-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HKKAy8coeI2DEuL2QXGgyEKRUbkz0y+81r+ZrPk/6vdkCiDC9vza5dSa5kAogbms DcF/p4fpHCtx7SmyplKzvA== 0000737468-02-000022.txt : 20021122 0000737468-02-000022.hdr.sgml : 20021122 20021122133248 ACCESSION NUMBER: 0000737468-02-000022 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021122 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13091 FILM NUMBER: 02837505 BUSINESS ADDRESS: STREET 1: 23 BROAD ST CITY: WESTERLY STATE: RI ZIP: 02891 BUSINESS PHONE: 4013481200 10-Q/A 1 q32002a.txt FORM 10-Q/A Q3-2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q/A (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, 2002 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, 2002 was 13,034,996. Page 1 FORM 10-Q/A WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY For The Quarter Ended September 30, 2002 Explanatory Note - ---------------- This Form 10Q/A amends the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 and is being filed solely to reflect the Registrant's restatement of Part I, Item 1 and Part I, Item 3. Part I, Item 1 inadvertently contained a typographical error in the Consolidated Balance Sheets, specifically in the dollar figure for the item entitled "Total liabilities and shareholders' equity" for September 30, 2002. In addition, Part I, Item 3 inadvertently contained a typographical error in the interest income exposure table therein. Other than the restated Part I, Item 1 and Part I, Item 3, no revisions have been made to the Registrant's financial statements or any other disclosure contained in such Form 10-Q. In accordance with Rule 12b-15 promulgated under the Securities and Exchange Act of 1934, as amended, the complete text of Part I, Item 1 and Part I, Item 3, as amended follows. 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, performance or achievements 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 the market value of trust and investment management assets under management, 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. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 2002 2001 - -------------------------------------------------------------------------------- Assets: Cash and due from banks $34,012 $30,399 Federal funds sold and other short-term investments 10,325 20,500 Mortgage loans held for sale 9,516 7,710 Securities: Available for sale, at fair value 558,536 453,956 Held to maturity, at cost; fair value $224,799 in 2002 and $177,595 in 2001 216,719 175,105 - -------------------------------------------------------------------------------- Total securities 775,255 629,061 Federal Home Loan Bank stock, at cost 24,582 23,491 Loans 756,978 605,645 Less allowance for loan losses 15,660 13,593 - -------------------------------------------------------------------------------- Net loans 741,318 592,052 Premises and equipment, net 24,398 22,102 Accrued interest receivable 8,051 7,124 Goodwill and other intangibles 25,750 669 Other assets 31,375 29,121 - -------------------------------------------------------------------------------- Total assets $1,684,582 $1,362,229 - -------------------------------------------------------------------------------- Liabilities: Deposits: Demand $175,245 $134,783 Savings 454,437 316,953 Time 479,743 365,140 - -------------------------------------------------------------------------------- Total deposits 1,109,425 816,876 Dividends payable 1,500 1,569 Federal Home Loan Bank advances 425,725 431,490 Other borrowings 7,691 2,087 Accrued expenses and other liabilities 14,906 12,270 - -------------------------------------------------------------------------------- Total liabilities 1,559,247 1,264,292 - -------------------------------------------------------------------------------- Shareholders' Equity: Common stock of $.0625 par value; authorized 30 million shares; issued 13,086,795 shares in 2002 and 12,065,283 shares in 2001 818 754 Paid-in capital 28,782 10,696 Retained earnings 88,064 81,114 Accumulated other comprehensive income 8,667 6,416 Treasury stock, at cost; 51,805 shares in 2002 and 54,102 shares in 2001 (996) (1,043) - -------------------------------------------------------------------------------- Total shareholders' equity 125,335 97,937 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,684,582 $1,362,229 - -------------------------------------------------------------------------------- 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, 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $12,958 $12,846 $36,762 $38,666 Interest from securities 9,342 8,752 26,837 25,833 Dividends on corporate stock and Federal Home Loan Bank stock 500 591 1,480 1,790 Interest on federal funds sold and other short-term investments 63 134 171 517 - ----------------------------------------------------------------------------------------------------------------------- Total interest income 22,863 22,323 65,250 66,806 - ----------------------------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 1,773 1,300 3,926 4,054 Time deposits 4,161 4,573 12,624 14,621 Federal Home Loan Bank advances 4,963 5,971 15,692 18,724 Other 28 23 65 76 - ----------------------------------------------------------------------------------------------------------------------- Total interest expense 10,925 11,867 32,307 37,475 - ----------------------------------------------------------------------------------------------------------------------- Net interest income 11,938 10,456 32,943 29,331 Provision for loan losses 100 100 300 450 - ----------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 11,838 10,356 32,643 28,881 - ----------------------------------------------------------------------------------------------------------------------- Noninterest income: Trust and investment management 2,468 2,620 7,700 7,928 Service charges on deposit accounts 986 894 2,788 2,679 Merchant processing fees 1,221 1,099 2,443 2,091 Net gains on loan sales 608 352 1,522 1,188 Income from bank-owned life insurance 291 287 864 838 Net realized (losses) gains on securities (52) - 620 408 Other income 507 401 1,105 1,079 - ----------------------------------------------------------------------------------------------------------------------- Total noninterest income 6,029 5,653 17,042 16,211 - ----------------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 6,047 5,326 17,630 15,685 Net occupancy 675 652 1,970 2,004 Equipment 887 760 2,470 2,394 Legal, audit and professional fees 815 235 1,209 1,072 Merchant processing costs 965 872 1,936 1,672 Advertising and promotion 271 311 947 790 Office supplies 146 157 432 485 Amortization of intangibles 220 32 441 97 Acquisition related expenses - - 605 - Litigation settlement (recovery) cost - (775) - 4,025 Other 1,303 1,434 4,327 4,302 - ----------------------------------------------------------------------------------------------------------------------- Total noninterest expense 11,329 9,004 31,967 32,526 - ----------------------------------------------------------------------------------------------------------------------- Income before income taxes 6,538 7,005 17,718 12,566 Income tax expense 2,027 2,163 5,439 3,770 - ----------------------------------------------------------------------------------------------------------------------- Net income $4,511 $4,842 $12,279 $8,796 - ----------------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding - basic 13,032.9 12,056.9 12,635.9 12,033.6 Weighted average shares outstanding - diluted 13,254.3 12,270.1 12,833.7 12,198.1 Per share information: Basic earnings per share $.35 $.40 $.97 $.73 Diluted earnings per share $.34 $.40 $.96 $.72 Cash dividends declared per share $.14 $.13 $.42 $.39
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 Stock Total - ----------------------------------------------------------------------------------------------------------------------- Balance at January 1, 2001 $750 $10,144 $74,265 $4,027 $ - $89,186 Net income 8,796 8,796 Cumulative effect of change in accounting principle, net of tax (391) (391) Other comprehensive income, net of tax: Net unrealized gains on securities 5,744 5,744 Reclassification adjustments (400) (400) ---------- Comprehensive income 5,344 Cash dividends declared (4,697) (4,697) Shares issued 4 544 1 549 Shares repurchased (1) (1) - ----------------------------------------------------------------------------------------------------------------------- Balance at September 30, 2001 $754 $10,688 $78,364 $8,980 $ - $98,786 - ----------------------------------------------------------------------------------------------------------------------- Balance at January 1, 2002 $754 $10,696 $81,114 $6,416 $(1,043) $97,937 Net income 12,279 12,279 Other comprehensive income, net of tax: Net unrealized gains on securities 2,858 2,858 Reclassification adjustments (607) (607) ---------- Comprehensive income 14,530 Cash dividends declared (5,329) (5,329) Shares issued (169) 585 416 Shares issued for acquisition 64 18,255 18,319 Shares repurchased (538) (538) - ------------------------------------------------------------------------------------------------------------------------ Balance at September 30, 2002 $818 $28,782 $88,064 $8,667 $(996) $125,335 - ------------------------------------------------------------------------------------------------------------------------
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, 2002 2001 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $12,279 $8,796 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 300 450 Depreciation of premises and equipment 2,220 2,168 Amortization of premium in excess of accretion of discount on debt securities 951 266 Increase in bank-owned life insurance (864) (838) Depreciation (appreciation) of derivative instruments 398 (573) Net amortization of intangibles 51 - Net realized gains on securities (620) (408) Net gains on loan sales (1,522) (1,188) Proceeds from sales of loans 66,001 61,402 Loans originated for sale (66,392) (63,315) Increase in accrued interest receivable (453) (112) Increase in other assets (2,214) (2,790) Increase (decrease) in accrued expenses and other liabilities (1,230) 2,337 Other, net 501 679 - -------------------------------------------------------------------------------- Net cash provided by operating