10-Q 1 0001.txt 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 SEPTEMBER 30, 2000 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 000-13091 ------------------------------------- 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) (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. [X] Yes [ ] No The number of shares of common stock of the registrant outstanding as of October 31, 2000 was 11,994,317. Page 1 FORM 10-Q WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY For The Quarter Ended September 30, 2000 TABLE OF CONTENTS PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets September 30, 2000 and December 31, 1999 Consolidated Statements of Income Three Months and Nine Months Ended September 30, 2000 and 1999 Consolidated Statements of Changes in Shareholders' Equity Nine Months Ended September 30, 2000 and 1999 Consolidated Statements of Cash Flows Nine Months Ended September 30, 2000 and 1999 Condensed Notes to Consolidated Financial Statements Independent Auditors' Review Report Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II. Other Information Signatures This report contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Corporation's actual results could differ materially from those projected in the forward-looking statements as a result, among other factors, of changes in general national or regional economic conditions, changes in interest rates, reductions in deposit levels necessitating increased borrowing to fund loans and investments, changes in the size and nature of the Corporation's competition, changes in loan default and charge-off rates, and changes in the assumptions used in making such forward-looking statements. WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 2000 1999 -------------------------------------------------------------------------------- Assets: Cash and due from banks $17,284 $27,091 Federal funds sold and other short-term investments 20,500 17,429 Mortgage loans held for sale 1,815 1,647 Securities: Available for sale, at fair value 383,340 330,431 Held to maturity, at cost; fair value $126,751 in 2000 and $112,868 in 1999 128,656 116,372 -------------------------------------------------------------------------------- Total securities 511,996 446,803 Federal Home Loan Bank stock, at cost 19,558 17,627 Loans 584,298 549,025 Less allowance for loan losses 13,145 12,349 -------------------------------------------------------------------------------- Net loans 571,153 536,676 Premises and equipment, net 21,862 23,442 Accrued interest receivable 8,029 6,010 Other assets 28,086 28,880 -------------------------------------------------------------------------------- Total assets $1,200,283 $1,105,605 -------------------------------------------------------------------------------- Liabilities: Deposits: Demand $122,592 $102,384 Savings 248,938 235,395 Time 362,068 322,974 -------------------------------------------------------------------------------- Total deposits 733,598 660,753 Dividends payable 1,443 1,202 Short-term borrowings 2,864 4,209 Federal Home Loan Bank advances 368,437 352,548 Accrued expenses and other liabilities 9,706 8,727 -------------------------------------------------------------------------------- Total liabilities 1,116,048 1,027,439 -------------------------------------------------------------------------------- Shareholders' Equity: Common stock of $.0625 par value; authorized 30 million shares; issued 11,994,309 shares in 2000 and 11,925,571 shares in 1999 750 745 Paid-in capital 10,063 9,926 Retained earnings 72,064 67,686 Accumulated other comprehensive gain (loss) 1,358 (191) -------------------------------------------------------------------------------- Total shareholders' equity 84,235 78,166 -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,200,283 $1,105,605 -------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands, CONSOLIDATED STATEMENTS OF INCOME except per share data)
(Unaudited) Three Months Nine Months ---------------------------------------------- Periods ended September 30, 2000 1999 2000 1999 --------------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $12,669 $11,420 $36,451 $33,306 Interest on securities 8,322 6,518 23,628 18,834 Dividends on corporate stock and Federal Home Loan Bank stock 715 486 2,056 1,539 Interest on federal funds sold and other short-term investments 252 131 630 419 --------------------------------------------------------------------------------------------------------------------- Total interest income 21,958 18,555 62,765 54,098 --------------------------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 1,087 1,053 3,082 3,003 Time deposits 5,187 3,986 14,414 11,820 Federal Home Loan Bank advances 5,886 4,257 16,909 12,129 Other 30 121 95 596 --------------------------------------------------------------------------------------------------------------------- Total interest expense 12,190 9,417 34,500 27,548 --------------------------------------------------------------------------------------------------------------------- Net interest income 9,768 9,138 28,265 26,550 Provision for loan losses 250 450 950 1,390 --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 9,518 8,688 27,315 25,160 --------------------------------------------------------------------------------------------------------------------- Noninterest income: Trust and investment management 2,657 2,324 7,976 6,888 Service charges on deposit accounts 842 777 2,444 2,329 Merchant processing fees 906 599 1,714 1,242 Income from bank-owned life insurance 271 238 772 434 Mortgage banking activities 139 295 395 1,171 Net gains (losses) on sales of securities - (4) 758 380 Net gain on sale of credit card portfolio - 438 - 438 Other income 594 405 1,265 1,242 --------------------------------------------------------------------------------------------------------------------- Total noninterest income 5,409 5,072 15,324 14,124 --------------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 4,885 4,608 14,891 13,601 Net occupancy 617 652 1,882 1,877 Equipment 1,082 801 2,819 2,334 Legal, audit and professional fees 434 292 1,317 766 Advertising and promotion 278 205 983 728 Merchant processing costs 712 537 1,358 994 Office supplies 140 164 499 506 Acquisition related expenses - 1,552 1,035 1,552 Other 1,450 1,218 4,156 4,228 --------------------------------------------------------------------------------------------------------------------- Total noninterest expense 9,598 10,029 28,940 26,586 --------------------------------------------------------------------------------------------------------------------- Income before income taxes 5,329 3,731 13,699 12,698 Income tax expense 1,585 1,229 4,131 3,678 --------------------------------------------------------------------------------------------------------------------- Net income $3,744 $2,502 $9,568 $9,020 --------------------------------------------------------------------------------------------------------------------- Per share information: Basic earnings per share $.31 $.21 $.80 $.76 Diluted earnings per share $.31 $.21 $.79 $.75 Cash dividends declared per share $.12 $.11 $.36 $.33
