --------------------------------- Total assets amounted to $519.4 million at March 31, 1995, 6.0% higher than the March 31, 1994 amount. Average assets totalled $516.7 million for the quarter ended March 31, 1995, up 5.2% from average assets of $491.3 million during the quarter ended March 31, 1994. Securities Available for Sale - During the three months ended March 31, 1995, the net unrealized gain on corporate stocks increased $565,854, reflecting an improvement in general equity market conditions. In addition, the net -12- unrealized loss on U.S. Treasury obligations was reduced by $407,246 during the first quarter. This was primarily attributable to the decline in short and medium-term interest rates since December 31, 1994. Approximately 88% of the Corporation's U.S. Treasury portfolio available for sale matures within 3 years. Investment Securities - The carrying value of investment securities amounted to $51.8 million at March 31, 1995, down slightly from $52.2 million in the prior year. The net unrealized loss on investment securities amounted to $1.8 million at March 31, 1995, compared to $484,000 at March 31, 1994. The March 31, 1995 amount represents an improvement of $1.3 million from the net unrealized loss of $3.1 million at December 31, 1994. This improvement was attributable to the decline in short- and medium-term interest rates during the first quarter of 1995. The Corporation has the ability and intent to hold investment securities to maturity and therefore does not expect to realize these losses. Loans - Total loans amounted to $395.7 million at March 31, 1995, 7.3% higher than the prior year balance. The majority of the increase occurred in the residential real estate and installment loan portfolios. Residential mortgage loans totalled $172.5 million, an increase of $13.0 million, or 8.2%, from the March 31, 1994 amount. Installment loans amounted to $46.3 million at March 31, 1995, up $10.1 million, or 27.7% from the year-earlier balance. This increase was primarily due to the increase in home equity loans, which were the subject of a concentrated marketing campaign during 1994. Total commercial loans increased moderately from the first quarter of 1994, and remained relatively unchanged from the December 31, 1994 amount. Although overall demand for commercial loans was weak in the first quarter of 1995, commercial construction loans rose 12.8% from the balance at December 31, 1994. Deposits and Other Borrowings - Total deposits amounted to $442.9 million at March 31, 1995, up 6.9% from $414.3 million at March 31, 1994. Depositors have reacted to rising time deposit interest rates by shifting deposits into longer- term accounts. Accordingly, time deposits at March 31, 1995 were up by $40.9 million, or 22.9%, over the prior year amount. Conversely, savings deposits were reduced by $17.0 million, or 8.8%, from the March 31, 1994 amount. Time deposits comprised 49.5% of total deposits at March 31, 1995, compared to 43.0% of total deposits at March 31, 1994. The Corporation utilizes Federal Home Loan Bank (FHLB) advances as a funding source. FHLB advances amounted to $22.1 million at March 31, 1995, with maturities generally less than five years. The average cost of FHLB advances for the first quarter of 1995 was 6.06%. There were no other short-term borrowings outstanding at March 31, 1995. For the three months ended March 31, 1995, net cash provided by operations amounted to $2.4 million, the majority of which was generated by net income. Cash flows from investing activities amounted to $963,000. Proceeds from maturities of debt securities and principal repayments from mortgage-backed securities amounted to $3.7 million and were used in part to fund loan demand. -13- Asset Quality - ------------- Nonperforming assets are summarized in the following table:
(Dollars in thousands) 03/31/95 03/31/94 12/31/94 -------- -------- -------- Nonaccrual loans 90 days or more past due $ 6,055 $ 9,949 $ 7,183 Nonaccrual loans less than 90 days past due 3,938 4,980 3,729 -------- -------- -------- Total nonperforming loans 9,993 14,929 10,912 -------- -------- -------- Other real estate owned: Properties acquired through foreclosure 2,553 4,647 2,578 Valuation allowance (559) (1,116) (571) -------- -------- -------- Total other real estate owned 1,994 3,531 2,007 -------- -------- -------- Total nonperforming assets $11,987 $18,460 $12,919 ======== ======== ======== Nonperforming loans as a % of total loans 2.5% 4.0% 2.8% Nonperforming assets as a % of total assets 2.3% 3.8% 2.5% Reserve for loan losses to nonperforming loans 87.5% 61.8% 85.5%
The following is an analysis of nonperforming loans by loan category:
(In thousands) 03/31/95 03/31/94 12/31/94 -------- -------- -------- Residential mortgages $2,699 $5,392 $3,681 Commercial: Mortgages 1,617 2,310 1,700 Construction and development 689 666 689 Other (1) 4,364 5,707 4,191 Installment 624 854 651 -------- -------- -------- Total nonperforming loans $9,993 $14,929 $10,912 ======== ======== ======== (1) Loans to businesses and individuals, a substantial portion of which is fully or partially collateralized by real estate.
Not included in the analysis of nonperforming assets above are approximately $262,000 of loans greater than 90 days past due, and still accruing. These loans consist primarily of residential mortgages which are considered well- collateralized and therefore are deemed to have no loss exposure. As discussed in Note 2 to the Consolidated Financial Statements, the Corporation implemented SFAS No. 114 and No. 118 as of January 1, 1995. Amounts for periods prior to the adoption have been restated. The effect of the implementation of these pronouncements was a reclassification of loans previously accounted for as in-substance foreclosures to loans in the amount of $3.8 million. Additionally, $492,000 of related OREO valuation reserve was reclassified to the reserve for possible loan losses. -14- The balance of other real estate owned is comprised of the following types of properties (in thousands):
03/31/95 03/31/94 12/31/94 -------- -------- -------- Commercial real estate $ 752 $ 2,279 $ 752 Residential real estate 433 459 457 Construction and development 401 793 401 Land 967 1,116 968 ------ ------- ------ 2,553 4,647 2,578 Valuation allowance (559) (1,116) (571) ------ ------- ------ Total other real estate owned $1,994 $ 3,531 $2,007 ====== ======= ======
An analysis of the activity relating to other real estate owned follows (in thousands): 03/31/95 03/31/94 -------- -------- Balance at beginning of year $ 2,578 $ 4,568 Transfers from loans, net 88 293 Sales and other reductions (113) (188) Other, net -- (26) ------- ------- 2,553 4,647 Valuation allowance (559) (1,116) ------- ------- Balance at end of period $ 1,994 $ 3,531 ======= ======= During the three months ended March 31, 1995, and 1994 the Corporation sold property with a carrying value of approximately $100,000 and $120,000, respectively. The following is an analysis of the OREO valuation allowance (in thousands): For the three months ended March 31, 1995 1994 - ------------------------------------ ------ ------ Balance at beginning of period $ 571 $1,156 Provision charged to expense 8 18 Sales and other reductions (20) (68) Other, net -- 10 ------ ------ Balance at end of period $ 559 $1,116 ====== ====== Prior year amounts have been restated to reflect the implementation of SFAS No. 114. The effect of the implementation of this pronouncement on January 1, 1995 was a reclassification of in-substance foreclosures of $3,792,728 from OREO to loans, and a related reclassification of $492,035 in OREO valuation reserve to the reserve for possible loan losses. -15- Capital Resources - ----------------- Total equity capital amounted to $47.6 million or 9.2% of total assets at March 31, 1995. This compares to $42.7 million or 8.7% at March 31, 1994 and $45.8 or 8.9% at December 31, 1994. The $1.8 million increase from year-end is primarily attributable to an increase in unrealized gains on securities available for sale of $584,000 and $1.2 million resulting from earnings retention. The Corporation's total risk-adjusted capital ratio amounted to 14.10% at March 31, 1995. Banks are required to maintain a minimum capital to risk-adjusted asset ratio of 8%. The Corporation's leverage ratio amounted to 8.58% at March 31, 1995, well above the regulatory requirement of 3% for banking organizations with strong earnings, liquidity and asset quality who do not anticipate significant growth and who have well-diversified risk. Dividends payable at March 31, 1995 amounted to $621,514, representing $.22 per share payable on April 17, 1995, an increase of 37.5% over the $.16 per share paid in the first quarter of 1994. The source of funds for dividends paid by the Corporation is dividends received from its subsidiary bank. The subsidiary bank is a regulated enterprise, and as such its ability to pay dividends to the parent is subject to regulatory review and restriction. Net Interest Income - ------------------- (The accompanying schedule on page 18 should be read in conjunction with this discussion.) Fully taxable equivalent (FTE) net interest income for the three months ended March 31, 1995 amounted to $6.4 million, up 18.4% over the corresponding 1994 period. Increases in asset yields, combined with a slower rate of increase in rates paid on liabilities, were responsible for the majority of the improvement over the prior year. Balance sheet growth generated through loan originations also contributed to increased net interest income. This improvement was reflected in wider net interest spreads and margins. The FTE interest rate spread (the average rate of return on interest-earning assets less the average cost of interest-bearing funds) amounted to 4.78% for the first quarter of 1995, up from 4.35% for the first quarter of 1994. The net interest margin (net interest income as a percentage of average interest-earning assets) amounted to 5.31% and 4.75% for the three months ended March 31, 1995 and 1994, respectively. The FTE rate of return on interest-earning assets was 8.53% for the three months ended March 31, 1995, compared to 7.65% in the corresponding 1994 period. Most of the improvement is attributable to increased rates earned on loans. The yield earned on total loans amounted to 8.88% and 8.02% for the three months ended March 31, 1995 and 1994, respectively. Increases in the prime rate during 1994 significantly enhanced commercial loan yields, which rose from 7.77% for the first quarter of 1994 to 9.27% for the first quarter of 1995. Yields on residential real estate and installment loans also increased, although less substantially. The loan portfolio benefited from rising rates as adjustable rate mortgages (ARMs) repriced upward because of interest rate increases that occurred in 1994. In the event that interest rates stabilize or decrease during 1995, this trend of rate increases for periodically repricing loans will not continue. -16- Strong loan origination volumes during 1994 also contributed to higher interest income in 1995. Loan demand has been soft, however, during the first quarter of 1995 as a result of rising rates and competition. Total average loans amounted to $394.6 million for the first quarter of 1995, up 8.9% from $362.3 million for the prior year quarter. The yields on taxable and nontaxable securities were up over the prior year, due primarily to short and medium-term rate increases that occurred during 1994. Average securities were down 5.8% from the prior year due in part to increased loan demand during 1994. Rates paid on interest-bearing liabilities also rose from 1994 levels, although at a slower rate. The overall cost of funds on interest-bearing liabilities rose from 3.30% for the three months ended March 31, 1994, to 3.75% for the comparable 1995 period. Rates paid on time deposits and borrowed funds increased, while rates paid on savings deposits were virtually unchanged. This differential in rates has caused a shift of balances out of savings deposits into higher-priced time deposits. Total average time deposits grew $26.8 million from the first quarter of 1994 to the first quarter of 1995, while total average savings deposits declined by $14.8 million over the same period. As this trend continues, and as maturing time deposits are renewed at higher rates, the overall cost of funds is expected to increase. Average demand deposits for the three months ended March 31, 1995 rose 13% over the prior year level. This increase affected the net interest margin favorably because these deposits are noninterest-bearing. Average Federal Home Loan Bank (FHLB) advances for the first quarter of 1995 amounted to $26.3 million, up from $22.1 million at March 31, 1994. The additional advances were used in part to fund loan demand during a period of seasonal deposit outflow. The average rates of interest paid on FHLB advances were 6.06% and 5.58% for the three months ended March 31, 1995 and 1994, respectively. The Corporation supplements its interest rate risk management strategies with off-balance sheet transactions. At March 31, 1995 the notional principal amount of interest rate contracts amounted to $60 million and included $10 million in interest rate swaps and $50 million in interest rate floor contracts which were purchased during the first quarter of 1995. The effect of these interest rate contracts on net interest income for the quarter ended March 31, 1995 was not material. (See Note 8 to the Consolidated Financial Statements for additional discussion.) -17-
Average Balances/Net Interest Margin (Fully Taxable Equivalent Basis) --------------------------------------------------------------------- The following table presents average balance and interest rate information. Tax exempt income is converted to a fully taxable equivalent basis by assuming a 34% 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. Nonaccrual and renegotiated loans, as well as interest earned on these loans (to the extent recognized in the Consolidated Condensed Statements of Income), are included in amounts presented for loans. Three months ended March 31, 1995 1994 --------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate --------------------------------------------------------------------------------------------------------- Interest-earning assets: Residential real estate $178,265 3,686 8.27% $163,232 3,236 7.93% Commercial and other 171,209 3,968 9.27% 164,499 3,194 7.77% Installment loans 45,154 1,107 9.80% 34,530 837 9.69% --------------------------------------------------------------------------------------------------------- Total loans 394,628 8,761 8.88% 362,261 7,267 8.02% Federal funds sold 7,081 101 5.72% 7,116 51 2.85% Taxable securities 72,341 1,296 7.17% 79,607 1,294 6.51% Nontaxable securities 10,170 171 6.74% 7,973 124 6.21% --------------------------------------------------------------------------------------------------------- Total interest-earning assets 484,220 10,329 8.53% 456,957 8,736 7.65% Non interest-earning assets 32,498 34,359 --------------------------------------------------------------------------------------------------------- Total assets $516,718 $491,316 ========================================================================================================= Interest-bearing liabilities: Savings deposits $181,912 994 2.19% $196,662 1,070 2.18% Time deposits 207,525 2,498 4.82% 180,684 1,918 4.25% FHLB advances 26,319 399 6.06% 22,125 309 5.58% Other 674 10 5.83% 1,063 10 3.94% --------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 416,430 3,901 3.75% 400,534 3,307 3.30% Non interest-bearing liabilities 53,130 47,022 --------------------------------------------------------------------------------------------------------- Total liabilities 469,560 447,556 Total shareholders' equity 47,158 43,760 --------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $516,718 $491,316 ========================================================================================================= Net interest income / interest rate spread $6,428 4.78% $5,429 4.35% ========================================================================================================= Net interest margin 5.31% 4.75% ========================================================================================================= Interest income amounts presented in the table above include the following adjustments for taxable equivalency (in thousands): March 31, 1995 March 31, 1994 ------------------ ------------------ Commercial and other loans $ 23 $ 20 Nontaxable debt securities 114 44 Corporate stocks 49 56
-18- PART II OTHER INFORMATION ----------------- Item 1. Legal Proceedings - ------ ----------------- None Item 2. Changes in Securities - ------ --------------------- None Item 3. Defaults upon Senior Securities - ------ ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- None Item 5. Other Information - ------ ----------------- None Item 6. Exhibits and Reports on Form 8-K - ------ -------------------------------- None -19- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WASHINGTON TRUST BANCORP, INC. ------------------------------ (Registrant) May 15, 1995 By: Joseph J. Kirby -------------------------------- Joseph J. Kirby President (principal executive officer) May 15, 1995 By: Joseph H. Potter -------------------------------- Joseph H. Potter Executive Vice President May 15, 1995 By: David V. Devault -------------------------------- David V. Devault Vice President and Chief Financial Officer (principal financial officer) -20- EX-27 2
9 THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF WASHINGTON TRUST BANCORP, INC. AS OF MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1995 MAR-31-1995 12,973,602 0 8,952,785 0 34,565,969 51,781,957 49,961,126 395,695,934 8,742,225 519,417,434 442,891,700 22,076,707 6,840,741 0 180,000 0 0 47,428,286 519,417,434 8,737,731 1,305,386 101,283 10,144,400 3,492,435 3,901,126 6,243,274 150,000 0 4,843,718 2,850,630 2,850,630 0 0 1,838,630 .64 .64 0 0 0 0 0 0 0 0 0 0 0 0
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