activities 9,406 6,874 - -------------------------------------------------------------------------------- Cash flows from investing activities: Securities available for sale: Purchases (236,233) (146,887) Proceeds from sales 28,911 238 Maturities and principal repayments 112,483 106,037 Securities held to maturity: Purchases (92,477) (92,805) Maturities and principal repayments 50,658 24,107 Purchase of Federal Home Loan Bank stock - (3,933) Principal collected on loans under loan originations (12,410) (8,691) Purchase of loans (23,892) (15,151) Proceeds from sales of other real estate owned 36 150 Proceeds from sales of premises and equipment 638 - Purchases of premises and equipment (2,609) (3,043) Cash acquired, net of payment made for acquisition 34,506 - - -------------------------------------------------------------------------------- Net cash used in investing activities (140,389) (139,978) - -------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits 155,240 62,412 Net increase in other borrowings 2,750 1,593 Proceeds from Federal Home Loan Bank advances 476,700 886,000 Repayment of Federal Home Loan Bank advances (504,634) (822,219) Purchase of treasury stock (538) (1) Net effect of common stock transactions 301 245 Cash dividends paid (5,398) (4,567) - -------------------------------------------------------------------------------- Net cash provided by financing activities 124,421 123,463 - -------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (6,562) (9,641) Cash and cash equivalents at beginning of year 50,899 43,860 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of period $44,337 $34,219 - -------------------------------------------------------------------------------- (Continued) WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) Nine months ended September 30, 2002 2001 - -------------------------------------------------------------------------------- Noncash Investing and Financing Activities: Net transfers from loans to other real estate owned (OREO) $- $168 Loans charged off 229 221 Increase in unrealized gain on securities available for sale, net of tax 2,251 4,953 Increase in paid-in capital resulting from tax benefits on stock option exercises 115 304 In conjunction with the purchase acquisition detailed in Note 3 to the Consolidated Financial Statements, assets were acquired and liabilities were assumed as follows: Fair value of assets acquired $204,807 $- Less liabilities assumed 166,753 - Supplemental Disclosures: Interest payments $31,922 $38,087 Income tax payments 6,603 2,926 The accompanying notes are an integral part of these consolidated financial statements. WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The accounting and reporting policies of Washington Trust Bancorp, Inc. (the "Bancorp") and its wholly owned subsidiary, The Washington Trust Company (the "Subsidiary") (together, 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 reflect all adjustments (consisting of normal recurring adjustments) and disclosures necessary to present fairly the Corporation's financial position as of September 30, 2002 and December 31, 2001 and the results of operations and cash flows for the interim periods presented. The consolidated financial statements include the accounts of the Bancorp and the Subsidiary. All significant intercompany balances and transactions have been eliminated. 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 accounting principles generally accepted in the United States of America. The Corporation has not changed its accounting and reporting policies from those disclosed in the Bancorp's Annual Report on Form 10-K for the year ended December 31, 2001. Certain reclassifications have been made to prior period financial statements to conform to the 2002 presentation. Such reclassifications have no effect on previously reported net income. (2) New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations." SFAS 141 addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations," and FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations in the scope of this Statement are to be accounted for using one method - the purchase method. Therefore, this Statement eliminated the use of the pooling-of-interests method for accounting for business combinations. The provisions of SFAS 141 apply to all business combinations initiated after June 30, 2001, and also apply to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of this Statement were required to be applied starting with fiscal years beginning after December 15, 2001. The adoption of the foregoing pronouncements did not have a material impact on the Corporation's financial statements with respect to any business combinations that occurred prior to 2002. SFAS Nos. 141 and 142 were applied to the acquisition of First Financial Corp., which was completed on April 16, 2002. See Note 3 to the Consolidated Financial Statements for discussion of the First Financial Corp. acquisition. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." This Statement established a single accounting model to be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, broadened the presentation of discontinued operations to include more disposal transactions, and resolved significant implementation issues related to SFAS No. 121. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The provisions of this Statement are to be applied prospectively. The adoption of this pronouncement did not have a material impact on the Corporation's financial statements. (3) Acquisition On April 16, 2002, the Corporation completed the acquisition of First Financial Corp., the parent company of First Bank and Trust Company, a Rhode Island-chartered community bank. The results of First Financial Corp.'s operations have been included in the Corporation's Consolidated Statements of Income since that date. First Financial Corp. was headquartered in Providence, Rhode Island and its subsidiary, First Bank and Trust Company, operated banking offices in Providence, Cranston, Richmond and North Kingstown, Rhode Island. The Corporation closed the Richmond and North Kingstown offices and consolidated them into existing Subsidiary banking offices in May 2002. Pursuant to the Agreement and Plan of Merger dated November 12, 2001, the acquisition was effected by means of the merger of First Financial Corp. with and into the Bancorp and the merger of First Bank and Trust Company with and into the Subsidiary. The acquisition was accounted for as a purchase in accordance with SFAS No. 141 "Business Combinations" and the provisions of SFAS No. 142 "Goodwill and Other Intangible Assets" were also applied. The Bancorp issued 1,021,512 common shares and paid $19.4 million in cash to the First Financial Corp. shareholders in connection with the acquisition. The total purchase price of First Financial Corp. was $38.1 million. Shareholders of First Financial common stock received 0.842 of a Bancorp share plus $16.00 in cash for each share of First Financial common stock, with cash paid in lieu of fractional shares. The following table summarizes the fair values of the assets acquired and liabilities assumed for First Financial Corp. at the date of acquisition. The Corporation expects that some adjustments of the fair values assigned to the assets acquired and liabilities assumed at April 16, 2002 may be subsequently recorded, although such adjustments are not expected to be material. A substantial portion of the First Financial Corp. investment portfolio was liquidated prior to April 16, 2002. (Dollars in thousands) April 16, 2002 - -------------------------------------------------------------------------------- Assets: Cash and due from banks $43,034 Short-term investments 11,208 Investments 6,521 Federal Home Loan Bank stock 1,091 Net loans 113,703 Premises and equipment, net 2,539 Accrued interest receivable 474 Goodwill 21,866 Other assets 4,371 - -------------------------------------------------------------------------------- Total assets acquired $204,807 - -------------------------------------------------------------------------------- Liabilities: Deposits $137,729 Federal Home Loan Bank advances 22,303 Other borrowings 2,854 Accrued expenses and other liabilities 3,867 - -------------------------------------------------------------------------------- Total liabilities acquired $166,753 - -------------------------------------------------------------------------------- Net assets acquired $38,054 - -------------------------------------------------------------------------------- (4) Securities
Securities available for sale are summarized as follows: (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value - --------------------------------------------------------------------------------------------------------------------- September 30, 2002 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $ 56,189 $ 2,996 $ - $ 59,185 Mortgage-backed securities 401,814 8,711 (280) 410,245 Corporate bonds 66,997 1,517 (1,826) 66,688 Corporate stocks 20,021 3,901 (1,504) 22,418 - --------------------------------------------------------------------------------------------------------------------- Total 545,021 17,125 (3,610) 558,536 - --------------------------------------------------------------------------------------------------------------------- December 31, 2001 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies 64,368 2,348 (1) 66,715 Mortgage-backed securities 296,729 4,411 (1,090) 300,050 Corporate bonds 64,934 1,130 (1,915) 64,149 Corporate stocks 17,752 5,938 (648) 23,042 - --------------------------------------------------------------------------------------------------------------------- Total $443,783 $13,827 $(3,654) $453,956 - --------------------------------------------------------------------------------------------------------------------- For the nine months ended September 30, 2002, proceeds from sales of securities available for sale amounted to $28.9 million while net realized gains on securities amounted to $620 thousand. This included $923 thousand in gains on sales of securities offset by $303 thousand in loss write-downs on certain equity securities deemed to be other than temporarily impaired based on an analysis of the financial condition and operating outlook of the issuers.