The accompanying notes are an integral part of these consolidated financial statements. WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Accumulated Other Common Paid-in Retained Comprehensive Treasury Nine months ended September 30, Stock Capital Earnings Income (Loss) Stock Total ---------------------------------------------------------------------------------------------------------------------- Balance at January 1, 2000 $745 $9,926 $67,686 $(191) $- $78,166 Net income 9,568 9,568 Other comprehensive gain net of tax: Net unrealized gains on securities, net of reclassification adjustment 1,549 1,549 ------------ Comprehensive income 11,117 Cash dividends declared (5,190) (5,190) Shares issued 5 137 142 ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2000 $750 $10,063 $72,064 $1,358 $- $84,235 ---------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1999 $737 $8,986 $61,581 $7,401 $(354) $78,351 Net income 9,020 9,020 Other comprehensive loss net of tax: Net unrealized losses on securities, net of reclassification adjustment (4,582) (4,582) ------------ Comprehensive income 4,438 Cash dividends declared (4,725) (4,725) Shares issued 7 742 284 1,033 Shares repurchased (1) (1) ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 $744 $9,728 $65,876 $2,819 $(71) $79,096 ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine months ended September 30, 2000 1999 -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $9,568 $9,020 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 950 1,390 Depreciation of premises and equipment 2,614 2,261 Accretion of discount in excess of (less than) amortization of premium on debt securities (105) 416 Net gains on sales of securities (758) (380) Net gains on loan sales (184) (313) Net gain on sale of credit card portfolio - (438) Proceeds from sale of credit card portfolio - 5,192 Proceeds from sales of loans 13,592 42,903 Loans originated for sale (13,576) (37,791) Increase in accrued interest receivable (2,019) (636) Decrease (increase) in other assets 535 (260) Increase in accrued expenses and other liabilities 979 648 Other, net (417) (346) -------------------------------------------------------------------------------- Net cash provided by operating activities 11,179 21,666 -------------------------------------------------------------------------------- Cash flows from investing activities: Securities available for sale: Purchases (103,724) (134,466) Proceeds from sales 25,375 44,490 Maturities and principal repayments 28,607 54,480 Securities held to maturity: Purchases (22,745) (44,040) Maturities and principal repayments 10,478 29,756 Purchase of Federal Home Loan Bank stock (1,931) (58) Principal collected on loans under loan originations (35,615) (43,043) Proceeds from sales of other real estate owned 95 513 Purchases of premises and equipment (1,037) (1,916) Purchase of bank-owned life insurance - (18,000) -------------------------------------------------------------------------------- Net cash used in investing activities (100,497) (112,284) -------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits 72,845 34,529 Net decrease in other short-term borrowings (1,345) (9,647) Proceeds from Federal Home Loan Bank advances 322,000 435,336 Repayment of Federal Home Loan Bank advances (306,111) (372,904) Proceeds from issuance of common stock 142 1,033 Purchase of treasury stock - (1) Cash dividends paid (4,949) (4,533) -------------------------------------------------------------------------------- Net cash provided by financing activities 82,582 83,813 -------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (6,736) (6,805) Cash and cash equivalents at beginning of year 44,520 34,654 -------------------------------------------------------------------------------- Cash and cash equivalents at end of period $37,784 $27,849 -------------------------------------------------------------------------------- (Continued) WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Nine months ended September 30, 2000 1999 -------------------------------------------------------------------------------- Noncash Investing and Financing Activities: Net transfers from loans to other real estate owned (OREO) $106 $550 Loans charged off 439 573 Loans made to facilitate the sale of OREO 60 180 Increase (decrease) in net unrealized gain on securities available for sale 1,549 (4,582) Supplemental Disclosures: Interest payments 33,358 27,114 Income tax payments 4,230 3,457 The accompanying notes are an integral part of these consolidated financial statements. WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) (a) Basis of Presentation The accounting and reporting policies of Washington Trust Bancorp, Inc. and subsidiary (the "Corporation") are in accordance with generally accepted accounting principles and conform to general practices of the banking industry. In the opinion of management, the accompanying consolidated financial statements present fairly the Corporation's financial position as of September 30, 2000 and December 31, 1999 and the results of operations and cash flows for the interim periods presented. The consolidated financial statements include the accounts of the Washington Trust Bancorp, Inc. and its wholly-owned subsidiary, The Washington Trust Company. All significant intercompany balances and transactions have been eliminated. On June 26, 2000, the Corporation completed its acquisition of Phoenix Investment Management Company, Inc. of Providence, Rhode Island. Phoenix, an independent investment advisory firm, had assets under management of approximately $750 million at June 26, 2000. The acquisition was accounted for under the pooling of interests method and accordingly, the consolidated financial statements of the Corporation have been restated to reflect the acquisition at the beginning of each period presented. The unaudited consolidated financial statements of the Corporation 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. The Corporation has not changed its accounting and reporting policies from those disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999. (1) (b) Allowance for Loan Losses The Corporation uses a methodology to systematically measure the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses (ALL). The methodology includes three elements: identification of specific loan losses, general loss allocations for certain loan types based on credit grade and loss experience factors, and general loss allocations for other environmental factors. The methodology includes an analysis of individual