Securities held to maturity are summarized as follows: (Dollars in thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value - --------------------------------------------------------------------------------------------------------------------- September 30, 2002 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $ 3,000 $55 $ - $ 3,055 Mortgage-backed securities 194,650 7,004 - 201,654 States and political subdivisions 19,069 1,021 - 20,090 - --------------------------------------------------------------------------------------------------------------------- Total 216,719 8,080 - 224,799 - --------------------------------------------------------------------------------------------------------------------- December 31, 2001 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies 8,311 307 - 8,618 Mortgage-backed securities 146,702 1,753 (48) 148,407 States and political subdivisions 20,092 485 (7) 20,570 - --------------------------------------------------------------------------------------------------------------------- Total $175,105 $2,545 $(55) $177,595 - --------------------------------------------------------------------------------------------------------------------- There were no sales of securities held to maturity during the nine months ended September 30, 2002.
Securities available for sale and held to maturity with a fair value of $444.4 million and $394.4 million were pledged in compliance with state regulations concerning trust powers and to secure Treasury Tax and Loan deposits, borrowings, and public deposits at September 30, 2002 and December 31, 2001, respectively. In addition, securities available for sale and held to maturity with a fair value of $29.1 million and $28.4 million were collateralized for the discount window at the Federal Reserve Bank at September 30, 2002 and December 31, 2001, respectively. There were no borrowings with the Federal Reserve Bank at either date. (5) Loan Portfolio The following is a summary of loans: (Dollars in thousands) September 30, December 31, 2002 2001 - -------------------------------------------------------------------------------- Commercial: Mortgages (1) $185,917 $118,999 Construction and development (2) 14,862 1,930 Other (3) 178,282 139,704 - -------------------------------------------------------------------------------- Total commercial 379,061 260,633 Residential real estate: Mortgages (4) 236,883 223,681 Homeowner construction 11,295 11,678 - -------------------------------------------------------------------------------- Total residential real estate 248,178 235,359 Consumer 129,739 109,653 - -------------------------------------------------------------------------------- Total loans $756,978 $605,645 - -------------------------------------------------------------------------------- (1) Amortizing mortgages, primarily secured by income producing property (2) Loans for construction of residential and commercial properties and for land development (3) Loans to businesses and individuals, a substantial portion of which are fully or partially collateralized by real estate (4) A substantial portion of these loans is used as qualified collateral for FHLB borrowings (See Note 9 to the Consolidated Financial Statements for additional discussion of FHLB borrowings) (6) Allowance For Loan Losses The following is an analysis of the allowance for loan losses:
(Dollars in thousands) Three Months Nine Months --------------------------------------------------- Periods ended September 30, 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------- Balance at beginning of period $15,466 $13,630 $13,593 $13,135 Allowance on acquired loans - - 1,829 - Provision charged to expense 100 100 300 450 Recoveries of loans previously charged off 114 55 167 323 Loans charged off (20) (98) (229) (221) - ---------------------------------------------------------------------------------------------------- Balance at end of period $15,660 $13,687 $15,660 $13,687 - ----------------------------------------------------------------------------------------------------
(7) Goodwill and other intangibles The second quarter 2002 acquisition of First Financial Corp. resulted in the recording of goodwill of $22.9 million. Included in this amount were $829 thousand of business combination costs (primarily legal, accounting and investment advisor fees) capitalized in accordance with accounting principles generally accepted in the United States of America. In accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill acquired in business combinations after June 30, 2001 will not be amortized. At September 30, 2002 and December 31, 2001, the Corporation had other intangible assets with carrying values of $2.9 million and $669 thousand, respectively. In conjunction with the 2002 First Financial Corp. acquisition, the Corporation recorded core deposit intangibles of $1.8 million with an average useful life of ten years. Amortization expense associated with these other intangible assets, amounted to $220 thousand and $32 thousand for the third quarter of 2002 and 2001, respectively. Comparable amounts for the nine months ended September 30, 2002 and 2001 were $441 thousand and $97 thousand, respectively. The changes in the carrying value of goodwill and other intangible assets for the nine months ended September 30, 2002 are as follows:
(Dollars in thousands) Core Deposit Other Total Goodwill Intangibles Intangibles Intangibles - ------------------------------------------------------------------------------------------------------------ Balance, December 31, 2001 $ - $ 669 $ - $ 669 Recorded during the period 22,869 1,801 852 25,522 Amortization expense - (323) (118) (441) Impairment recognized - - - - - ------------------------------------------------------------------------------------------------------------ Balance September 30, 2002 $22,869 $2,147 $734 $25,750 - ------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Core Deposit Other Total Estimated amortization expense Intangibles Intangibles Intangibles - -------------------------------------------------------------------------------- 2002 $410 $189 $599 2003 435 284 719 2004 359 284 643 2005 303 95 398 2006 261 - 261 The components of intangible assets are as follows: (Dollars in thousands) Gross Carrying Accumulated Net Carrying Intangible assets Amount Amortization Amount - -------------------------------------------------------------------------------- Core deposit intangibles $3,096 $ 949 $2,147 Other intangibles 852 118 734 - -------------------------------------------------------------------------------- Total $3,948 $1,067 $2,881 - -------------------------------------------------------------------------------- (8) Derivative Financial Instruments The Corporation was party to a five-year interest rate floor contract with a notional amount of $20 million that was to mature in February 2003. The floor contract entitled the Corporation to receive payment from a counterparty if the three-month LIBOR rate fell below 5.50%. The Corporation and the counterparty agreed to an early termination date of May 7, 2002 and the Corporation received a final payment from the counterparty of $606 thousand. The Corporation recognized the fair value of this derivative as an asset on the balance sheet and changes in fair value were recorded in current earnings. The carrying value of the interest rate floor contract amounted to $739 thousand at December 31, 2001. Included in interest income for the nine months ended September 30, 2002 was $229 thousand of depreciation in value through the termination date. Included in interest income for the three and nine months ended September 30, 2001 was $373 thousand and $643 thousand of appreciation in value of the interest rate floor contract, respectively. The Corporation recognizes commitments to originate and commitments to sell fixed rate mortgage loans as derivative financial instruments. Accordingly, the Corporation recognizes the fair value of these commitments as an asset on the balance sheet. At September 30, 2002 and December 31, 2001, the carrying value of these commitments amounted to ($83) thousand and $86 thousand, respectively. Changes in fair value are recorded in current earnings and amounted to $74 thousand and $83 thousand of depreciation in value for the three months ended September 30, 2002 and 2001, respectively. Included in earnings for the nine months ended September 30, 2002 and 2001, was $169 thousand and $59 thousand of depreciation in value, respectively. (9) Borrowings Federal Home Loan Bank advances outstanding are summarized below: (Dollars in thousands) September 30, December 31, 2002 2001 - -------------------------------------------------------------------------------- FHLB advances $425,725 $431,490 - -------------------------------------------------------------------------------- In addition to outstanding advances, the Corporation also has access to an unused line of credit amounting to $8.0 million at September 30, 2002 and December 31, 2001. Under agreement with the FHLB, the Corporation is required to maintain qualified collateral, free and clear of liens, pledges, or encumbrances that, based on certain percentages of book and market values, has a value equal to the aggregate amount of the line of credit and outstanding advances ("FHLB borrowings"). The FHLB maintains a security interest in various assets of the Corporation including, but not limited to, residential mortgages loans, U.S. government or agency securities, U.S. government-sponsored agency securities and amounts maintained on deposit at the FHLB. The Corporation maintained qualified collateral in excess of the amount required to secure FHLB borrowings at September 30, 2002 and December 31, 2001. Included in the collateral were securities available for sale and held to maturity with a fair value of $423.5 million and $376.5 million that were specifically pledged to secure FHLB borrowings at September 30, 2002 and December 31, 2001, respectively. Unless there is an event of default under the agreement, the Corporation may use, encumber or dispose any portion of the collateral in excess of the amount required to secure FHLB borrowings, except for that collateral which has been specifically pledged. The following is a summary of other borrowings: (Dollars in thousands) September 30, December 31, 2002 2001 - -------------------------------------------------------------------------------- Treasury, Tax and Loan demand note balance $6,763 $1,583 Other 928 504 - -------------------------------------------------------------------------------- Other borrowings $7,691 $2,087 - -------------------------------------------------------------------------------- (10) Litigation In June 1999 a lawsuit was filed against First Bank and Trust Company ("First Bank") in Providence County (Rhode Island) Superior Court by Read & Lundy, Inc. and its principal, Cliff McFarland (collectively, "the plaintiffs"). The Washington Trust Company was substituted as defendant in June 2002 following the acquisition of First Financial Corp., the parent company of First Bank. The original complaint alleged claims for breach of contract, tortious interference with contractual relations, and civil conspiracy arising out of First Bank's 1996 loan to a third party company. Plaintiffs allege that the loan to the third party enabled that company to compete unlawfully with Read & Lundy and thereby diminished Read & Lundy's profitability. The complaint was amended in December 2001 to add a claim for violation of the Rhode Island Trade Secrets Act. The plaintiffs had previously filed a suit in the same court in 1996 against the third party company and its founder. Washington Trust is not a party to this suit. In September 2001, judgment was entered against the third party company and its founder in favor of the plaintiffs for approximately $1.55 million in compensatory and punitive damages, including pre-judgment interest. Plaintiffs contend that Washington Trust as an alleged co-conspirator of the third party company is liable for this entire amount, none of which has been collected from the third party company. Plaintiffs are also seeking additional compensatory damages and other costs allegedly arising after the third party trial. Including interest, it is estimated that the amount of the claim against Washington Trust is approximately $2 million. Management believes, based on its review with counsel of the development of this matter to date, that Washington Trust has asserted meritorious defenses in this litigation. The discovery phase of the case is nearing completion and Washington Trust has filed a motion for summary judgment on all counts. A ruling on this motion is expected in November 2002. A trial date has been set for January 2003. Because of the uncertainties surrounding the outcome of the litigation no assurance can be given that the litigation will be resolved in favor of Washington Trust. Management and legal counsel are unable to estimate the amount of loss, if any, that may be incurred with respect to this litigation. Consequently, no loss provision has been recorded. A second claim ancillary to this litigation was brought by the plaintiffs in March 2002. Washington Trust has also been substituted for First Bank in these proceedings. In this matter, plaintiffs brought a motion seeking enforcement of a prejudgment writ of attachment obtained in 1997 by the plaintiffs against funds held by First Bank as collateral for the loan to the third party company. In 1999, First Bank had applied these funds as an offset to that loan. In August 2002, judgment against Washington Trust was rendered on this motion requiring Washington Trust to make the funds available for attachment by the plaintiffs. This judgment is under appeal to the Rhode Island Supreme Court. As of September 30, 2002, Washington Trust has recorded a liability for the judgment award of $273 thousand in connection with this matter. As a pre-acquisition contingency, the offset to the liability has been recognized as a portion of the purchase price of First Financial Corp. 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, 2002, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2002 and 2001, changes in shareholders' equity and cash flows for the nine-month periods ended September 30, 2002 and 2001. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Washington Trust Bancorp, Inc. and subsidiary as of December 31, 2001, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 15, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the consolidated balance sheet as of December 31, 2001, is fairly stated, in all material respects. KPMG LLP Providence, Rhode Island November 13, 2002 ITEM 3. 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 that 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 for future periods. The simulation results are reviewed to determine whether the exposure of net interest income to changes in interest rates remains within established tolerance levels and to develop appropriate strategies to manage this exposure. The following table presents the Corporation's estimated net interest income exposure as a percentage of net interest income for the first 12-month period, the subsequent 12-month period thereafter (months 13 - 24), and months 1-60, as of September 30, 2002. Interest rates are assumed to shift upward by 200 basis points or downward by 100 basis points. This asymmetric rate shift reflects the fact that interest rates are at extremely low levels and the likelihood of a 200 basis point decline is considered remote. Months 1 - 12 Months 13-24 Months 1 - 60 ------------------------------------------------------------------------------- 200 basis point increase in rates 4.51% 6.94% 8.05% 100 basis point decrease in rates -3.09% -7.14% -8.28% Since this simulation assumes the Corporation's balance sheet will remain static over the 60-month simulation horizon, the results do not reflect adjustments in strategy that the Corporation could implement in response to rate shifts, and should not be relied upon as a estimate of future 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, 2001. The Corporation also monitors the potential change in market value of its available for sale debt securities using both rate shifts of up to 400 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, 2002, an immediate 200 basis point rise in rates would result in a 2.1% 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 1.9% 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, 2002, including both debt and equity securities, was 3.0%, assuming a one-year time horizon and a 5% probability of occurrence for "value at risk" analysis. On May 7, 2002, the Corporation terminated a five-year interest rate floor contract with a notional amount of $20 million that was to mature in February 2003. The floor contract was intended to function as a hedge against reductions in interest income realized from prime-based loans and entitled the Corporation to receive payment from a counterparty if the three-month LIBOR rate fell below 5.50%. In connection with the early termination, the Corporation agreed to a final payment from the counterparty of $606 thousand. The Corporation recognized the fair value of this derivative as an asset on the balance sheet and changes in fair value were recorded in current earnings. 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 22, 2002 By: John C. Warren ------------------------------------------ John C. Warren Chairman and Chief Executive Officer (principal executive officer) November 22, 2002 By: David V. Devault ------------------------------------------ David V. Devault Executive Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer) CERTIFICATIONS I, John C. Warren, Chairman and Chief Executive Officer of Washington Trust Bancorp, Inc., certify that: 1. I have reviewed this amended quarterly report on Form 10-Q/A, for the quarterly period ended September 30, 2002, of Washington Trust Bancorp, Inc. (the "Registrant"); 2. Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this amended quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others with that entity, particularly during the period in which this amended quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this amended quarterly report (the "Evaluation Date"); and (c) presented in the quarterly report, for which this Form 10-Q/A amends, our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of the Registrant's board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in the quarterly report, for which this Form 10-Q/A amends, whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 22, 2002 By: John C. Warren ------------------------------------ John C. Warren Chairman and Chief Executive Officer (principal executive officer) CERTIFICATIONS I, David V. Devault, Executive Vice President, Treasurer and Chief Financial Officer of Washington Trust Bancorp, Inc., certify that: 1. I have reviewed this amended quarterly report on Form 10-Q/A, for the quarterly period ended September 30, 2002, of Washington Trust Bancorp, Inc. (the "Registrant"); 2. Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this amended quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this amended quarterly report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others with that entity, particularly during the period in which this amended quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this amended quarterly report (the "Evaluation Date"); and (c) presented in the quarterly report, for which this Form 10-Q/A amends, our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of the Registrant's board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officer and I have indicated in the quarterly report, for which this Form 10-Q/A amends, whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 22, 2002 By: David V. Devault ------------------------------------------ David V. Devault Executive Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer) -----END PRIVACY-ENHANCED MESSAGE-----