loans deemed to be impaired in accordance with the terms of SFAS 114. Other individual commercial and commercial mortgage loans are evaluated using an internal rating system and the application of loss allocation factors. The loan rating system and the related loss allocation factors take into consideration the borrower's financial condition, the borrower's performance with respect to loan terms and the adequacy of collateral. Portfolios of more homogenous populations of loans including residential mortgages and consumer loans are analyzed as groups taking into account delinquency ratios and other indicators, the Corporation's historical loss experience and comparison to industry standards of loss allocation factors for each type of credit product. Finally, an additional allowance is maintained based on a judgmental process whereby management considers qualitative and quantitative assessments of other factors including regional credit concentration, industry concentration, results of regulatory examinations, historical loss ranges, portfolio composition, economic conditions such as interest rates and energy costs and other changes in the portfolio. The allowance for loan losses is management's best estimate of the probable loan losses incurred as of the balance sheet date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced by charge-offs on loans. While management believes that the allowance for loan losses is adequate, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies periodically review the Corporation's allowance for loan losses. Such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination. (2) (a) Securities Available for Sale
Securities available for sale are summarized as follows: Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------------------------------------------------------------------------- September 30, 2000 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $ 91,132 $556 $(812) $ 90,876 Mortgage-backed securities 233,092 549 (2,171) 231,470 Corporate bonds 41,236 75 (840) 40,471 Corporate stocks 14,819 6,541 (837) 20,523 --------------------------------------------------------------------------------------------------------------------- Total 380,279 7,721 (4,660) 383,340 --------------------------------------------------------------------------------------------------------------------- December 31, 1999 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies 87,558 347 (1,595) 86,310 Mortgage-backed securities 191,934 70 (2,918) 189,086 Corporate bonds 34,364 31 (711) 33,684 Corporate stocks 15,833 6,582 (1,064) 21,351 --------------------------------------------------------------------------------------------------------------------- Total $329,689 $7,030 $(6,288) $330,431 --------------------------------------------------------------------------------------------------------------------- For the nine months ended September 30, 2000, proceeds from sales of securities available for sale amounted to $25.4 million while net realized gains on these sales amounted to $758 thousand.
(2) (b) Securities Held to Maturity
The amortized cost and fair value of securities held to maturity are summarized as follows: Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------------------------------------------------------------------------- September 30, 2000 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $ 35,404 $ 43 $(545) $ 34,902 Mortgage-backed securities 68,880 211 (1,361) 67,730 States and political subdivisions 24,372 6 (259) 24,119 --------------------------------------------------------------------------------------------------------------------- Total 128,656 260 (2,165) 126,751 --------------------------------------------------------------------------------------------------------------------- December 31, 1999 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies 28,231 - (895) 27,336 Mortgage-backed securities 62,209 54 (2,189) 60,074 States and political subdivisions 25,932 23 (497) 25,458 --------------------------------------------------------------------------------------------------------------------- Total $116,372 $77 $(3,581) $112,868 --------------------------------------------------------------------------------------------------------------------- There were no sales or transfers of securities held to maturity during the nine months ended September 30, 2000.
Securities available for sale and held to maturity with a fair value of $63.4 million and $46.9 million were pledged to secure Treasury Tax and Loan deposits, borrowings and public deposits at September 30, 2000 and December 31, 1999, respectively. In addition, securities available for sale and held to maturity with a fair value of $49.8 million and $52.0 million were collateralized for the discount window at the Federal Reserve Bank at September 30, 2000 and December 31, 1999, respectively. There were no borrowings with the Federal Reserve Bank at either date. (3) Loan Portfolio The following is a summary of loans: September 30, December 31, 2000 1999 -------------------------------------------------------------------------------- Commercial: Mortgages $120,137 $113,719 Construction and development 1,935 2,902 Other (1) 109,943 115,739 -------------------------------------------------------------------------------- Total commercial 232,015 232,360 Residential real estate: Mortgages 233,866 212,719 Homeowner construction 15,535 12,995 -------------------------------------------------------------------------------- Total residential real estate 249,401 225,714 Consumer 102,882 90,951 -------------------------------------------------------------------------------- Total loans $584,298 $549,025 -------------------------------------------------------------------------------- (1) Loans to businesses and individuals, a substantial portion of which is fully or partially collateralized by real estate (4) Allowance For Loan Losses The following is an analysis of the allowance for loan losses: Three Months Nine Months ------------------------------------------------- Periods ended September 30, 2000 1999 2000 1999 -------------------------------------------------------------------------------- Balance at beginning of period $12,923 $11,770 $12,349 $10,966 Provision charged to expense 250 450 950 1,390 Recoveries 26 101 285 396 Loans charged off (54) (142) (439) (573) -------------------------------------------------------------------------------- Balance at end of period $13,145 $12,179 $13,145 $12,179 -------------------------------------------------------------------------------- (5) Litigation On January 28, 1997, a suit was filed against the Corporation's bank subsidiary ("the Bank") in the Superior Court of Washington County, Rhode Island by Maxson Automatic Machinery Company ("Maxson"), a former corporate customer, and Maxson's shareholders for damages which the plaintiffs allegedly incurred as a result of an embezzlement by Maxson's former president and treasurer, which allegedly occurred between 1986 and 1995. The suit alleges that the Bank erred in permitting this individual, while an officer of Maxson, to transfer funds from Maxson's account at the Bank for his personal benefit. The claims against the Bank are based upon theories of breach of fiduciary duty, negligence, breach of contract, unjust enrichment, conversion, failure to act in a commercially reasonable manner, and constructive fraud. Management believes, based on its review with counsel of the development of this matter to date, that the Bank has asserted meritorious affirmative defenses in this litigation. Additionally, the Bank has filed counterclaims against Maxson and its shareholders as well as claims against the former Maxson officer allegedly responsible for the embezzlement. The Bank is vigorously asserting its defenses and affirmative claims. The discovery phase of the case has nearly been completed and the case is currently scheduled for trial on April 10, 2001. During discovery, the plaintiffs have offered various theories and amounts of alleged damages, ranging from $5.0 million to $12.7 million, plus interest thereon. The plaintiffs have also filed a motion to amend the complaint to add a claim for punitive damages. The court has deferred ruling on whether to permit this amendment. Because of the numerous uncertainties that surround the litigation, management and legal counsel are unable to estimate the amount of loss, if any, that the Bank may incur with respect to this litigation. Consequently, no loss provision has been recorded. The Corporation is involved in various other claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such other matters will not materially affect the consolidated financial position or results of operations of the Corporation. INDEPENDENT AUDITORS' REVIEW REPORT The Board of Directors and Shareholders Washington Trust Bancorp, Inc.: We have reviewed the consolidated balance sheet of Washington Trust Bancorp, Inc. and subsidiary (the "Corporation") as of September 30, 2000, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2000 and 1999, and the changes in shareholders' equity and cash flows for the nine-month periods ended September 30, 2000 and 1999. These consolidated financial statements are the responsibility of the Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1999, is fairly stated, in all material respects. KPMG LLP Providence, Rhode Island October 19, 2000 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations In the second quarter of 2000, the Corporation completed its acquisition of Phoenix Investment Management Company, Inc. and recorded one-time acquisition-related expenses of $1.1 million, net of related income taxes. During the third quarter of 1999, the Corporation completed its acquisition of PierBank, Inc. and also recognized a nonrecurring gain on the sale of its credit card loan portfolio. Third quarter 1999 results included one-time acquisition related expenses of $1.3 million, net of tax, and the loan sale gain, net of expenses and related income taxes, of $285 thousand. The acquisitions were accounted for under the pooling of interests method and accordingly, the consolidated financial statements for the Corporation have been restated to reflect the acquisition at the beginning of each period presented. Substantially all of Phoenix related revenues have been recorded as trust and investment management revenue in noninterest income. Results excluding one-time acquisition-related expenses, net of taxes, and the loan sale gain, net of taxes, are referred to herein as "operating". Operating basis earnings also include a pro forma tax provision for pre-acquisition earnings of Phoenix, which operated as a sub-S corporation prior to the acquisition. The Corporation reported net income of $3.7 million, or $.31 per diluted share, for the three months ended September 30, 2000. Net income for the third quarter of 1999 amounted to $2.5 million, or $.21 per diluted share. Excluding nonrecurring items recorded in connection with the acquisition and loan sale gain, earnings on an operating basis for the third quarter of 1999 were $3.3 million, or $.27 per diluted share. The Corporation's rates of return on average assets and average equity for the third quarter of 2000 were 1.27% and 18.32%, respectively. Comparable amounts for the third quarter of 1999, on an operating basis, were 1.24% and 16.78%. Net income for the nine months ended September 30, 2000 amounted to $9.6 million, or $.79 per diluted share, compared to $9.0 million, or $.75 per diluted share, for the same 1999 period. Excluding nonrecurring items, earnings on an operating basis for the nine months ended September 30, 2000 amounted to $10.3 million, an increase of 8.2% over the $9.5 million of operating earnings reported for the same period in 1999. Diluted earnings per share on an operating basis for the nine months ended September 30, 2000 amounted to $.85, up from $.78 per share earned in the nine months ended September 30, 1999. The Corporation's rates of return on average assets and average equity for the nine months ended September 30, 2000, on an operating basis, were 1.19% and 17.06%, respectively. Comparable amounts for the 1999 period were 1.21% and 15.89%. For the third quarter of 2000, net interest income (the difference between interest earned on loans and investments and interest paid on deposits and other borrowings) amounted to $9.8 million, an increase of 6.9% from the $9.1 million earned in the third quarter of 1999. Net interest income for the nine months ended September 30, 2000 rose 6.5% over the corresponding 1999 period. This increase was primarily attributable to growth in interest-earning assets. (See additional discussion under the caption "Net Interest Income".) The Corporation's provision for loan losses was $250 thousand and $450 thousand in the third quarter of 2000 and 1999, respectively. For the nine months ended September 30, 2000 and 1999, the provision for loan losses amounted to $950 thousand and $1.4 million, respectively. Other noninterest income (noninterest income excluding net gains and losses on sales of securities and the nonrecurring 1999 loan sale gain) amounted to $5.4 million for the quarter ended September 30, 2000, up 16.6% from the comparable 1999 quarter. For the nine months ended September 30, 2000, other noninterest income amounted to $14.6 million, up 9.5% from the corresponding 1999 amount of $13.3 million. The increase was primarily due to growth in revenues for trust and investment management services and income from bank-owned life insurance ("BOLI"), offset in part by a decline in revenue from mortgage banking activities. Trust and investment management revenue totaled $8.0 million for the nine months ended September 30, 2000, up 15.8% from the $6.9 million reported for the same 1999 period. Trust and investment management assets under administration amounted to $1.7 billion at September 30, 2000. During the second quarter of 1999, the Corporation purchased BOLI as a financing tool for employee benefits. Revenue from mortgage banking activities associated with the originations of loans for the secondary market amounted to $395 thousand for the nine months ended September 30, 2000, a decrease of 66.3% from the $1.2 million reported for the same period in 1999. Due to rising interest rates, mortgage refinancing activity has decreased, resulting in a decline in the number of loans sold in the secondary market. Net realized securities gains for the nine months ended September 30, 2000 and 1999 amounted to $758 thousand and $380 thousand, respectively. For the quarter ended September 30, 2000, total noninterest expense amounted to $9.6 million, an increase of 13.2% from the $8.5 million of operating noninterest expense (total noninterest expense excluding one-time acquisition-related expenses of $1.6 million) reported for the third quarter of 1999. Total operating noninterest expense for the nine months ended September 30, 2000 amounted to $27.9 million, an increase of 11.5% over the comparable 1999 amount. The increase was primarily attributable to higher salaries and benefits expense, increases in legal, audit and professional fees, and higher equipment costs. For the nine months ended September 30, 2000, legal, audit and professional fees totaled $1.3 million, up $551 thousand from the corresponding 1999 period. The increase was primarily due to legal costs associated with an ongoing litigation matter. These costs are expected to continue through the second quarter of 2001. At this time, management of the Corporation is not able to determine whether such costs will continue beyond the second quarter of 2001. Total equipment costs for the nine months ended September 30, 2000 amounted to $2.8 million, up $485 thousand from the same 1999 period. During the third quarter of 2000, the Corporation recorded an impairment adjustment of $293 thousand resulting from a remeasurement of the useful lives of technology equipment. Net Interest Income (The accompanying schedule entitled "Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis (FTE)" should be read in conjunction with this discussion.) FTE net interest income for the nine months ended September 30, 2000 amounted to $29.1 million, up 6.3% over the same 1999 period due primarily to growth in interest-earning assets. For the nine months ended September 30, 2000, average interest-earning assets amounted to $1.088 billion, up $105.6 million, or 10.7%, over the comparable 1999 amount due to growth in both the securities portfolio and in total loans. This growth in securities and loans was funded by Federal Home Loan Bank ("FHLB") advances and to a lesser extent, deposit growth. The net interest margins (FTE net interest income as a percentage of average interest-earning assets) for the nine months ended September 30, 2000 and 1999 were 3.57% and 3.73%, respectively. The interest rate spread declined 21 basis points to 3.00% for the nine months ended September 30, 2000. Earning asset yields rose 33 basis points, while the cost of interest-bearing liabilities increased 54 basis points, thereby narrowing the net interest spread. Higher funding costs associated with time deposits and FHLB advances were primarily responsible for the decrease in the net interest margin. Total average securities rose $60.0 million, or 12.9%, over the comparable prior year period, mainly due to purchases of taxable debt securities. The FTE rate of return on securities was 6.89% for the nine months ended September 30, 2000, up from 6.19% for the same 1999 period. The increase in yields reflects higher marginal rates on investment purchases. The yield on average total loans amounted to 8.67% for the nine months ended September 30, 2000, compared to 8.63% in the comparable 1999 period. Average loans for the nine months ended September 30, 2000 rose $45.5 million, or 8.8%, over the prior year and amounted to $563.2 million. Average residential real estate loans amounted to $236.9 million, up 11.8% from the prior year level. The yield on residential real estate loans declined 5 basis points from the prior year, amounting to 7.80%. The decrease in yield on residential real estate loans resulted from 1999 mortgage refinancing activity. Average commercial loans rose 6.1% to $229.7 million. The yield on commercial loans amounted to 9.46%, up from the prior year yield of 9.39%. Average consumer loans rose 8.0% over the prior year. The yield on consumer loans amounted to 8.91%, an increase of 29 basis points from the prior year yield of 8.62%. As a result of higher levels of FHLB advances and increases in time and savings deposits, average interest-bearing liabilities increased 11.0% to $957.3 million at September 30, 2000. Due to higher rates paid on both borrowed funds and time deposits, the Corporation's total cost of funds on interest-bearing liabilities amounted to 4.81% for the nine months ended September 30, 2000, up from 4.27% for the comparable 1999 period. Average FHLB advances for the nine months ended September 30, 2000 amounted to $370.9 million, up 23.0% from the $301.5 million average balance for the same 1999 period. The average rate paid on FHLB advances for the nine months ended September 30, 2000 was 6.09%, an increase of 71 basis points from the prior year rate. Average time deposits increased $30.1 million to $348.3 million with an increase of 56 basis points in the rate paid. Average savings deposits for the nine months ended September 30, 2000 increased 4.1% to $236.0 million from the comparable 1999 amount. The rate paid on these deposits for the first nine months of 2000 was 1.74%, compared to 1.77% for the same 1999 period. For the nine months ended September 30, 2000, average demand deposits, an interest-free funding source, were up by $9.0 million, or 9.4%, from the same prior year period. Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis The following table sets forth average balance and interest rate information. Income is presented on a fully taxable equivalent basis (FTE). For dividends on corporate stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency. Loans held for sale, nonaccrual and renegotiated loans, as well as interest earned on these loans (to the extent recognized in the Consolidated Statements of Income) are included in amounts presented for loans. Customer overdrafts are excluded from amounts presented for loans. Average balances for securities are presented at cost, with any unrealized gains and losses of securities available for sale included in noninterest-earning assets.
Nine months ended September 30, 2000 1999 -------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate -------------------------------------------------------------------------------------------------------------------- Assets: Residential real estate loans $236,865 $13,840 7.80% $211,818 $12,438 7.85% Commercial and other loans 229,742 16,262 9.46% 216,440 15,197 9.39% Consumer loans 96,602 6,442 8.91% 89,449 5,769 8.62% -------------------------------------------------------------------------------------------------------------------- Total loans 563,209 36,544 8.67% 517,707 33,404 8.63% Federal funds sold and other short-term investments 13,450 629 6.26% 11,830 419 4.73% Taxable debt securities 451,583 22,805 6.75% 395,219 17,935 6.07% Nontaxable debt securities 25,523 1,263 6.61% 27,127 1,357 6.69% Corporate stocks and FHLB stock 33,738 2,348 9.29% 30,107 1,808 8.03% -------------------------------------------------------------------------------------------------------------------- Total securities 524,294 27,045 6.89% 464,283 21,519 6.19% -------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 1,087,503 63,589 7.81% 981,990 54,923 7.48% -------------------------------------------------------------------------------------------------------------------- Non interest-earning assets 62,275 62,888 -------------------------------------------------------------------------------------------------------------------- Total assets $1,149,778 $1,044,878 -------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity: Savings deposits $236,041 $3,082 1.74% $226,686 $3,003 1.77% Time deposits 348,281 14,414 5.53% 318,225 11,819 4.97% FHLB advances 370,901 16,909 6.09% 301,545 12,129 5.38% Other 2,102 95 6.03% 15,793 596 5.04% -------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 957,325 34,500 4.81% 862,249 27,547 4.27% Demand deposits 105,322 96,303 Non interest-bearing liabilities 6,988 6,748 -------------------------------------------------------------------------------------------------------------------- Total liabilities 1,069,635 965,300 Total shareholders' equity 80,143 79,578 -------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,149,778 $1,044,878 -------------------------------------------------------------------------------------------------------------------- Net interest income $29,089 $27,376 -------------------------------------------------------------------------------------------------------------------- Net interest spread 3.00% 3.21% -------------------------------------------------------------------------------------------------------------------- Net interest margin 3.57% 3.73% --------------------------------------------------------------------------------------------------------------------
Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency: (Dollars in thousands) Nine months ended September 30, 2000 1999 -------------------------------------------------------------------------------- Commercial and other loans $ 93 $ 98 Nontaxable debt securities 440 459 Corporate stocks 291 269 Financial Condition and Liquidity Total assets rose 8.6% from $1.106 billion at December 31, 1999 to $1.200 billion at September 30, 2000. Average assets totaled $1.150 billion for the nine months ended September 30, 2000, up 10.0% over the comparable 1999 period. Securities Available for Sale - The carrying value of securities available for sale at September 30, 2000 amounted to $383.3 million, an increase of 16.0% over the December 31, 1999 amount of $330.4 million. This increase was attributable to purchases of debt securities. The net unrealized gain on securities available for sale amounted to $3.1 million, compared to $742 thousand at December 31, 1999. This increase was attributable to the effects of reductions in medium and long-term bond rates that occurred during the third quarter of 2000. Securities Held to Maturity - The carrying value of securities held to maturity amounted to $128.7 million at September 30, 2000, up from $116.4 million at December 31, 1999. This increase was due to purchases of obligations of U.S. government-sponsored agencies and mortgage-backed securities. The net unrealized loss on securities held to maturity amounted to approximately $1.9 million at September 30, 2000, compared to $3.5 million at December 31, 1999. Loans - At September 30, 2000, total loans amounted to $584.3 million. During the nine months ended September 30, 2000, total loans increased $35.3 million, or 6.4%. The increase in total loans was led by growth in the residential and home equity products. Total residential real estate loans amounted to $249.4 million, an increase of $23.7 million, or 10.5%, from the December 31, 1999 balance of $225.7 million. Total consumer loans increased $11.9 million, or 13.1%, from December 31, 1999 and amounted to $102.9 million. Commercial loans amounted to $232.0 million at September 30, 2000, compared to $232.4 million at December 31,1999. Allowance for Loan Losses - The Corporation uses a methodology to systematically measure the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses (ALL). The methodology includes three elements: identification of specific loan losses, general loss allocations for certain loan types based on credit grade and loss experience factors, and general loss allocations for other environmental factors. The methodology includes an analysis of individual loans deemed to be impaired in accordance with the terms of SFAS 114. Other individual commercial and commercial mortgage loans are evaluated using an internal rating system and the application of loss allocation factors. The loan rating system and the related loss allocation factors take into consideration the borrower's financial condition, the borrower's performance with respect to loan terms and the adequacy of collateral. Portfolios of more homogenous populations of loans including residential mortgages and consumer loans are analyzed as groups taking into account delinquency ratios and other indicators, the Corporation's historical loss experience and comparison to industry standards of loss allocation factors for each type of credit product. Finally, an additional unallocated allowance is maintained based on a judgmental process whereby management considers qualitative and quantitative assessments of other environmental factors. For example, most of the loan portfolio is concentrated among borrowers in southern Rhode Island and southeastern Connecticut and a substantial portion of the portfolio is collateralized by real estate in this area, including most consumer loans and those commercial loans not specifically classified as commercial mortgages. A portion of the commercial and commercial mortgage loans are to borrowers in the hospitality and tourism industry and this concentration has been increasing in recent years. Economic conditions which may affect the ability of borrowers to meet debt service requirements are considered including interest rates and energy costs. Results of regulatory examinations, historical loss ranges, portfolio composition including a trend toward somewhat larger credit relationships, and other changes in the portfolio are also considered. The allowance for loan losses is management's best estimate of the probable loan losses incurred as of the balance sheet date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced by charge-offs on loans. The allowance for loan losses amounted to $13.1 million, or 2.25% of total loans, at September 30, 2000, compared to $12.3 million, or 2.25%, at December 31, 1999. Deposits - Total deposits amounted to $733.6 million at September 30, 2000, up $72.8 million, or 11.0%, from $660.8 million at December 31, 1999. Time deposits increased $39.1 million from the December 31, 1999 balance and amounted to $362.1 million at September 30, 2000. Demand and savings deposits increased by $20.2 million and $13.5 million, respectively. Borrowings - The Corporation utilizes advances from the Federal Home Loan Bank as well as other short-term borrowings as part of its overall funding strategy. In addition to deposit growth, additional FHLB advances were used to meet short-term liquidity needs, to fund loan growth and to purchase securities. FHLB advances amounted to $368.4 million at September 30, 2000, up $15.9 million from the December 31, 1999 amount. In addition, short-term borrowings outstanding at September 30, 2000 and December 31, 1999 amounted to $2.9 million and $4.2 million, respectively. For the nine months ended September 30, 2000, net cash provided by operations amounted to $11.2 million, the majority of which was generated by net income. Net cash used in investing activities amounted to $100.5 million and was primarily used to purchase securities. Net cash provided by financing activities of $82.6 million was generated mainly by an increase in total deposits and a net increase in FHLB advances. (See Consolidated Statements of Cash Flows for additional information.) Nonperforming Assets Nonperforming assets are summarized in the following table: September 30, December 31, (Dollars in thousands) 2000 1999 -------------------------------------------------------------------------------- Nonaccrual loans 90 days or more past due $1,602 $1,902 Nonaccrual loans less than 90 days past due 1,805 1,896 -------------------------------------------------------------------------------- Total nonaccrual loans 3,407 3,798 Other real estate owned 6 49 -------------------------------------------------------------------------------- Total nonperforming assets $3,413 $3,847 -------------------------------------------------------------------------------- Nonaccrual loans as a percentage of total loans .58% .69% Nonperforming assets as a percentage of total assets .28% .35% Allowance for loan losses to nonaccrual loans 385.84% 325.15% Allowance for loan losses to total loans 2.25% 2.25% Not included in the analysis of nonperforming assets at September 30, 2000 and December 31, 1999 above are approximately $563 thousand and $120 thousand, respectively, of loans greater than 90 days past due and still accruing. These loans consist primarily of residential mortgages that are considered well-collateralized and in the process of collection and therefore are deemed to have no loss exposure. Impaired loans consist of all nonaccrual commercial loans. At September 30, 2000, the recorded investment in impaired loans was $2.0 million, which had a related allowance amounting to $332 thousand. During the nine months ended September 30, 2000, the average recorded investment in impaired loans was $2.0 million. Also during this period, interest income recognized on impaired loans amounted to approximately $232 thousand. Interest income on impaired loans is recognized on a cash basis only. The following is an analysis of nonaccrual loans by loan category: September 30, December 31, (Dollars in thousands) 2000 1999 -------------------------------------------------------------------------------- Residential mortgages $ 742 $1,015 Commercial: Mortgages 1,108 797 Other (1) 912 1,242 Consumer 645 744 -------------------------------------------------------------------------------- Total nonaccrual loans $3,407 $3,798 -------------------------------------------------------------------------------- (1) Loans to businesses and individuals, a substantial portion of which is fully or partially collateralized by real estate. Capital Resources Total equity capital amounted to $84.2 million, or 7.0% of total assets, at September 30, 2000. This compares to $78.2 million, or 7.1%, at December 31, 1999. Total equity increased by approximately $6.1 million from December 31, 1999. The increase in equity was principally attributable to a $4.4 million increase in retained earnings. (See the Consolidated Statements of Changes in Shareholders' Equity for additional information.) At September 30, 2000, the Corporation's Tier 1 risk-based capital ratio was 12.53% and the total risk-adjusted capital ratio was 14.18%. The Corporation's Tier 1 leverage ratio amounted to 6.94% at September 30, 2000. These ratios were above the ratios required to be categorized as well-capitalized. Dividends payable at September 30, 2000 amounted to approximately $1.4 million, representing $.12 per share payable on October 13, 2000, an increase of 9.1% over the $.11 per share declared in the fourth quarter of 1999. Dividends declared per share represent historical per share dividends declared by the Corporation and have not been restated as a result of the acquisition of Phoenix. 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. Book value per share as of September 30, 2000 and December 31, 1999 amounted to $7.02 and $6.55, respectively. Litigation The Corporation's bank subsidiary ("the Bank") is party to a lawsuit filed by a former corporate customer and the customer's shareholders for damages which the plaintiffs allegedly incurred as a result of an embezzlement by an officer of the customer. Management believes, based on its review with counsel of the development of this matter to date, that the Bank has asserted meritorious affirmative defenses in this litigation. Additionally, the Bank has filed counterclaims against the customer and its shareholders, as well as claims against the individual allegedly responsible for the embezzlement. The Bank is vigorously asserting its defenses and affirmative claims. The discovery phase of the case has nearly been completed and the case is currently scheduled for trial on April 10, 2001. During discovery, the plaintiffs have offered various theories and amounts of alleged damages, ranging from $5.0 million to $12.7 million, plus interest thereon. The plaintiffs have also filed a motion to amend the complaint to add a claim for punitive damages. The court has deferred ruling on whether to permit this amendment. Because of the numerous uncertainties that surround the litigation, management and legal counsel are unable to estimate the amount of loss, if any, that the Bank may incur with respect to this litigation. Consequently, no loss provision for this lawsuit has been recorded. Recent Accounting Developments Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 requires a corporation to recognize all derivatives as either assets or liabilities on the balance sheet and to measure those instruments at fair value. This Statement defines conditions and criteria to be used in designating a derivative as a specific type of hedging instrument. SFAS No. 133 also explains the accounting for changes in the fair value of a derivative, which depends on the intended use and the resulting designation. Under this Statement, a corporation is required to establish at the inception of the hedge the method to be used for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the corporation's approach to managing risk. In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". This Statement addresses a limited number of issues causing implementation difficulties for entities that apply Statement 133. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 and is not to be applied retroactively to the financial statements of prior periods. The Corporation does not believe that the effect of the adoption of this pronouncement will have a material impact on the financial position and earnings of the Corporation. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity and Liquidity Interest rate risk is one of the major market risks faced by the Corporation. The Corporation's objective is to manage assets and funding sources to produce results which are consistent with its liquidity, capital adequacy, growth, risk and profitability goals. The Corporation manages interest rate risk using income simulation to measure interest rate risk inherent in its on-balance sheet and off-balance sheet financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 60 month period. The simulation results are reviewed to determine whether the negative exposure of net interest income to changes in interest rates remains within established tolerance levels over a 24-month horizon, and to develop appropriate strategies to manage this exposure. In addition, the ALCO reviews 60-month horizon results to assess longer-term risk inherent in the balance sheet, although no 60-month horizon tolerance levels are specified. As of September 30, 2000, the Corporation's estimated exposure as a percentage of net interest income for the next 12 month period and the subsequent 12 month period thereafter (months 13 - 24), respectively, is as follows: Months 1 - 12 Months 13 - 24 ---------------------------------------------------------------------- 200 basis point increase in rates -0.38% -4.00% 200 basis point decrease in rates -2.59% -3.68% Since this simulation assumes the Corporation's balance sheet will remain static over the 24-month simulation horizon, the results do not reflect adjustments in strategy that the Corporation could implement in response to rate shifts, and should therefore not be relied upon as a projection of net interest income. For a complete discussion of interest rate sensitivity and liquidity, including simulation assumptions, see the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999. The Corporation also monitors the potential change in market value of its available for sale debt securities using both parallel rate shifts of up to 200 basis points and "value at risk" analysis. The purpose is to determine market value exposure which may not be captured by income simulation, but which might result in changes to the Corporation's capital position. Results are calculated using industry-standard modeling analytics and securities data. The Corporation uses the results to manage the effect of market value changes on the Corporation's capital position. As of September 30, 2000, an immediate 200 basis point rise in rates would result in a 4.3% decline in the value of the Corporation's available for sale debt securities. Conversely, a 200 basis point fall in rates would result in a 2.6% increase in the value of the Corporation's available for sale debt securities. "Value at risk" analysis measures the theoretical maximum market value loss over a given time period based on recent historical price activity of different classes of securities. The anticipated maximum market value reduction for the Corporation's available for sale securities portfolio at September 30, 2000, including both debt and equity securities, was 3.8%, assuming a one-year time horizon and a 5% probability of occurrence for "value at risk" analysis. PART II OTHER INFORMATION Item 1. Legal Proceedings On January 28, 1997, a suit was filed against the Corporation's bank subsidiary ("the Bank") in the Superior Court of Washington County, Rhode Island by Maxson Automatic Machinery Company ("Maxson"), a former corporate customer, and Maxson's shareholders for damages which the plaintiffs allegedly incurred as a result of an embezzlement by Maxson's former president and treasurer, which allegedly occurred between 1986 and 1995. The suit alleges that the Bank erred in permitting this individual, while an officer of Maxson, to transfer funds from Maxson's account at the Bank for his personal benefit. The claims against the Bank are based upon theories of breach of fiduciary duty, negligence, breach of contract, unjust enrichment, conversion, failure to act in a commercially reasonable manner, and constructive fraud. Management believes, based on its review with counsel of the development of this matter to date, that the Bank has asserted meritorious affirmative defenses in this litigation. Additionally, the Bank has filed counterclaims against Maxson and its shareholders as well as claims against the former Maxson officer allegedly responsible for the embezzlement. The Bank is vigorously asserting its defenses and affirmative claims. The discovery phase of the case has nearly been completed and the case is currently scheduled for trial on April 10, 2001. During discovery, the plaintiffs have offered various theories and amounts of alleged damages, ranging from $5.0 million to $12.7 million, plus interest thereon. The plaintiffs have also filed a motion to amend the complaint to add a claim for punitive damages. The court has deferred ruling on whether to permit this amendment. Because of the numerous uncertainties that surround the litigation, management and legal counsel are unable to estimate the amount of loss, if any, that the Bank may incur with respect to this litigation. Consequently, no loss provision has been recorded. The Corporation is involved in various other claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such other matters will not materially affect the consolidated financial position or results of operations of the Corporation. Item 2. Changes in Securities and Use of Proceeds 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 (a) Exhibit index Exhibit No. 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedule (b) There were no reports on Form 8-K filed during the quarter ended September 30, 2000. 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) November 13, 2000 By: John C. Warren -------------------------------------------- John C. Warren Chairman and Chief Executive Officer (principal executive officer) November 13, 2000 By: David V. Devault -------------------------------------------- David V. Devault Executive Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer)