-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, mEK9wO87fbwDpJ/wES3OnpepEDwVbBJVNBSY8RWEoYcEbsalGKkPXzcMEHzMcerm C6cjgqInxJmVR8kkPdlWeQ== 0000737468-94-000004.txt : 19940331 0000737468-94-000004.hdr.sgml : 19940331 ACCESSION NUMBER: 0000737468-94-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASHINGTON TRUST BANCORP INC CENTRAL INDEX KEY: 0000737468 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 050404671 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-13091 FILM NUMBER: 94519238 BUSINESS ADDRESS: STREET 1: 23 BROAD ST CITY: WESTERLY STATE: RI ZIP: 02891 BUSINESS PHONE: 4013481200 10-K 1 1993 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 ------------------------------------------------ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _________________ Commission file Number 0-13091 ------------------------------------------------------ WASHINGTON TRUST BANCORP, INC. (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0404671 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 23 BROAD STREET, WESTERLY, RHODE ISLAND 02891 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (401) 348-1200 --------------------- Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange on Title of each class which registered NONE NONE - ---------------------- ------------------------ Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, $.0625 PAR VALUE - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant was $49,191,686 at March 9, 1994 which includes $3,762,701 held by The Washington Trust Company under trust agreements and other instruments. The number of shares of common stock of the registrant outstanding as of March 9, 1994 was 1,873,969. Page 1 Exhibit Index page 21 DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's 1993 Annual Report to Shareholders. (Parts I, II and IV) 2. Portions of the Registrant's Proxy Statement dated April 5, 1994 for the 1994 Annual Meeting of Shareholders. (Part III). =============================================================================== FORM 10-K WASHINGTON TRUST BANCORP, INC. For the Year Ended December 31, 1993 TABLE OF CONTENTS ----------------- Description Page Number --------------- ----------- Part I - ------ Item 1 - Business 3 Item 2 - Properties 16 Item 3 - Legal Proceedings 16 Item 4 - Submission of Matters to a Vote of Security Holders 16 Executive Officers of the Registrant 17 Part II - ------- Item 5 - Market for the Registrant's Common Stock and Related Stockholder Matters 18 Item 6 - Selected Financial Data 19 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 8 - Financial Statements and Supplementary Data 19 Item 9 - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 19 Part III - -------- Item 10 - Directors and Executive Officers of the Registrant 20 Item 11 - Executive Compensation 20 Item 12 - Security Ownership of Certain Beneficial Owners and Management 20 Item 13 - Certain Relationships and Related Transactions 20 Part IV - ------- Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 21 Signatures 22 - ---------- -2- PART I ------ ITEM 1. BUSINESS - ---------------- Washington Trust Bancorp, Inc. - ------------------------------ Washington Trust Bancorp, Inc. ("the Corporation") is a publicly-owned, registered bank holding company, organized in 1984 under the laws of the state of Rhode Island whose subsidiaries are permitted to engage in banking and other financial services and businesses. The Corporation conducts its business through its wholly-owned subsidiary, The Washington Trust Company ("the Bank"), a Rhode Island chartered commercial bank. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC"). The Corporation was formed in 1984 under a plan of reorganization in which outstanding common shares of The Washington Trust Company were exchanged for common shares of Washington Trust Bancorp, Inc. At December 31, 1993 the Corporation had total consolidated assets of $487 million, deposits of $423 million and equity capital of $38 million. The Washington Trust Company - ---------------------------- The Washington Trust Company was originally chartered in 1800 as the Washington Bank and is the oldest banking institution headquartered in its market area. Its current corporate charter dates to 1902. See "Market Area and Competition" below for further information. A broad range of financial services are provided by the Bank, including: - - Residential mortgages - Commercial and consumer demand deposits - - Commercial loans - Savings, NOW and money market deposits - - Construction loans - Certificates of deposit - - Installment loans - Retirement accounts - - Home equity lines of credit - Electronic funds transfer - - VISA and Mastercard accounts - Safe deposit boxes - - Merchant credit card services - Trust and investment services The Bank's primary source of income is net interest income, the difference between interest earned on interest-earning assets and interest paid on interest-bearing deposits and other borrowed funds. Sources of noninterest income include fees for management of customer investment portfolios, trusts and estates, service charges on deposit accounts, merchant processing fees and other banking-related fees. Noninterest expenses include the provision for loan losses, salaries and employee benefits, occupancy, equipment, office supplies deposit taxes and assessments, foreclosed property costs and other administrative expenses. Automated teller machines (ATM's) are located at each of the six banking offices. The Bank is a member of the NYCE, Yankee 24, Plus, and Cashstream ATM networks. -3- Data processing for most of the Bank's deposit and loan accounts and other applications is conducted internally using owned equipment. Application software is primarily obtained through purchase or licensing agreements. The Bank's Trust and Investment Department provides fiduciary services as trustee under wills and trust agreements; as executor or administrator of estates; as a provider of agency and custodial investment services to individuals and institutions; and as a trustee for employee benefit plans. The value of total trust assets amounted to $390 million as of December 31, 1993. The following is a summary of the relative amounts of income producing functions as a percentage of gross operating income during the past five years:
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Interest and fees on: Residential real estate loans 33% 37% 37% 35% 36% Commercial and other loans 30 31 33 40 39 Installment and consumer loans 8 9 10 10 8 ---- ---- ---- ---- ---- Total loan income 71 77 80 85 83 Interest and dividends on securities 13 9 7 6 7 Trust income 7 6 5 5 4 Other noninterest income 9 8 8 4 6 ---- ---- ---- ---- ---- Gross operating income 100% 100% 100% 100% 100% ==== ==== ==== ==== ====
The percentage of gross income derived from interest and fees on loans has fallen to 71% in 1993, down from 77% in 1992 and 80% in 1991, primarily as a result of declining interest rates. Market Area and Competition - --------------------------- The Bank's market area includes most of southern Rhode Island (Washington County) and a portion of New London County in southeastern Connecticut. The Bank's six banking offices are located in the following Rhode Island communities: - Westerly (2) - Charlestown - New Shoreham (Block Island) - Richmond - Narragansett The Bank's offices in Charlestown and on Block Island are the only bank facilities in those communities. No other financial institution has more than three offices within the Bank's market area. The Block Island office was acquired from another Rhode Island bank in 1984. The Charlestown office was opened in 1988 and the Narragansett office was opened in 1989. The Bank faces strong competition from branches of major Rhode Island and regional commercial banks, local branches of certain Connecticut banks, as well as various credit unions, savings institutions and, to some extent, finance companies. The principal methods of competition are through interest rates, -4- financing terms and other customer conveniences. The Washington Trust Company had 36% of total deposits held by financial institutions within its market area as of June 30, 1993. The three closest competitors held 14%, 14%, and 7% of total deposits in the market area, respectively. The Corporation believes that being the largest commercial banking institution headquartered within the market area provides a competitive advantage over other financial institutions. The Bank has a marketing department which is responsible for the review of existing products and services and the development of new products and services. Employees - --------- As of December 31, 1993 the Corporation employed approximately 232 full-time and 55 part-time employees. Management believes that its employee relations are good. Supervision and Regulation - -------------------------- General - The business in which the Corporation and the Bank are engaged is subject to extensive supervision, regulation, and examination by various bank regulatory authorities and other agencies of federal and state government. The supervisory and regulatory activities of these parties are often intended primarily for the protection of depositors or are aimed at carrying out broad public policy goals that may not be directly related to the financial services provided by the Corporation and the Bank nor intended for the protection of the Corporation's shareholders. Proposals to change regulations and laws which affect the banking industry are frequently raised at the federal and state level. The potential impact on the Corporation of any future revisions to the supervisory or regulatory structure cannot be determined. The Corporation and Bank are required by various authorities to file extensive periodic reports of financial and other information and such other reports as the regulatory and supervisory authorities may require. The Corporation is also subject to the reporting and other requirements of the Securities Exchange Act of 1934. The Corporation is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). As a bank holding company, the activities of the Corporation are regulated by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The BHC Act requires that the Corporation obtain prior approval of the Federal Reserve Board to acquire control over a bank or nonbank entity and restricts the activities of the Corporation to those related to banking. In addition, the BHC Act restricts interstate acquisitions of banks or branching unless specifically authorized by local law. Federal law also regulates transactions between the Corporation and its subsidiary, The Washington Trust Company, including loans or extensions of credit. As a state chartered institution, The Washington Trust Company is subject to various Rhode Island business and banking regulations. Federal Deposit Insurance Corporation Act of 1991 (FDICIA) - FDICIA was enacted in December 1991 and has resulted in extensive changes to the federal banking laws. One of the primary purposes of the legislation was to recapitalize the Bank Insurance Fund (BIF). The FDIC adopted a risk-related premium system for -5- the assessment period beginning January 1, 1993. Under this new system, each institution's assessment rate is based on its capital ratios in combination with a supervisory evaluation of the risk the institution poses to the BIF. Banks deemed to be well-capitalized and who pose the lowest risk to the BIF will pay the lowest assessment rates, while undercapitalized banks, who present the highest risk, will pay the highest rates. At December 31, 1993, the Bank's capital ratios placed it in the well-capitalized category. FDICIA contains other significant provisions that require the federal banking regulators to establish standards for safety and soundness for depository institutions and their holding companies in three areas: (i) operational and managerial; (ii) asset quality, earnings and stock valuation; and (iii) management compensation. The legislation also requires that risk-based capital requirements contain provisions for interest rate risk, credit risk and risks of nontraditional activities. FDICIA imposes numerous restrictions on state- chartered banks and contains several consumer banking law provisions. The provisions of FDICIA will phase in over several years. While final rules have been issued on numerous provisions, others have yet to be issued. The full impact of FDICIA will not be known until all of the related regulations have been adopted by the various federal banking agencies. Dividend Restrictions - The Corporation's revenues consist of cash dividends paid to it by the Bank. Such payments are restricted pursuant to various state and federal regulatory limitations. On February 29, 1994, the Bank's primary federal regulator, the Federal Deposit Insurance Corporation (FDIC), agreed to release the subsidiary bank from a January 1993 board of directors resolution regarding the payment of dividends and other matters. The resolution stated that the subsidiary bank would not pay any dividend to the Corporation unless it provided advance notification to its regulators and received no reasonable objection. The board resolution also required the subsidiary bank to continue to maintain plans and procedures for the maintenance of asset quality, risk control and capital adequacy. The January 1993 resolution had been accepted by the FDIC pursuant to the termination of a 1991 memorandum of understanding which required the subsidiary bank to obtain prior regulatory approval for the payment of dividends to the Corporation. Reference is made to Note 16 to the Corporation's Consolidated Financial Statements included in its 1993 Annual Report to Shareholders incorporated herein by reference for additional discussion of the Corporation's ability to pay dividends. Capital Guidelines - Regulatory guidelines have been established that require bank holding companies and banks to maintain minimum ratios of capital to risk- adjusted assets. Banks are required to have minimum core capital (Tier 1) of 4% and total risk-adjusted capital (Tier 1 and Tier 2) of 8%. For the Corporation, Tier 1 capital is essentially equal to shareholders' equity while Tier 2 capital consists of a portion of the reserve for possible loan losses (limited to 1.25% of total risk-weighted assets). As of December 31, 1993, net risk-weighted assets amounted to $324.4 million, the Tier 1 capital ratio was 11.86% and the total risk-based capital ratio was approximately 13.12%. The Tier 1 leverage ratio is defined as Tier 1 capital (as defined under the risk-based capital guidelines) divided by average assets (net of intangible -6- assets). The minimum leverage ratio is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk (including no undue interest rate risk), excellent asset quality, high liquidity, and strong earnings. Other banking organizations are expected to have ratios of at least 4-5%, depending on their particular condition and growth plans. Higher capital ratios could be required if warranted by the particular circumstances or risk profile of a given banking organization. The Corporation's Tier 1 leverage ratio was 7.84% as of December 31, 1993. The Federal Reserve has not advised the Corporation of any specific minimum Tier 1 leverage capital ratio applicable to it. GUIDE 3 STATISTICAL DISCLOSURES - ------------------------------- The following tables contain additional consolidated statistical data about the Corporation and its subsidiary. I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential ------------------------------------------------------------- A. Average balance sheets are presented on page 27 of the Corporation's 1993 Annual Report to Shareholders under the caption "Average Balances/Net Interest Margin (Fully Taxable Equivalent Basis)", and are incorporated herein by reference. Nonaccrual loans are included in average loan balances. Average balances are based upon daily averages. B. An analysis of net interest earnings, including interest earned and paid, average yields and costs, and net yield on interest-earning assets is presented on page 27 of the Corporation's 1993 Annual Report to Shareholders under the caption "Average Balances/Net Interest Margin (Fully Taxable Equivalent Basis)", and is incorporated herein by reference. Interest income is reported on the fully taxable-equivalent basis. Tax exempt income is converted to a fully taxable equivalent basis by assuming a 34% federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. For dividends on corporate stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency. Interest on nonaccrual loans is included in the analysis of net interest earnings to the extent that such interest income has been recognized in the Consolidated Statements of Income. See Guide 3 Item III.C.1. C. An analysis of rate/volume changes in interest income and interest expense is presented on page 28 of the Corporation's 1993 Annual Report to Shareholders under the caption "Volume/Rate Analysis - Interest Income and Expense (Fully Taxable Equivalent Basis)", and is incorporated herein by reference. The net change attributable to both volume and rate has been allocated proportionately. -7- II. INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE ------------------------------------------------------- A. The carrying amounts of investment securities as of the dates indicated are presented in the following table:
December 31, 1993 1992 1991 ------------------------------------------------------------------------- U.S. Treasury obligations and obligations of U.S. government agencies $19,419,860 $ 8,998,075 $24,222,086 Mortgage-backed securities 25,401,432 24,202,972 -- States and political subdivisions 7,676,540 5,905,595 4,984,334 Corporate debt securities -- -- 1,000,000 Corporate stocks -- -- 5,408,669 ---------- ---------- ---------- $52,497,832 $39,106,642 $35,615,089 ========== ========== ==========
The December 31, 1992 balance of mortgage-backed securities includes $19,209,775 of securitized mortgages originated by the subsidiary bank which were previously classified as loans in the Corporation's 1992 consolidated financial statements. The carrying amounts of securities available for sale at December 31, 1993 and 1992 are summarized as follows:
1993 1992 ------------------------- U.S. Treasury obligations $25,120,650 $23,165,503 Corporate debt securities 1,000,000 1,000,000 Corporate stocks 8,143,093 9,577,786 ----------- ----------- $34,263,743 $33,743,289 =========== ===========
All securities were classified as investment securities at December 31, 1991. -8- B. Maturities of debt securities as of December 31, 1993 are presented in the following tables. Mortgage-backed securities are included based on their weighted average maturities, adjusted for anticipated future prepayments.
U.S. Treasury obligations & obligations of Mortgage- States and U.S. Government backed Political Total Debt Investment Securities Agencies Securities Subdividions Securities --------------------- --------------- ---------- ------------ ---------- Due in 1 year or less: Amount $ 1,999,550 $ 3,529,641 $2,357,960 $ 7,887,151 Yield 5.60% 7.11% 4.02% 5.80% After 1 but within 5 years: Amount 16,420,310 10,277,827 4,317,444 31,015,581 Yield 4.63% 7.10% 4.23% 5.39% After 5 but within 10 years: Amount 1,000,000 7,428,536 452,546 8,881,082 Yield 8.00% 7.07% 3.91% 7.01% After 10 years: Amount -- 4,165,428 548,590 4,714,018 Yield -- 6.06% 2.76% 5.68% ---------- ---------- ---------- ---------- Totals: Amount $19,419,860 $25,401,432 $7,676,540 $52,497,832 Yield 4.90% 6.92% 4.04% 5.75% ========== ========== ========== ==========
U.S. Treasury obligations & obligations of Corporate U.S. government Debt Total Debt Securities Available for Sale Agencies Securities Securities ----------------------------- --------------- ---------- ---------- Due in 1 year or less: Amount $ -- $ -- $ -- Yield -- -- -- After 1 but within 5 years: Amount 24,631,233 1,000,000 25,631,233 Yield 5.81% 4.29% 5.75% After 5 but within 10 years: Amount -- -- -- Yield -- -- -- After 10 years: Amount 489,417 -- 489,417 Yield 13.16% -- 13.16% ---------- ---------- ---------- Totals: Amount $25,120,650 $1,000,000 $26,120,650 Yield 5.95% 4.29% 5.89% ========== ========== ==========
C. Not applicable. -9- III. LOAN PORTFOLIO -------------- A. Types of Loans
December 31, 1993 1992 1991 1990 1989 -------------------------------------------------------------------------------------------------------- Residential real estate: Mortgages $152,758,727 $140,438,839 $168,173,712 $156,007,304 $141,224,190 Homeowner construction 6,120,171 5,124,603 4,482,367 9,070,011 6,546,989 ----------- ----------- ----------- ----------- ----------- Total residential real estate 158,878,898 145,563,442 172,656,079 165,077,315 147,771,179 ----------- ----------- ----------- ----------- ----------- Commercial: Real estate 48,011,836 38,921,833 36,734,260 36,070,358 27,719,544 Construction and development 10,051,008 10,947,411 18,644,654 28,124,400 26,576,065 Other 101,636,280 97,344,028 96,392,707 105,605,074 112,656,940 ----------- ----------- ----------- ----------- ----------- Total commercial 159,699,124 147,213,272 151,771,621 169,799,832 166,952,549 ----------- ----------- ----------- ----------- ----------- Installment 33,932,673 32,461,572 36,583,783 38,893,929 36,166,777 ----------- ----------- ----------- ----------- ----------- $352,510,695 $325,238,286 $361,011,483 $373,771,076 $350,890,505 =========== =========== =========== =========== ===========
B. An analysis of the maturity and interest rate sensitivity of real estate construction and commercial and other loans as of December 31, 1993 follows:
Maturity analysis: One Year One to five After five or Less Years Years Total ---------- ---------- ---------- ----------- Construction and development (*) $ 6,614,558 2,550,315 7,006,306 $ 16,171,179 Commercial - other 39,470,460 41,418,926 20,746,894 101,636,280 ---------- ---------- ---------- ----------- $46,085,018 43,969,241 27,753,200 $117,807,459 ========== ========== ========== =========== (*) Includes homeowner construction and commercial construction and development. Maturities of homeowner construction loans are included based on their contractual conventional mortgage repayment terms following the completion of construction.
Sensitivity to changes in interest rates for all such loans due after one year is as follows:
Floating or Predetermined Adjustable Rates Rates Totals ------------- ---------- ---------- Principal due after one year $9,861,665 $61,860,776 $71,722,441 ========== ========== ==========
-10- C. Risk Elements Reference is made to the caption "Asset Quality" included in Management's Analysis of Financial Statements on pages 24-26 of the Corporation's 1993 Annual Report to Shareholders incorporated herein by reference. Included therein is a discussion of the Corporation's credit review and collection practices. Also included therein is information concerning property acquired through foreclosure and in-substance foreclosures held at December 31, 1993 and the Corporation's ongoing efforts to dispose of such properties. 1. Nonaccrual, Past Due and Restructured Loans. (a). Nonaccrual loans as of the dates indicated were as follows:
December 31, 1993 1992 1991 1990 1989 ------------------------------------------------------------------------ $11,370,726 $12,563,329 $17,856,390 $16,329,966 $5,226,963 ========== ========== ========== ========== =========
Loans, with the exception of credit card loans, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest. Interest previously accrued, but not collected on such loans is reversed against current period income. Subsequent cash receipts on nonaccrual loans are applied to the outstanding principal balance of the loan, or recognized as interest income, depending on management's assessment of the ultimate collectibility of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management's opinion, the loans are considered to be fully collectible. For the year ended December 31, 1993, the gross interest income that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms was approximately $1,021,000. Interest recognized on these loans amounted to approximately $597,000. There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual at December 31, 1993. (b). Loans contractually past due 90 days or more and still accruing for the dates indicated were as follows:
December 31, 1993 1992 1991 1990 1989 ----------------------------------------------------------------------- $22,455 $42,648 $6,064,648 $4,039,105 $4,594,922 ======= ====== ========= ========= =========
In years prior to 1992, commercial loans were placed on nonaccrual status and interest recognition was suspended when they were 90 days or more overdue. Residential mortgages and consumer loans were placed on nonaccrual status when in management's judgment, the probability of collection was deemed insufficient to warrant further income recognition. -11- (c). Restructured accruing loans for the dates indicated were as follows:
December 31, 1993 1992 1991 1990 1989 ----------------------------------------------------------------------- $ -- $1,476,000 $1,522,282 $ -- $ -- ========= ========= ========= ========= =========
Restructured accruing loans include those for which concessions, such as reduction of interest rates other than normal market rate adjustments or deferral of principal or interest payments, have been granted due to a borrower's financial condition. Interest on restructured loans is accrued at the reduced rate. Loans restructured during 1993 amounted to $404,595 and are included in nonaccrual loans reported in Section III.C.1.(a) above. 2. Potential Problem Loans. The Corporation assesses the quality of its loans by performing ongoing reviews of the loans in its portfolio to determine potential loss exposure and to assess delinquency trends. During this review, management gives consideration to such factors as overall borrower relationship, delinquency trends, credit and collateral quality, prior loss experience, current and expected economic conditions, and other pertinent factors. Not included in the analysis of nonperforming loans in item 1. above are accruing commercial loans amounting to approximately $1.2 million that were 30-89 days past due at December 31, 1993, including certain loans classified as substandard by the subsidiary bank's primary regulator during their most recent examination completed in the fourth quarter of 1993. The Corporation's loan policy provides guidelines for the review of such loans in order to facilitate collection. At December 31, 1993, commercial loans which were contractually current but which had been classified as substandard by the subsidiary bank's primary regulator amounted to approximately $3.9 million. The classification of these loans is generally attributable to weaknesses in the financial condition of borrowers or collateral deficiencies. These factors are considered in management's analysis of credit quality and evaluation of collectibility of the loan portfolio. At December 31, 1993, approximately 3.2% of total residential mortgage and installment loans was 30-89 days past due. Based on historical experience, the delinquency status of some of these loans may be expected to improve as a result of collection efforts, while other loans may eventually become more seriously delinquent, resulting in some amount of losses. These factors are considered by management in its analysis of credit quality and in the evaluation of the adequacy of the reserve for possible loan losses. Subsequent to December 31, 1993, approximately $1.1 million of loans 30-89 days past due have been reclassified to nonaccrual status. In addition, approximately $1.2 million of loans on nonaccrual status at December 31, 1993 have been subsequently restored to accruing status. 3. Foreign Outstandings. None -12- 4. Loan Concentrations. The Corporation has no concentration of loans which exceed 10% of its total loans except as disclosed by types of loan in Section III.A. D. Other Interest-Bearing Assets: None IV. SUMMARY OF LOAN LOSS EXPERIENCE ------------------------------- A. The reserve for possible loan losses is available for future credit losses inherent in the loan portfolio. The level of the reserve is based on management's ongoing review of the growth and composition of the loan portfolio, net charge-off experience, current and expected economic conditions, and other pertinent factors. Loans (or portions thereof) deemed to be uncollectible are charged against the reserve and recoveries of amounts previously charged to earnings are added to the reserve to bring it to the desired level. The following table presents the allocation of the allowance for loan losses.
December 31, 1993 1992 1991 1990 1989 -------------------------------------------------------------------------------------------- Residential: Mortgages $1,064,022 1,053,778 1,225,000 1,020,000 158,298 % of these loans to all loans 43.3% 43.2% 46.6% 41.7% 40.2% Homeowner construction 33,661 35,222 -- -- -- % of these loans to all loans 1.7% 1.6% 1.2% 2.4% 1.9% Commercial: Mortgages 1,090,454 1,017,490 1,305,509 1,493,453 200,000 % of these loans to all loans 13.6% 12.0% 10.2% 9.7% 7.9% Construction and development 110,645 179,395 494,694 1,373,735 400,000 % of these loans to all loans 2.9% 3.4% 5.2% 7.5% 7.6% Other 2,726,961 2,753,695 2,453,753 1,887,083 620,931 % of these loans to all loans 28.9% 29.8% 26.7% 28.3% 32.1% Installment 559,889 692,913 726,000 669,615 263,091 % of these loans to all loans 9.6% 10.0% 10.1% 10.4% 10.3% Unallocated (1) 3,071,631 1,609,783 269,316 2,043,310 1,586,792 --------- --------- --------- --------- --------- $8,657,263 7,342,276 6,474,272 8,487,196 3,229,112 100.0% 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ========= ========= (1) Beginning with 1991, the Corporation's practice for allocating loss exposure was refined, resulting in a broader allocation of the overall reserve. Accordingly, portions of the unallocated reserve have been redistributed to specific loan categories.
-13- Loss experience on loans is presented in the following table for the years indicated. Analysis of the Reserve for Possible Loan Losses ------------------------------------------------
December 31, 1993 1992 1991 1990 1989 -------------------------------------------------------------------------------------------- Balance at beginning of year $7,342,276 $6,474,272 $8,487,196 $3,229,112 $2,852,323 Charge-offs (domestic): Residential: Mortgages 203,472 260,848 331,130 41,699 3,566 Homeowner construction -- -- -- -- -- Commercial: Real estate 596,250 24,154 2,097,532 100,000 175,000 Construction and development -- 114,315 1,312,452 980,143 209,624 Other 333,924 2,522,916 2,928,730 1,867,843 335,375 Installment 378,575 494,756 771,705 269,260 139,634 --------- --------- --------- --------- --------- Total charge-offs 1,512,221 3,416,989 7,441,549 3,258,945 863,199 --------- --------- --------- --------- --------- Recoveries (domestic): Residential: Mortgages 2,278 -- 272 -- -- Homeowner construction -- -- -- -- -- Commercial: Real estate 84,351 200 -- -- -- Construction and development 20,756 29,424 100,997 -- -- Other 174,976 192,845 23,981 11,018 35,610 Installment 44,847 62,524 103,375 6,011 4,378 --------- --------- --------- --------- --------- Total recoveries 327,208 284,993 228,625 17,029 39,988 --------- --------- --------- --------- --------- Net charge-offs 1,185,013 3,131,996 7,212,924 3,241,916 823,211 Additions charged to earnings 2,500,000 4,000,000 5,200,000 8,500,000 1,200,000 --------- --------- --------- --------- --------- Balance at end of period $8,657,263 $7,342,276 $6,474,272 $8,487,196 $3,229,112 ========= ========= ========= ========= ========= Net charge-offs to average loans .35% .89% 1.95% .89% .24% ========= ========= ========= ========= =========
-14- V. DEPOSITS -------- A. Average deposit balances outstanding and the average rates paid thereon are presented in the following table:
1993 1992 1991 --------------------- -------------------- -------------------- Average Average Average Average Average Average Amount Rate Paid Amount Rate Paid Amount Rate Paid ----------- --------- ---------- --------- ---------- --------- Demand deposits $ 40,097,000 -- 32,872,000 -- 29,797,000 -- Savings deposits: Regular 79,567,000 2.83% 63,163,000 3.33% 38,487,000 4.97% NOW accounts 58,930,000 1.84% 55,178,000 2.73% 44,551,000 4.76% Money market accounts 59,473,000 2.74% 63,969,000 3.45% 68,941,000 5.41% ----------- ----------- ----------- Total savings 197,970,000 2.51% 182,310,000 3.19% 151,979,000 5.11% Time deposits 176,148,000 4.60% 183,443,000 5.60% 224,469,000 7.02% ----------- ----------- ----------- Total deposits $414,215,000 398,625,000 406,245,000 =========== =========== ===========
B. Not Applicable C. Not Applicable D. The maturity schedule of time deposits in amounts of $100,000 or more at December 31, 1993 was as follows:
3 months 3 to 6 6 to 12 Over 12 or less months months months Total ---------- --------- --------- --------- ---------- Time remaining until maturity: $11,515,448 2,349,784 4,039,894 3,814,069 21,719,195 ========== ========= ========= ========= ==========
E. Not applicable VI. RETURN ON EQUITY AND ASSETS ---------------------------
1993 1992 1991 ---- ---- ---- Return on average assets 1.01% 0.70% 0.56% Return on average shareholders' equity 12.92% 9.15% 7.58% Dividend payout ratio 34.30% 46.85% 58.97% Average equity to average total assets 7.81% 7.68% 7.38%
VII. SHORT-TERM BORROWINGS --------------------- The average balance of short-term borrowings during the reported periods did not exceed 30% of shareholders' equity at the end of any reported period. -15- ITEM 2. PROPERTIES - ------------------ As of December 31, 1993 the Corporation was operating six facilities including its main office and five branch banking facilities. All sites are owned, except for the Block Island, Rhode Island branch facility, which is leased. The main office premises, containing the corporate offices and a banking facility, consists of a five story building and an adjacent two story building in Westerly, Rhode Island. The buildings, which are connected, contain approximately 50,000 square feet of space, 42,000 square feet of which is occupied by the Corporation. The remaining space is leased to merchant and professional tenants under short-term lease arrangements and could be used for expansion of the Corporation's offices. The main office location also contains a three level retail parking garage with 80,000 square feet of space. The Corporation has made a substantial investment in branch office facilities during the past several years. The Charlestown banking office opened in 1988 in a newly constructed facility. The Narragansett banking office began operations in June 1989 in a building which had been acquired in 1988 and was completely renovated. A major renovation and expansion of the Richmond banking office was completed in January of 1990. The Richmond site also contains a separate building operated as a restaurant by a restaurant chain under a long-term lease. ITEM 3. LEGAL PROCEEDINGS - ------------------------- Neither the Corporation nor its subsidiary is a party to any pending legal proceedings which are material, other than routine litigation incidental to their business activities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1993. -16- EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ Following is a list of all executive officers of the Corporation with their titles, ages, and length of service with the Corporation as of December 31, 1993. (Service prior to 1984 was with the Bank.)
Years Age of service --- ---------- Joseph J. Kirby President 62 31 Joseph H. Potter Executive Vice President 60 35 David V. Devault, CPA Vice President and Chief Financial Officer 39 7 Louis J. Luzzi Vice President and Treasurer 52 33 Harvey C. Perry, II Vice President and Secretary 43 19
Joseph H. Potter and Louis J. Luzzi are first cousins. Joseph J. Kirby joined the Bank in 1963 as an Investment Officer. He was elected Vice President and Investment Officer in 1965 and Executive Vice President in 1972. He was elected president in 1982. Joseph H. Potter joined the Bank in 1958 and was elected Secretary in 1967. He was elected Vice President and Secretary in 1973 and Executive Vice President in 1982. David V. Devault joined the Bank in 1986 as Controller. He was elected Vice President and Chief Financial Officer of the Corporation and the Bank in 1987. He was elected Senior Vice President and Chief Financial Officer of the Bank in 1990. Prior to joining the Bank he was a Senior Manager with the firm of KPMG Peat Marwick. Louis J. Luzzi joined the Bank in 1960 and was elected Assistant Vice President in 1969. He was elected Vice President in 1979 and Vice President and Treasurer in 1983. Harvey C. Perry, II joined the Bank in 1974 and was elected Assistant Trust Officer in 1977, Trust Officer in 1981 and Secretary and Trust Officer in 1982. He was elected Vice President and Secretary of the Corporation and the Bank in 1984, and Senior Vice President and Secretary of the Bank in 1990. -17- PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------- The Corporation's common stock has traded on the NASDAQ Small-Cap Market since June 19, 1992. Previously, the Corporation's common stock had been listed on the NASDAQ Over-The-Counter Market system since June 1987. The quarterly common stock price ranges and dividends paid per share for the years ended December 31, 1993 and 1992 are presented in the following table. For periods prior to June 19, 1992, stock prices reflect the high and low bid quotations for that period. Bid quotations may not necessarily represent actual transactions. For periods subsequent to June 19, 1992, stock prices are based on the high and low sales prices during the respective quarter.
1993 Quarters 1 2 3 4 - -------------------------------------------------------------------- Stock prices: high 19-1/2 23 25-1/4 27 low 16 17-1/2 20-1/2 23 Cash dividend declared .22 .22 .22 .22 1992 Quarters 1 2 3 4 - -------------------------------------------------------------------- Stock prices: high 12-1/2 18 18-1/4 20 low 11-3/4 12-1/2 16 16-1/2 Cash dividend declared .20 .20 .20 .20
The Corporation will continue to review future common stock dividends based on profitability, financial resources and economic conditions. The Corporation has recorded consecutive quarterly dividends for over one hundred years. On March 17, 1994, the Corporation's Board of Directors declared a cash dividend of $.25 per share, payable April 15, 1994 to shareholders of record as of April 1, 1994. The Corporation's primary source of funds for dividends paid to shareholders is the receipt of dividends from the Bank. A discussion of the restrictions on the advance of funds or payment of dividends to the Corporation is included in Note 16 to the Consolidated Financial Statements included in the 1993 Annual Report to Shareholders which is incorporated herein by reference. At December 31, 1993 there were 1,133 holders of record of the Corporation's common stock. -18- ITEM 6. SELECTED FINANCIAL DATA - ------------------------------- Selected consolidated financial data for the five years ended December 31, 1993 appears under the caption "Five Year Summary of Selected Consolidated Financial Data" on page 22 of the Corporation's 1993 Annual Report to Shareholders which is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- The information required by this Item appears under the caption "Management's Analysis of Financial Statements" on pages 23-33 of the Corporation's 1993 Annual Report to Shareholders which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - --------------------------------------------------- The financial statements and supplementary data are contained in the Corporation's 1993 Annual Report to Shareholders, filed as Exhibit 13, on the pages indicated in the following table, and are incorporated herein by reference. Page of 1993 Annual Report ------------- Consolidated Balance Sheets 34 Consolidated Statements of Income 35 Consolidated Statements of Changes in Shareholders' Equity 37 Consolidated Statements of Cash Flows 36 Notes to Consolidated Financial Statements 38 Parent Company Financial Statements 51 Independent Auditors' Report 53 Summary of Unaudited Quarterly Financial Information 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ---------------------------------------------------------- None. -19- PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------------------------------- Identification of directors is presented under the caption "Nominees for Director" in the Corporation's Proxy Statement dated April 5, 1994 prepared for the 1994 Annual Meeting of Shareholders and incorporated herein by reference. The information regarding directors and executive officers of the Corporation is included in Part I under the caption "Executive Officers of the Registrant" in the Corporation's Proxy Statement dated April 5, 1994 prepared for the 1994 Annual Meeting of Shareholders and incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - ------------------------------- The information required by this Item appears under the caption "Executive Compensation" in the Corporation's Proxy Statement dated April 5, 1994 prepared for the 1994 Annual Meeting of Shareholders which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------- The information required by this Item appears under the caption "Nominees for Director" in the Corporation's Proxy Statement dated April 5, 1994 prepared for the 1994 Annual Meeting of Shareholders which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- The information required by this Item is incorporated herein by reference to the caption "Indebtedness and Other Transactions" of the Corporation's Proxy Statement dated April 5, 1994 prepared for the 1994 Annual Meeting of Shareholders. -20- PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------ (a) 1. The financial statements of Washington Trust Bancorp, Inc. required in response to this Item are listed in response to Item 8 of this Report and are incorporated herein by reference. 2. Financial Statement Schedules. All schedules normally required by Article 9 of Regulation S-K and all other schedules to the consolidated financial statements of the Corporation have been omitted because the required information is either not required, not applicable, or is included in the consolidated financial statements or notes thereto. (b) None. (c) Exhibit Index. Exhibit Number -------------- 3 Restated articles of incorporation and by-laws * 10 Material contracts 13 1993 Annual Report to Shareholders 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors * Incorporated by reference to Exhibit 3 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, previously filed with the Commission. (d) Financial Statement Schedules. None. -21- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) March 17, 1994 Joseph J. Kirby Date ________________ By ______________________________________ Joseph J. Kirby, President, Principal Executive Officer and Director March 17, 1994 David V. Devault Date_________________ By ______________________________________ David V. Devault, Vice President, Chief Financial Officer and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 17, 1994 Joseph H. Potter Date ________________ ______________________________________ Joseph H. Potter, Executive Vice President and Director Date ________________ ______________________________________ Gary P. Bennett, Director March 17, 1994 Steven J. Crandall Date ________________ ______________________________________ Steven J. Crandall, Director March 17, 1994 Jacques de Laporte Date ________________ ______________________________________ Jacques de Laporte, Director March 17, 1994 Richard A. Grills Date ________________ ______________________________________ Richard A. Grills, Director Date ________________ ______________________________________ Larry J. Hirsch, Director -22- March 17, 1994 Katherine W. Hoxsie Date ________________ ______________________________________ Katherine W. Hoxsie, Director Date ________________ ______________________________________ Mary E. Kennard, Director March 17, 1994 James W. McCormick, Jr. Date ________________ ______________________________________ James W. McCormick, Jr., Director March 17, 1994 Thomas F. Moore, Jr. Date ________________ ______________________________________ Thomas F. Moore, Jr., Director March 17, 1994 Brendan P. O'Donnell Date ________________ ______________________________________ Brendan P. O'Donnell, Director March 17, 1994 Victor J. Orsinger, II Date ________________ ______________________________________ Victor J. Orsinger, II, Director March 17, 1994 Anthony J. Rose, Jr. Date ________________ ______________________________________ Anthony J. Rose, Jr., Director March 17, 1994 James P. Sullivan Date ________________ ______________________________________ James P. Sullivan, Director Neil H. Thorp Date ________________ ______________________________________ Neil H. Thorp, Director -23- EX-10 2 EXHIBIT 10 ---------- Material Contracts The following is a description of a compensatory plan which provides for incentive bonuses to executive officers and all other officers of the Registrant and its subsidiary bank: Short-Term Incentive Plan The Short-Term Incentive Plan (the "Incentive Plan") provides for the payment of additional cash compensation to officers based on the achievement of target levels of return on equity and/or the achievement of individual objectives. Under the Incentive Plan, return on equity is measured against both shareholder expectations, as established by the Registrant's Board of Directors, and the performance of a peer group (the "Incentive Plan Peer Group") in order to provide objective links between performance and pay. The Incentive Plan Peer Group was comprised of 28 financial institutions in 1993, of which approximately 60% are located in the Northeast and 40% are located throughout the rest of the country. The selection of these institutions was based on certain criteria including asset size ($250 million to $1 billion), similar operating lines of business and listing on NASDAQ. The performance measures for the Incentive Plan are set at three levels: threshold - the minimum acceptable return on equity for which incentives will be paid; target range - the return on equity established by the Board of Directors; and maximum - performance surpassing planned objectives. The target payout for the President is based solely on the return on equity component. The target payout for other participants includes a portion based on the return on equity measurement and a portion based on the achievement of individual performance goals. The total target payout for each officer varies by level of responsibility and ranged from 37% (for the President) to 5% of base salary in 1993. These targets are also adjusted upward or downward by a multiplier which is tied to the performance measure levels (threshold, target range and maximum). In 1994 the Board of Directors, on the advice of the Consultant, adopted a wider spread between performance levels which will result in the future in a lower payout for substantially exceeding the target range and a somewhat higher payout for meeting the target range, below which nothing is paid. EX-13 3 EXHIBIT 13 ---------- Annual Report to Security Holders Five Year Summary of Selected Consolidated Financial Data Washington Trust Bancorp, Inc. and Subsidiary
1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ Financial Condition: Cash and cash equivalents $21,650,128 $21,817,649 $16,683,667 $11,895,946 $11,424,310 Securities available for sale 34,263,743 33,743,289 - - - Investment securities 52,497,832 39,106,642 35,615,089 30,226,065 27,715,295 Net loans 343,853,432 317,896,010 354,537,211 365,283,880 347,661,393 Other real estate owned, net 7,831,146 13,455,489 11,648,806 3,674,103 1,083,178 Other 27,232,543 31,679,861 22,571,521 23,135,500 21,143,606 - ------------------------------------------------------------------------------------------------------------------ Total assets $487,328,824 $457,698,940 $441,056,294 $434,215,494 $409,027,782 ================================================================================================================== Deposits $423,374,620 $404,660,005 $399,717,920 $398,690,078 $365,827,891 Other borrowings 20,500,000 14,000,000 5,000,000 - 4,989,000 Other liabilities 4,991,279 4,089,140 3,298,951 3,742,326 4,483,125 Shareholders' equity 38,462,925 34,949,795 33,039,423 31,783,090 33,727,766 - ------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $487,328,824 $457,698,940 $441,056,294 $434,215,494 $409,027,782 ================================================================================================================== Income Statement Summary: Interest income $34,927,863 $35,868,747 $41,028,507 $43,940,267 $42,638,386 Interest expense 14,178,779 16,800,218 23,556,762 26,313,795 25,286,734 - ------------------------------------------------------------------------------------------------------------------ Net interest income 20,749,084 19,068,529 17,471,745 17,626,472 17,351,652 Provision for loan losses 2,500,000 4,000,000 5,200,000 8,500,000 1,200,000 - ------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 18,249,084 15,068,529 12,271,745 9,126,472 16,151,652 Noninterest income 6,083,500 5,577,685 4,685,934 4,214,916 3,622,400 Gains on sales of securities 345,674 196,606 1,495,453 406,085 1,416,677 - ------------------------------------------------------------------------------------------------------------------ 24,678,258 20,842,820 18,453,132 13,747,473 21,190,729 Noninterest expense 17,946,727 16,088,464 14,881,100 13,600,952 12,360,283 - ------------------------------------------------------------------------------------------------------------------ Income before income taxes and cumulative effect of accounting change 6,731,531 4,754,356 3,572,032 146,521 8,830,446 Applicable income taxes 2,255,000 1,604,000 1,095,000 (310,000) 2,975,000 - ------------------------------------------------------------------------------------------------------------------ Income before cumulative effect of accounting change 4,476,531 3,150,356 2,477,032 456,521 5,855,446 Cumulative effect of change in accounting for income taxes (1) 305,000 - - - - - ------------------------------------------------------------------------------------------------------------------ Net income $4,781,531 $3,150,356 $2,477,032 $456,521 $5,855,446 ================================================================================================================== Per share information: Earnings per share (2) $2.54 $1.71 $1.35 $ .25 $3.20 Cash dividends declared $ .88 $ .80 $ .80 $1.32 $1.20 Book value $20.56 $18.87 $17.98 $17.47 $18.54 Market value (3) $24.75 $17.50 $11.75 $11.00 $23.50 Ratios: Return on average assets 1.01% .70% .56% .11% 1.48% Return on average shareholders' equity 12.92% 9.15% 7.58% 1.32% 18.39% Dividend payout ratio 34.30% 46.85% 58.97% 525.95% 37.23% Total equity to total assets 7.89% 7.64% 7.49% 7.32% 8.25% Net charge-offs to average loans .35% .89% 1.95% .89% .24% (1) See Note 13 to the Consolidated Financial Statements for explanation of accounting change (2) Fully diluted, including $.16 per share accounting change in 1993 (3) Closing bid price
Management's Analysis of Financial Statements Washington Trust Bancorp, Inc. and Subsidiary Results of Operations Washington Trust Bancorp, Inc. and subsidiary ("Washington Trust" or "the Corporation") recorded net income of $4.8 million for 1993, an increase of 51.7% over the $3.2 million earned in 1992. Fully diluted earnings per share for the year ended December 31, 1993 amounted to $2.54 per share, up from $1.71 per share earned in 1992. Net income for 1993 includes a benefit of $305,000, or $.16 per share, recorded in the first quarter of 1993 as a result of the cumulative effect of a change in accounting for income taxes. Washington Trust's rates of return on average assets and average equity were 1.01% and 12.92%, respectively. Return on average assets and average equity for the same period, excluding the effect of the accounting change, amounted to .95% and 12.10%, respectively. Equivalent amounts for the year ended December 31, 1992 were .70% and 9.15%, respectively. Increases in net interest income (the difference between interest earned on loans and investments and interest paid on deposits and other borrowings), improved levels of nonperforming assets, and a decrease in the Corporation's provision for loan losses all had a positive impact on 1993 earnings. Net interest income rose 8.8%, primarily due to a favorable interest rate environment. Rates paid on deposits continued to decline more rapidly than those earned on loans and investments, resulting in an increase in net interest income of $1.7 million in 1993. Nonperforming assets as a percentage of total assets were reduced to 3.9% at December 31, 1993, down from 5.7% of total assets at December 31, 1992. The provision for loan losses amounted to $2.5 million in 1993, down from $4.0 million in 1992. Net loan charge-offs were reduced to $1.2 million in 1993, down from $3.1 million in 1992. Noninterest income rose 11.3% to $6.4 million in 1993, up from $5.8 million in 1992. Included in noninterest income for the year ended December 31, 1993 are gains on loan sales of $484,960 and gains on sales of securities available for sale of $345,674. Financial Condition Total assets at December 31, 1993 amounted to $487.3 million, up 6.5% from the 1992 amount of $457.7 million. Average assets rose from $448.1 million in 1992 to $473.7 million in 1993, an increase of 5.7%. Total securities, including investment securities and securities available for sale, rose to $86.8 million at December 31, 1993, up 19.1% from the prior year. This increase was funded by proceeds from sales of residential mortgages, higher levels of deposits, and term borrowings from the Federal Home Loan Bank of Boston. At December 31, 1993 total securities amounted to 17.8% of total assets, up from 15.9% of total assets at December 31, 1992. Net unrealized appreciation on securities available for sale amounted to $8.2 million at December 31, 1993. Approximately $7.1 million of unrealized appreciation is attributable to corporate stocks. The Corporation's investment policy provides for the purchase of prudent investments that will provide high yield without compromising safety and liquidity. Included in total securities are investments in U.S. Treasury securities and obligations of other U.S. government agencies. These issues comprise approximately 80.6% of total securities at December 31, 1993. Because of the credit quality inherent in these instruments and their high liquidity, these securities can also be pledged as collateral for borrowings and other purposes. As described in Note 1 to the Consolidated Financial Statements, the Corporation has classified $34.3 million of securities as available for sale. These securities may be sold in response to changes in market conditions, prepayment risk, rate fluctuations, liquidity, or capital requirements. Securities designated as investment securities are held as part of the Corporation's portfolio of long-term interest-earning assets. Included in corporate stocks at December 31, 1993 are $4.5 million of auction rate preferred stocks. These are preferred stock instruments whose dividend rate is reset by auction every 49 days to a market rate, resulting in a market value of par. At each auction, the holder can elect not to participate in the auction and therefore liquidate its investment at par (cost). Included in the Corporation's long-term investment portfolio at December 31, 1993 are $25.4 million of mortgage-backed securities (MBS) issued by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. These securities are classified as long-term because the Corporation has the intent and ability to hold them until maturity. These securities may be pledged as collateral for borrowings. Total loans increased by $27.3 million in 1993 to $352.5 million at December 31, 1993. Residential mortgage loans accounted for the largest portion of this increase. Total fixed rate mortgages declined by $9.7 million due in part to refinancing and subsequent sales of such loans during 1993, while adjustable rate mortgages (ARMs) increased $22.0 million, or 65.8%, as borrowers opted to take advantage of the attractive rates that this product offered. While demand for commercial loans was soft during the first half of 1993, it showed some growth in the third and fourth quarters. Commercial mortgages increased by $9.1 million, or 23.4% in 1993. Other commercial loans amounted to $101.6 million at December 31, 1993, up 4.4% over the December 31, 1992 amount. Total deposits at December 31, 1993 were $423.4 million, up $18.7 million, or 4.62%, from December 31, 1992. Federal acquisition of two major competitors in the Corporation's market area created an opportunity to attract additional deposits. In the prevailing low-interest rate environment, depositors continued to shift balances away from term certificates of deposit into non-term savings or transactional accounts. Savings deposits (regular savings, NOW and money market accounts) and demand deposits grew by a combined $17.8 million from December 31, 1992 to December 31, 1993, accounting for the majority of the increase in retail funding. The reduction in cost of funds resulting from this change in deposit mix benefited the Corporation's net interest margin in 1993. Asset Quality Nonperforming Assets Nonperforming assets include nonaccrual loans, accruing loans 90 days or more past due with respect to principal and/or interest, and other real estate owned. Nonperforming assets amounted to 3.9% of total assets at December 31, 1993, down from 5.7% at December 31, 1992. This decline is attributable primarily to sales of foreclosed properties and to increased efforts by the Corporation to reduce the level of nonperforming loans. The following table presents nonperforming assets and related ratios (dollars in thousands):
December 31, 1993 1992 - -------------------------------------------------------------------------- Nonaccrual loans 90 days or more past due $ 4,687 $ 7,632 Nonaccrual loans less than 90 days past due 6,684 4,931 Accruing loans 90 days or more past due 22 43 - -------------------------------------------------------------------------- Total nonperforming loans 11,393 12,606 - -------------------------------------------------------------------------- Other real estate owned: In-substance foreclosures 5,055 9,139 Properties acquired through foreclosure 4,568 6,494 Valuation allowance (1,792) (2,178) - -------------------------------------------------------------------------- Other real estate owned, net 7,831 13,455 - -------------------------------------------------------------------------- Total nonperforming assets $19,224 $26,061 ========================================================================== Nonperforming loans as a percentage of total loans 3.2% 3.9% Nonperforming assets as a percentage of total assets 3.9% 5.7% Reserve for possible loan losses to nonperforming loans 76.0% 58.2% Reserve for possible loan losses to total loans 2.5% 2.3% ==========================================================================
Risk Elements Washington Trust assesses the quality of its loans by performing ongoing reviews of the loans in its portfolio to determine potential loss exposure and to assess delinquency trends. During this review, management gives consideration to such factors as overall borrower relationship, delinquency trends, credit and collateral quality, prior loss experience, current and expected economic conditions, and other pertinent factors. As a result of this process charge- offs and other potential problem loans are identified and loan loss reserves are established. Loan Portfolio Analysis Nonperforming loans are defined as nonaccrual loans and accruing loans more than 90 days past due with respect to principal and/or interest. An analysis of nonperforming loans by type follows (dollars in thousands):
As a % of As a % of nonperforming Balance loan type loans December 31, 1993 1992 % change 1993 1992 1993 1992 - ----------------------------------------------------------------------------------------------- Residential real estate mortgages $4,775 $5,670 (15.8%) 3.1% 4.0% 41.9% 45.0% Commercial and other: Mortgages 1,319 1,505 (12.4) 2.7 3.9 11.6 11.9 Construction and development -- 373 (100.0) -- 3.4 -- 3.0 Other 4,677 4,050 15.5 4.6 4.2 41.1 32.1 Installment 622 1,008 (38.3) 1.8 3.1 5.4 8.0 - ----------------------------------------------------------------------------------------------- Total nonperforming loans $11,393 $12,606 (9.6%) 3.2% 3.9% 100.0% 100.0% ===============================================================================================
The following table reflects the distribution of net charge-offs by loan type (dollars in thousands):
% of net % of average charge-offs loan type Years ended December 31, 1993 1992 1993 1992 1993 1992 - --------------------------------------------------------------------------------- Residential real estate mortgages $ 201 $ 261 16.9% 8.3% .1% .2% Commercial and other: Mortgages (7) 24 (.6) .8 -- .1 Construction and development (21) 85 (1.7) 2.7 (.2) .6 Other 678 2,330 57.2 74.4 .7 2.4 Installment 334 432 28.2 13.8 1.0 1.3 - -------------------------------------------------------------------------------- Net charge-offs $1,185 $3,132 100.0% 100.0% .3% .9% ================================================================================
The provision for loan losses charged to earnings for 1993 amounted to $2.5 million, down 37.5% from the $4.0 million recorded in 1992. Net loan charge- offs declined to $1.2 million, down from $3.1 million in 1992 and $7.2 million in 1991. Loans, with the exception of credit card loans, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more past due with respect to principal and/or interest. Interest previously accrued, but uncollected, is reversed against current period income. Cash receipts on nonaccrual loans are recognized as interest income, or recorded as a reduction of principal if full collection of the loan is doubtful or if impairment of the collateral is identified. At December 31, 1993, nonaccrual loans amounted to approximately $11.4 million. Approximately $6.7 million, or 58.7% of these nonaccrual loans were less than 90 days past due. This compares favorably to December 31, 1992 when 39.1% of total nonaccrual loans were less than 90 days past due. Nonaccrual loans are returned to accrual status when the obligation has performed in accordance with the contract terms for a reasonable period of time and the ultimate collectibility of the contractual principal and interest is no longer doubtful. During 1993, approximately $2.7 million of loans classified as nonaccrual at December 31, 1992 were returned to accruing status. Nonperforming residential mortgage loans amounted to $4.8 million at December 31, 1993, down 15.8% from the prior year. More importantly, the extent of the residential mortgage delinquencies has improved substantially from 1992. At December 31, 1992 approximately 76.0% of nonaccrual residential mortgages were 90 days or more past due compared to 35.6% of such delinquencies at December 31, 1993. This improvement is the result of increased collection efforts by the Corporation and improved economic conditions. Residential mortgages were the largest category of nonperforming loans, comprising 41.9% of total nonperforming loans at December 31, 1993. A further analysis of nonaccrual residential mortgages follows (dollars in thousands):
1993 1992 -------------- ------------- % of % of Nonaccrual residential mortgages Amount Total Amount Total - ------------------------------------------------------------------------ 90 days or more past due $1,703 35.6% $4,311 76.0% Less than 90 days past due 3,072 64.4% 1,359 24.0% - ------------------------------------------------------------------------ Total $4,775 100.0% $5,670 100.0% ========================================================================
Commercial mortgages consist primarily of loans secured by commercial properties which generate revenue for debt service. Nonperforming commercial mortgages fell 12.4% to $1.3 million, down from $1.5 million at December 31, 1992. Nonperforming commercial mortgages amounted to 2.7% of total commercial mortgages at December 31, 1993, down from 3.9% of the commercial mortgage portfolio in the prior year. Loans categorized as other commercial loans consist of loans to businesses and individuals, a substantial portion of which is collateralized by real estate. These businesses operate in diversified industry groups including manufacturing, tourism and other service industries. Nonperforming loans in this category comprised 41.1% of total nonperforming loans. At December 31, 1993 approximately 54.3% or $2.5 million of total nonperforming other commercial loans were less than 90 days past due with respect to principal and/or interest. Restructured Loans Loans are considered restructured when the lender has granted concessions to a borrower that it would otherwise not have considered. These concessions include modifications of the terms of the debt such as reduction of the stated interest rate other than normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest. The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the Corporation by increasing the ultimate probability of collection. Nonaccrual loans which have been restructured are classified as nonaccrual until such time as the borrower has demonstrated his ability to comply with the modified terms. Restructured loans that are performing in accordance with their modified terms are included in accruing loans. At December 31, 1993 restructured loans amounted to $404,595 and were included in nonperforming loans. There were no commitments to lend additional funds to borrowers whose loans had been restructured. Other Real Estate Owned Other real estate owned (OREO) is comprised of properties acquired through foreclosure and other legal means, and in-substance foreclosures (ISF's). A loan is considered to be an in-substance foreclosure when the borrower has little or no equity in the property, proceeds for repayment of the loan are dependent upon the sale of the collateral, and the borrower has effectively abandoned control of the property or is unable to rebuild equity in the property. OREO is carried at the lower of cost or fair value minus estimated costs to sell. A valuation allowance is maintained for potential declines in market value, known declines in market value, and estimated selling costs. At December 31, 1993, approximately 52.5% of total OREO was comprised of ISF's. Foreclosure proceedings are generally initiated on ISF properties, but may be delayed depending upon a borrower's legal circumstances. See Note 9 to the Consolidated Financial Statements for additional information regarding OREO properties. OREO is comprised mainly of commercial properties and land. Commercial properties included in OREO amounted to $4.0 million at December 31, 1993, of which $1.7 million was classified as ISF. Washington Trust has had success in reducing the number of residential properties included in OREO through sales. Total residential OREO fell from $5.6 million at December 31, 1992 to $1.8 million at December 31, 1993. Washington Trust has devoted substantial efforts to marketing its OREO properties. During 1993, sales of foreclosed properties and payments on in- substance foreclosures amounted to $7.5 million. Washington Trust has provided financing to facilitate the sales of many of these properties. Financing is generally provided at market rates with credit terms similar to those available to other borrowers. Average Balances/Net Interest Margin (Fully Taxable Equivalent Basis) The following table presents average balance and interest rate information. Tax exempt income is converted to a fully taxable equivalent basis by assuming a 34% federal income tax rate adjusted for applicable state income taxes net of the related federal tax benefit. For dividends on corporate stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency. Nonaccrual and renegotiated loans, as well as interest earned on these loans (to the extent recognized in the Consolidated Statements of Income), are included in amounts presented for loans.
Years ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate - ----------------------------------------------------------------------------------------------------------------------------- ASSETS: Residential real estate loans $156,462 13,721 8.77% $162,321 15,471 9.53% $168,065 17,640 10.50% Commercial and other loans (1) 152,950 12,584 8.23 151,526 12,984 8.57 163,903 15,758 9.61 Installment loans 32,116 3,355 10.45 33,379 3,736 11.19 37,929 4,585 12.09 - ----------------------------------------------------------------------------------------------------------------------------- Total loans 341,528 29,660 8.68 347,226 32,191 9.27 369,897 37,983 10.27 Federal funds sold 11,385 322 2.82 9,223 292 3.17 7,830 442 5.64 Taxable debt securities 61,093 3,860 6.32 38,426 2,489 6.48 22,523 1,753 7.78 Nontaxable debt securities (1) 6,631 439 6.62 5,368 413 7.69 4,563 407 8.92 Corporate stocks (1) 14,347 1,222 8.51 10,745 991 9.22 6,411 1,030 16.07 - ----------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 434,984 35,503 8.16% 410,988 36,376 8.85% 411,224 41,615 10.12% - ----------------------------------------------------------------------------------------------------------------------------- Cash and due from banks 14,023 12,508 10,950 Reserve for possible loan losses (8,426) (7,466) (8,095) Premises and equipment, net 14,836 15,136 15,648 Accrued interest receivable 2,666 2,971 3,728 Other real estate owned, net 11,312 10,715 6,116 Other 4,273 3,293 2,867 - ----------------------------------------------------------------------------------------------------------------------------- Total assets $473,668 $448,145 $442,438 ============================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY: Savings deposits $197,970 4,964 2.51% $182,310 5,813 3.19% $151,979 7,760 5.11% Time deposits 176,148 8,112 4.60 183,443 10,277 5.60 224,469 15,754 7.02 Other 18,892 1,103 5.84 12,082 710 5.87 708 43 6.07 - ----------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 393,010 14,179 3.61% 377,835 16,800 4.45% 377,156 23,557 6.25% - ----------------------------------------------------------------------------------------------------------------------------- Demand deposits 40,097 32,872 29,797 Other liabilities 3,555 3,018 2,824 Shareholders' equity 37,006 34,420 32,661 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $473,668 $448,145 $442,438 - ----------------------------------------------------------------------------------------------------------------------------- Net interest income $21,324 $19,576 $18,058 ============================================================================================================================= Interest rate spread 4.55% 4.40% 3.87% Net interest margin 4.90% 4.76% 4.39% (1) Interest amounts presented on a fully taxable equivalent basis (see page 28 for additional information)
Interest income amounts presented in the table on page 27 include the following adjustments for taxable equivalency for the years indicated (in thousands):
Years ended December 31, 1993 1992 1991 - --------------------------------------------------------------- Commercial and other loans $ 95 $110 $174 Nontaxable debt securities 156 135 139 Corporate stocks 324 262 273
Volume/Rate Analysis - Interest Income and Expense (Fully Taxable Equivalent Basis)
1993/1992 1992/1991 1991/1990 ----------------------- ------------------------ ------------------------ Net Net Net (In thousands) Volume Rate Change Volume Rate Change Volume Rate Change - -------------------------------------------------------------------------------------------------------------------------- Interest on: Interest-earning assets: Residential real estate loans $ (545) (1,205) (1,750) $ (588) (1,581) (2,169) $ 802 (304) 498 Commercial and other loans 121 (521) (400) (1,137) (1,637) (2,774) (479) (3,094) (3,573) Installment loans (138) (243) (381) (524) (325) (849) 57 (175) (118) Federal funds sold 64 (34) 30 68 (218) (150) 168 (156) 12 Taxable debt securities 1,441 (70) 1,371 1,075 (339) 736 496 (208) 288 Nontaxable debt securities 89 (63) 26 66 (60) 6 39 (6) 33 Corporate stocks 311 (80) 231 515 (554) (39) 63 (158) (95) - -------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 1,343 (2,216) (873) (525) (4,714) (5,239) 1,146 (4,101) (2,955) - -------------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities: Savings deposits $ 469 (1,318) (849) 1,338 (3,285) (1,947) 955 (1,128) (173) Time deposits (395) (1,770) (2,165) (2,590) (2,887) (5,477) 314 (2,458) (2,144) Other 398 (5) 393 668 (1) 667 (324) (116) (440) - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 472 (3,093) (2,621) (584) (6,173) (6,757) 945 (3,702) (2,757) - -------------------------------------------------------------------------------------------------------------------------- Net interest income $ 871 877 1,748 $ 59 1,459 1,518 $ 201 (399) (198) ==========================================================================================================================
Net Interest Income Net interest income is the amount by which interest and fees on interest-earning assets exceeds the interest cost of deposits and other borrowed funds. Net interest income is the primary source of Washington Trust's operating income. The level of net interest income is affected by the volume of average interest- earning assets, market interest rates and other factors. The following discussion presents net interest income on a fully taxable equivalent (FTE) basis by adjusting income and yields on tax-exempt loans and investments to be comparable to taxable loans and investments. An increase in average interest-earning assets and a widening spread between yields earned on loans and rates paid on deposits resulted in an increase in FTE net interest income of $1.7 million, or 8.9% in 1993. The difference between the balance of average interest-earning assets and interest-bearing liabilities increased by $8.8 million in 1993. Contributing to this increase was a reduction in the level of other real estate owned, converting non-earning assets into earning assets. In addition, interest-free sources of funds as a percentage of total sources of funds increased to 17.0% in 1993, up from 15.7% in 1992. The interest rate spread rose by 15 basis points in 1993, to 4.55%. The net interest margin (FTE net interest income as a percentage of average interest-earning assets) amounted to 4.90% in 1993, up from 4.76% in 1992. Although yields on all interest-earning assets continued to decline in 1993, deposits were priced downward to a much greater extent. FTE interest income on earning assets fell $873,000 from 1992, but interest expense was reduced by $2.6 million in 1993. FTE interest income on interest-earning assets amounted to $35.5 million in 1993, down from $36.4 million in 1992. The yield on interest-earning assets was 8.16% in 1993, down from 8.85% in 1992. The combination of declines in rates earned on all asset categories and changes in the mix of interest-earning assets gave rise to this decrease. While average balances of all categories of investments increased in 1993, average total loans, the highest yielding asset category, decreased by 1.6%. The FTE rate of return on total loans was 8.68% in 1993, versus 9.27% in 1992. This decrease is primarily attributable to the high volume of residential mortgage refinancings. The yield on the residential mortgage portfolio fell to 8.77%, down 76 basis points from 1992. The rates charged on residential mortgage loans have continued to decline, and as a result, demand for residential mortgage refinancings and new originations has been steady. In addition, a substantial portion of mortgage loans originated in 1993 which were retained in the Corporation's portfolio are adjustable rate mortgages (ARMs), which provide a somewhat lower yield than fixed rate mortgages. Average ARMs and the yield on ARMs amounted to $43.0 million and 6.68%, respectively, in 1993, compared to $21.0 million and 7.74%, respectively, in 1992. If the demand for mortgage refinancings continues, the yield on the residential mortgage portfolio can be expected to decline. The rate paid on interest-bearing liabilities in 1993 fell to 3.61%, down from 4.45% in 1992. The change in the mix of deposits along with declining rates contributed to the $2.6 million decrease in interest expense from 1992 to 1993. Average savings deposits rose 8.6% in 1993, while average time deposits fell by 4.0%. This shift in funds enhanced the positive impact that lower rates had on net interest margin since the cost of savings deposits was 2.51% for 1993 versus 4.60% for time deposits. In addition, average demand deposits, an interest-free source of funds, increased 22% in 1993. Included in other interest-bearing liabilities are term advances from the Federal Home Loan Bank averaging $18.6 million in 1993, up from an average of $11.7 million in 1992. The rate paid on these advances was 5.87% and 5.93% in 1993 and 1992, respectively. These advances were used for general corporate funding purposes. Asset/Liability Management and Liquidity The Corporation's Asset/Liability Committee is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. The objective of the committee is to manage assets and funding sources to produce results which are consistent with Washington Trust's liquidity, capital adequacy, growth, risk, and profitability goals. The committee establishes interest rate guidelines for proper matching of assets with funding sources, and determines asset/liability origination and pricing strategies to meet its goals. Upon periodic review of the economic environment and the volume, mix and maturity of assets and liabilities, the committee makes changes in strategy that will manage the Corporation's liquidity and exposure to interest rate risk. Interest rate "gap" analysis is one of the tools used by the committee to evaluate the Corporation's interest rate sensitivity at a specific point in time. Gap analysis measures the relative amounts of interest-earning assets and interest-bearing liabilities that reprice within a given period. When an institution's interest-earning assets exceed interest-bearing liabilities maturing or repricing within the same period (commonly referred to as a "positive gap"), the institution can expect asset yields to increase faster than liability costs in a rising rate environment, increasing its net interest margin. Conversely, in a rising rate environment an institution with a "negative gap" would expect its rates paid on liabilities to rise faster than its yield on assets, thereby reducing its net interest margin. At December 31, 1993 the Corporation's cumulative one-year gap was a negative $13.7 million or 3.1% of earning assets. The following table details the amounts of interest-earning assets and interest-bearing liabilities at December 31, 1993 that are expected to mature or reprice in each of the time periods presented. To the extent applicable, amounts of assets and liabilities which mature or reprice within a particular period were determined in accordance with their contractual terms. Fixed rate mortgages and mortgage-backed securities have been allocated based on expected amortization and prepayment rates using standard industry assumptions. NOW and money market deposit accounts, which have no contractual term, are presented in the under three-month category. Also included in this category are $65.3 million of regular savings accounts. The remaining $25.0 million of regular savings account balances are considered insensitive to interest rate changes and are presented in the one to five year category based on management's analysis of the longevity and ownership characteristics of this segment of the deposit base.
3 months 3 to 6 6 months 1 to 5 over (In thousands) or less months to 1 year years 5 years - ------------------------------------------------------------------------------------- Interest-earning assets: Loans $115,290 $ 43,780 $ 89,072 $72,553 $35,526 Debt securities 21,098 1,676 7,470 44,899 11,618 Other assets 9,873 -- -- -- -- - ------------------------------------------------------------------------------------- Total interest-earning assets 146,261 45,456 96,542 117,452 47,144 - ------------------------------------------------------------------------------------- Interest-bearing liabilities: Deposits 225,145 28,592 45,745 79,968 -- Federal Home Loan Bank advances -- -- 2,500 17,000 1,000 - ------------------------------------------------------------------------------------- Total interest-bearing liabilities 225,145 28,592 48,245 96,968 1,000 - ------------------------------------------------------------------------------------- Interest sensitivity gap per period $(78,884) $ 16,864 $ 48,297 $20,484 $46,144 ===================================================================================== Cumulative interest sensitivity gap $(78,884) $(62,020) $(13,723) $ 6,761 $52,905 =====================================================================================
Liquidity is the ability of a financial institution to meet maturing obligations and customer loan demand. Washington Trust's primary source of liquidity is customer deposits. Total deposits (time, savings, and demand deposits) funded approximately 87.4% of total average assets in 1993. Other sources of funding include loan repayments and discretionary use of purchased liabilities (federal funds purchased, securities sold under agreements to repurchase and Federal Home Loan Bank of Boston term advances). In addition, investment securities designated as available for sale may be sold in response to short-term or long- term liquidity needs. During 1993 cash flows provided by operations amounted to $12.8 million, the largest component of which was proceeds from sales of mortgage loans. Net cash flows from financing activities amounted to $24.0 million in 1993, including $18.7 million from deposit growth and $6.5 million in additional Federal Home Loan Bank advances. Cash flows generated by operating and financing activities were used primarily for loan originations and additions to the investment securities portfolio. (See the Consolidated Statements of Cash Flows for further information.) The Asset/Liability Committee establishes and monitors internal liquidity measures to manage liquidity. Based on these measures, Washington Trust's liquidity position remained strong in 1993. Net loans as a percentage of total assets rose slightly to 70.6% at December 31, 1993 compared to 69.5% at December 31, 1992; and total securities as a percentage of total assets rose to 17.8% at December 31, 1993, up from 15.9% at December 31, 1992. Capital Resources Shareholders' equity in the Corporation consists primarily of retained earnings, as well as common stock and related paid-in capital. The ratio of total equity to total assets amounted to 7.9% at December 31, 1993. Total shareholders' equity increased by $3.5 million or 10.1% during 1993. Approximately $3.1 million in capital growth resulted from the excess of net income over dividends declared. Cash dividends declared per share amounted to $.88 in 1993, up from $.80 in 1992. Book value per share rose to $20.56 per share at December 31, 1993, up from the year-earlier amount of $18.87. Regulatory guidelines have been established that require bank holding companies and state chartered banks to maintain minimum ratios of capital to risk-adjusted assets. These guidelines were established to more accurately assess the credit risk inherent in the assets and off-balance sheet activities of financial institutions. Each balance sheet asset and each off-balance sheet asset is assigned a "risk-weight" in determining the ratio of capital to risk-adjusted assets. Banks are required to have minimum core capital (Tier 1) of 4% and total risk- adjusted capital (Tier 1 and Tier 2) of 8%. For Washington Trust, Tier 1 capital is essentially equal to shareholders' equity while Tier 2 capital consists of a portion of the reserve for possible loan losses (limited to 1.25% of total risk-weighted assets). The Corporation's Tier 1 and total risk-based capital ratios at December 31, 1993 were 11.86% and 13.12%, respectively. As of December 31, 1993, net risk-weighted assets amounted to $324.4 million. The Tier 1 leverage ratio is defined as Tier 1 capital (as defined under the risk-based capital guidelines) divided by average assets (net of intangible assets). The minimum leverage ratio is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk (including no undue interest rate risk), excellent asset quality, high liquidity, and good earnings. Other banking organizations are expected to have ratios of at least 4-5%, depending on their particular condition and growth plans. Higher capital ratios could be required if warranted by the particular circumstances or risk profile of a given banking organization. The Corporation's leverage ratio as of December 31, 1993 was 7.84%. The Federal Reserve has not advised the Corporation of any specific minimum Tier 1 leverage capital ratio applicable to it. See Note 16 to the Corporation's Consolidated Financial Statements for additional discussion of the Corporation's ability to pay dividends. The following table presents information concerning the Corporation's compliance with regulatory requirements at December 31, 1993 and 1992:
(Dollars in thousands) 1993 1992 - ------------------------------------------------------------------------------------------- Risk-based capital: Tier 1 capital (shareholders' equity) $38,463 $34,950 Tier 2 capital (eligible portion of reserve for possible loan losses) 4,112 3,906 - ------------------------------------------------------------------------------------------- Total risk-based capital $42,575 $38,856 =========================================================================================== Assets: Net risk-weighted assets $324,408 $309,051 Average quarterly assets $490,899 $456,860 =========================================================================================== Risk-based capital ratios: Tier 1 (minimum 4.0%) 11.86% 11.31% Total (Tier 1 plus Tier 2, minimum 8.0%) 13.12% 12.57% Tier 1 leverage ratio (minimum 3.0%) 7.84% 7.65% ===========================================================================================
Noninterest Income Noninterest income is an important source of revenue for the Corporation. The Corporation generates noninterest income by charging for banking related services such as management of customer investment portfolios, trusts and estates, assessing fees for servicing deposit accounts, servicing residential mortgages sold in the secondary market and processing merchant bankcard activity. Gains on the sales of loans and investments are also included in noninterest income. Income from trust-related services, representing 46% of total noninterest income in 1993, continues to be the largest component of noninterest income. Trust income amounted to $3.0 million in 1993, up 10.2% from the $2.7 million reported in 1992. This increase is primarily due to the increase in assets under management. The market value of assets under management amounted to approximately $390.0 million at December 31, 1993, up 12.3% over the 1992 level of $347.4 million. Service charges on deposit accounts rose 17.7% to $1.4 million for the year ended December 31, 1993. This increase in revenue was generated from changes in the fee structures of various deposit products as well as an increase in the total deposit base during 1993. Net gains on securities available for sale amounted to $345,674 in 1993, an increase from $196,606 reported in 1992. Gains in 1993 resulted from sales of marketable equity securities. Total proceeds from sales of equity securities in 1993 were $7.4 million and include $7.0 million relating to the sale of auction rate preferred stocks from which no gain or loss was realized. Gains on loan sales amounted to $484,960 in 1993, virtually unchanged from 1992. The Corporation retains servicing rights on all residential mortgage loans sold. Although the balance of serviced loans increased to $91.3 million at December 31, 1993 from $86.0 million at December 31, 1992, income generated from servicing these loans decreased 15.6%. This decrease resulted primarily from accelerated amortization of the capitalized gain on excess servicing. The acceleration of this expense was necessary because of higher than expected levels of prepayments of the underlying loans.
% Change --------------------------- (Dollars in thousands) 1993 1992 1991 1993 vs 1992 1992 vs 1991 - ------------------------------------------------------------------------------------------- Trust income $2,952 $2,678 $2,501 10.2% 7.1% Service charges on deposit accounts 1,446 1,229 1,155 17.7 6.4 Merchant processing fees 522 437 408 19.5 7.1 Gains on sales of securities 346 197 1,495 75.6 (86.8) Gains on loan sales 485 484 7 .2 6,814.3 Fees, service charges and other 391 409 408 (4.4) .2 Mortgage servicing fees 287 340 207 (15.6) 64.3 - ------------------------------------------------------------------------------------------- Total noninterest income $6,429 $5,774 $6,181 11.3% (6.6)% ===========================================================================================
Noninterest Expense Noninterest expense rose 11.5% to $17.9 million in 1993. Salaries and employee benefits amounted to $8.7 million at December 31, 1993, increasing by 13.7% due to increased staffing levels, normal salary adjustments and higher profit sharing and incentive plan costs. Occupancy costs increased by 17.2%, to $1.2 million in 1993 due primarily to expenses incurred for repairs. Expenses associated with other real estate owned decreased 14.5% to $901,000. These costs include such items as insurance, taxes, utilities and maintenance as well as net realized losses on sales of properties, unrealized losses attributable to declines in market value and estimated selling costs. Credit and collection costs were $582,000 in 1993, up 28.5% from $453,000 in 1992. These costs consist largely of legal, appraisal and other costs associated with collecting problem loans and securing collateral thereon.
% Change -------------------------- (Dollars in thousands) 1993 1992 1991 1993 vs 1992 1992 vs 1991 - ------------------------------------------------------------------------------------------ Salaries and benefits: Salaries $ 7,597 $ 6,630 $ 5,987 14.6% 10.7% Employee benefits 1,089 1,007 873 8.1 15.3 Occupancy: Depreciation 540 524 522 3.1 .4 Other 648 490 509 32.2 (3.7) Equipment: Depreciation 906 786 968 15.3 (18.8) Other 424 432 468 (1.9) (7.7) Deposit taxes and assessments 1,217 1,150 973 5.8 18.2 Foreclosed property costs 901 1,054 1,014 (14.5) 3.9 Office supplies 542 502 503 8.0 (.2) Advertising and promotion 451 423 295 6.6 43.4 Credit and collection 582 453 270 28.5 67.8 Postage 331 328 300 .9 9.3 Other 2,718 2,309 2,199 17.7 5.0 - ------------------------------------------------------------------------------------------ Total noninterest expense $17,946 $16,088 $14,881 11.5% 8.1% ==========================================================================================
Income Taxes Income tax expense amounted to $2.3 million in 1993. Washington Trust's effective tax rate for 1993 was 33.5%. This rate differed from the federal rate of 34.0% due to the benefits of tax-exempt income and the dividends received deduction as well as the expense resulting from state income taxes. The Corporation adopted Statement of Financial Accounting Standards #109 (SFAS #109), "Accounting for Income Taxes", as of January 1, 1993. SFAS #109 requires a change from the deferred method of determining income tax expense to the asset and liability method. Deferred tax assets and liabilities are established for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The cumulative effect of the January 1, 1993 adoption of SFAS #109 was a $305,000 increase in earnings. At December 31, 1993 the Corporation had a net deferred tax asset amounting to $3,305,000. A significant portion of this asset is expected to be realized for tax purposes within a five year period. Recent Accounting Developments Postemployment Benefits The Financial Accounting Standards Board (FASB) has issued SFAS #112, "Employers' Accounting for Postemployment Benefits", which is effective for fiscal years beginning after December 15, 1993. This pronouncement establishes accounting standards for employers who provide benefits to former or inactive employees, their beneficiaries and dependents, after employment but before retirement. SFAS #112 requires employers to recognize the expense associated with providing these benefits when incurred provided that certain criteria are met. The implementation of SFAS #112 as of January 1, 1994 was not material to the Corporation's financial condition or results of operations. Loan Impairment In May 1993 the FASB issued SFAS #114, "Accounting by Creditors for Impairment of a Loan", which is effective for fiscal years beginning after December 15, 1994. This pronouncement establishes accounting standards for measuring impairment on loans for which it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. SFAS #114 requires impairment to be measured on a discounted cash flow method, or at the loan's observable market price, or at the fair value of the collateral if the loan is collateral dependent. This pronouncement also narrows the definition of in-substance foreclosures. Accordingly, many of the loans currently accounted for as in-substance foreclosures will be treated as impaired loans under these new guidelines. The periodic effect of this pronouncement on the financial condition or results of operation of the Corporation has not been fully determined. Investments The FASB issued SFAS #115, "Accounting for Certain Investments in Debt and Equity Securities", effective for fiscal years beginning after December 15, 1993. The Statement requires, among other things, that securities available for sale be reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of tax, until realized. The Corporation adopted SFAS #115 as of January 1, 1994. The effect of adopting this pronouncement was an increase in shareholders' equity of approximately $4,911,000. Subsequent changes in the fair value of these securities could result in increased volatility of the Corporation's capital levels. Comparison of 1992 with 1991 For the year ended December 31, 1992, the Corporation recorded net income of $3,150,356, or $1.71 per share, compared to $2,477,032, or $1.35 per share earned in 1991. Increased net interest income, improvement in the level of nonperforming assets, and a resultant decrease in the Corporation's provision for loan losses contributed to the increase in earnings. The Corporation's increased efforts to reduce the level of nonperforming assets during 1992 had a positive impact on its overall asset quality. Nonperforming assets were 5.7% of total assets at December 31, 1992, down from the prior year amount of 8.1%. The Corporation's loan loss provision amounted to $4.0 million in 1992, down from $5.2 million in 1991. Loan charge-offs, net of recoveries, totalled $3.1 million and $7.2 million in 1992 and 1991, respectively. Overall loan demand remained soft during 1992. Total loans declined to $344.4 million at December 31, 1992, down from the December 31, 1991 amount of $361.0 million, primarily due to mortgage loans held for sale, charge-offs, and foreclosures, including in-substance foreclosures. Net interest income for 1992 was $19.1 million, up 9.1% from the 1991 amount of $17.5 million. The net interest margin amounted to 4.76% in 1992, up from 4.39% in 1991. The interest rate spread amounted to 4.40% and 3.87% for the years ended December 31, 1992 and 1991, respectively. The yield on interest-earning assets was 8.85% in 1992, down from 10.12% in 1991 due primarily to declines in rates earned on all asset categories. While average interest-bearing liabilities rose only slightly in 1992, the rate paid on these liabilities in 1992 fell to 4.45%, compared to 6.25% in 1991. As interest rates continued to fall in 1992, changes in the composition of deposits resulted. Average savings deposits increased from 40% to 48% of average interest-bearing liabilities, while time deposits decreased from 60% to 49% of average interest-bearing liabilities at the end of 1992. Shareholders' equity increased 5.8% during 1992 while total assets rose 3.8%. The ratio of capital to assets was 7.6% and 7.5% at December 31, 1992 and 1991, respectively. Dividends paid per share amounted to $.80 in 1992, unchanged from 1991. Consolidated Balance Sheets Washington Trust Bancorp, Inc. and Subsidiary
December 31, 1993 1992 - -------------------------------------------------------------------------------------------------- Assets: Cash and due from banks (note 2) $ 14,978,427 $ 15,797,649 Federal funds sold 6,671,701 6,020,000 Securities available for sale, at lower of cost or market; market value $42,447,947 in 1993 and $41,346,321 in 1992 (note 3) 34,263,743 33,743,289 Mortgage loans held for sale 3,709,499 8,639,573 Investment securities, at cost; market value $53,333,595 in 1993 and $39,541,196 in 1992 (note 4) 52,497,832 39,106,642 Federal Home Loan Bank stock, at cost 1,972,800 1,942,000 Loans (notes 5 and 14) 352,510,695 325,238,286 Less reserve for possible loan losses (note 6) 8,657,263 7,342,276 - -------------------------------------------------------------------------------------------------- Net loans 343,853,432 317,896,010 Premises and equipment, net (note 8) 14,354,731 15,049,188 Accrued interest receivable 2,870,911 2,861,497 Net deferred tax asset (note 13) 3,305,000 2,119,000 Other real estate owned, net (note 9) 7,831,146 13,455,489 Other assets 1,019,602 1,068,603 - -------------------------------------------------------------------------------------------------- Total assets $487,328,824 $457,698,940 ================================================================================================== Liabilities: Deposits: Demand $ 43,924,560 $ 35,901,578 Savings 200,846,347 191,084,591 Time (note 10) 178,603,713 177,673,836 - -------------------------------------------------------------------------------------------------- Total deposits 423,374,620 404,660,005 Dividends payable 411,473 370,442 Federal Home Loan Bank advances (note 11) 20,500,000 14,000,000 Accrued expenses and other liabilities 4,579,806 3,718,698 - -------------------------------------------------------------------------------------------------- Total liabilities 448,865,899 422,749,145 - -------------------------------------------------------------------------------------------------- Commitments and contingencies (notes 7 and 15) Shareholders' Equity: (note 16) Common stock of $.0625 par value; authorized 3,000,000 shares; issued 1,920,000 shares 120,000 120,000 Paid-in capital 2,822,908 2,784,205 Retained earnings 36,418,073 33,276,746 Treasury stock, at cost; 49,670 shares in 1993 and 67,788 shares in 1992 (898,056) (1,231,156) - -------------------------------------------------------------------------------------------------- Total shareholders' equity 38,462,925 34,949,795 - -------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $487,328,824 $457,698,940 ================================================================================================== See accompanying notes to consolidated financial statements.
Consolidated Statements of Income Washington Trust Bancorp, Inc. and Subsidiary
Years ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans (note 5) $ 29,565,118 $ 32,080,668 $ 37,808,949 Income from investment securities and securities available for sale: Interest 4,143,297 2,767,561 2,020,525 Dividends 897,869 728,260 757,263 Interest on federal funds sold 321,579 292,258 441,770 - ------------------------------------------------------------------------------------------------------- Total interest income 34,927,863 35,868,747 41,028,507 - ------------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 4,964,023 5,810,111 7,759,655 Time deposits 8,111,506 10,280,550 15,754,512 Other 1,103,250 709,557 42,595 - ------------------------------------------------------------------------------------------------------- Total interest expense 14,178,779 16,800,218 23,556,762 - ------------------------------------------------------------------------------------------------------- Net interest income 20,749,084 19,068,529 17,471,745 Provision for loan losses (note 6) 2,500,000 4,000,000 5,200,000 - ------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 18,249,084 15,068,529 12,271,745 - ------------------------------------------------------------------------------------------------------- Noninterest income: Trust income 2,952,216 2,678,082 2,500,871 Service charges on deposit accounts 1,446,269 1,228,610 1,154,669 Merchant processing fees 521,545 436,511 408,304 Gains on sales of securities (notes 3 and 4) 345,674 196,606 1,495,453 Gains on loan sales 484,960 484,187 6,718 Other income 678,510 750,295 615,372 - ------------------------------------------------------------------------------------------------------- Total noninterest income 6,429,174 5,774,291 6,181,387 - ------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits (note 12) 8,686,310 7,636,843 6,860,223 Net occupancy 1,187,937 1,013,706 1,031,098 Equipment 1,330,052 1,218,225 1,436,209 Deposit taxes and assessments 1,216,740 1,149,683 973,456 Foreclosed property costs (note 9) 901,320 1,053,768 1,014,019 Office supplies 542,017 502,010 503,138 Advertising and promotion 451,076 422,648 294,859 Credit and collection 581,831 453,460 269,666 Other 3,049,444 2,638,121 2,498,432 - ------------------------------------------------------------------------------------------------------- Total noninterest expense 17,946,727 16,088,464 14,881,100 - ------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting change 6,731,531 4,754,356 3,572,032 Applicable income taxes (note 13) 2,255,000 1,604,000 1,095,000 - ------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 4,476,531 3,150,356 2,477,032 Cumulative effect of change in accounting for income taxes 305,000 -- -- - ------------------------------------------------------------------------------------------------------- Net income $ 4,781,531 $ 3,150,356 $ 2,477,032 ======================================================================================================= Weighted average shares outstanding - primary 1,874,564 1,846,002 1,830,422 Weighted average shares outstanding - fully diluted 1,883,839 1,847,307 1,830,422 Earnings per share - primary: Income before cumulative effect of accounting change $2.39 $1.71 $1.35 Cumulative effect of change in accounting for income taxes .16 -- -- ----- ----- ----- Net income $2.55 $1.71 $1.35 ===== ===== ===== Earnings per share - fully diluted: Income before cumulative effect of accounting change $2.38 $1.71 $1.35 Cumulative effect of change in accounting for income taxes .16 -- -- ----- ----- ----- Net income $2.54 $1.71 $1.35 ===== ===== ===== Cash dividends declared per share $ .88 $ .80 $ .80 See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows Washington Trust Bancorp, Inc. and Subsidiary
Years Ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 4,781,531 $ 3,150,356 $ 2,477,032 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,500,000 4,000,000 5,200,000 Provision for valuation of other real estate owned 1,042,428 579,170 276,329 Depreciation of premises and equipment 1,446,367 1,310,635 1,489,272 Amortization of net deferred loan fees and costs (599,670) (303,548) (132,717) Write-downs of other real estate owned -- 30,000 279,692 Cumulative effect of change in accounting principle (305,000) -- -- Deferred income tax benefit (881,000) (833,000) (17,000) Gains on sales of investment securities -- (197,214) (1,495,453) Losses (gains) on sales of securities available for sale (345,674) 608 -- Gains on sales of other real estate owned (674,331) (131,958) -- Gains on loan sales (484,960) (484,187) (6,718) Proceeds from sales of loans 29,396,915 -- -- Loans originated for sale (23,981,881) -- -- Decrease (increase) in accrued interest receivable (9,414) 901,201 825,521 Decrease (increase) in other assets 49,001 723,134 (666,843) Increase (decrease) in accrued expenses and other liabilities 861,108 419,747 (443,375) Other, net 22,998 40,816 20,358 - ------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 12,818,418 9,205,760 7,806,098 - ------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Securities available for sale: Purchases (7,624,494) (9,478,145) -- Proceeds from sales of equity securities 7,387,344 7,508,250 -- Investment securities: Purchases (26,043,737) (48,617,219) (26,411,238) Maturities and principal repayments 12,611,066 25,353,427 14,555,594 Proceeds from sales of debt securities -- -- 3,127,050 Proceeds from sales of equity securities -- 7,332,350 4,814,665 Investment in Federal Home Loan Bank stock (30,800) (1,458,800) (483,200) Loan originations in excess of principal collected on loans (26,244,158) (44,356,538) (4,170,985) Proceeds from sales and other reductions of other real estate owned 3,726,763 3,161,646 647,906 Proceeds from sales of loans -- 44,516,903 678,459 Purchases of premises and equipment (755,168) (1,106,195) (583,771) - ------------------------------------------------------------------------------------------------------- Net cash used in investing activities (36,973,184) (17,144,321) (7,825,520) - ------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits 18,714,615 4,942,085 1,027,842 Proceeds from Federal Home Loan Bank advances 10,000,000 11,500,000 5,000,000 Repayment of Federal Home Loan Bank advances (3,500,000) (2,500,000) -- Proceeds from issuance of commmon stock from treasury 371,803 236,053 239,941 Cash dividends paid (1,599,173) (1,105,595) (1,460,640) - ------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 23,987,245 13,072,543 4,807,143 - ------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (167,521) 5,133,982 4,787,721 Cash and cash equivalents at beginning of year 21,817,649 16,683,667 11,895,946 - ------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $21,650,128 $21,817,649 $16,683,667 ======================================================================================================= Noncash Investing Activities Net transfers from loans to other real estate owned $ 1,440,156 $ 9,959,742 $11,082,224 Loans charged off 1,512,221 3,416,989 7,441,549 Loans made to facilitate the sale of other real estate owned 3,053,750 4,542,550 1,903,594 Supplemental Disclosures Interest payments $ 8,154,492 $ 8,959,552 $11,669,106 Income tax payments 2,844,278 1,964,111 1,005,100 See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity Washington Trust Bancorp, Inc. and Subsidiary
Total Common Paid-in Retained Treasury Shareholders' Stock Capital Earnings Stock Equity - ------------------------------------------------------------------------------------------------------------ Balances, December 31, 1990 $120,000 $2,918,006 $30,586,035 $(1,840,951) $31,783,090 Net income, 1991 - - 2,477,032 - 2,477,032 Cash dividends declared - - (1,460,640) - (1,460,640) Treasury stock acquired - (93,699) - 333,640 239,941 - ------------------------------------------------------------------------------------------------------------ Balances, December 31, 1991 120,000 2,824,307 31,602,427 (1,507,311) 33,039,423 Net income, 1992 - - 3,150,356 - 3,150,356 Cash dividends declared - - (1,476,037) - (1,476,037) Issuance of common stock from treasury - (40,102) - 276,155 236,053 - ------------------------------------------------------------------------------------------------------------ Balances, December 31, 1992 120,000 2,784,205 33,276,746 (1,231,156) 34,949,795 Net income, 1993 - - 4,781,531 - 4,781,531 Cash dividends declared - - (1,640,204) - (1,640,204) Issuance of common stock from treasury - 38,703 - 333,100 371,803 - ------------------------------------------------------------------------------------------------------------ Balances, December 31, 1993 $120,000 $2,822,908 $36,418,073 $ (898,056) $38,462,925 ============================================================================================================ See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (1) Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements of Washington Trust Bancorp, Inc. and subsidiary (the Corporation) include the accounts of Washington Trust Bancorp, Inc. and its wholly-owned subsidiary, The Washington Trust Company, a Rhode Island chartered bank. All significant intercompany transactions have been eliminated. The consolidated financial statements are presented on the accrual basis of accounting except for certain fees earned in a fiduciary capacity which are reported on a cash basis and which do not differ materially from amounts determined on the accrual basis. Certain amounts in the 1992 and 1991 consolidated financial statements have been reclassified to conform to the current reporting format. Investment Accounting Policy Securities Available for Sale Effective September 30, 1992, the Corporation designated securities that it intends to use as part of its asset/liability strategy or that may be sold as a result of changes in market conditions, changes in prepayment risk, rate fluctuations, liquidity or capital requirements as available for sale. With respect to securities acquired subsequent to September 30, 1992, the determination to classify such securities as available for sale is made at the time of purchase. These securities are classified and reported separately on the Consolidated Balance Sheets as securities available for sale. Securities classified as available for sale are carried at the lower of aggregate cost, adjusted for amortization of premium or accretion of discount in the case of debt securities, or market value. The resulting net unrealized loss, if any, is charged to current period earnings. Any unrealized loss on an individual security deemed to be other than temporary is recognized as a realized loss in the accounting period in which the determination is made. Realized gains or losses from sales of equity securities are determined using the average cost method, while other realized gains and losses are determined using the specific identification method. Investment Securities The determination to classify debt securities as long term is made at the time of purchase and is based on management's intent and ability to hold the securities until maturity. Debt securities held in the investment portfolio are stated at cost, adjusted for amortization of premium and accretion of discount (calculated on a method that approximates the interest method). Loan Accounting Policy Mortgage Loans Held for Sale Mortgage loans held for sale are carried at the lower of aggregate cost, net of unamortized deferred loan origination fees and costs, or market. Loans Loans are stated at the principal amount outstanding, net of unamortized deferred loan origination fees and costs. Interest income is accrued on various methods which approximate a level yield related to principal amounts outstanding. Deferred loan fees and costs are amortized as an adjustment to yield over the life of the related loans. Nonaccrual Loans Loans, with the exception of credit card loans, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest. Interest previously accrued, but not collected on such loans is reversed against current period income. Subsequent cash receipts on nonaccrual loans are applied to the outstanding principal balance of the loan, or recognized as interest income depending on management's assessment of the ultimate collectibility of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with repayment terms, and when, in management's opinion, the loans are considered to be fully collectible. Restructured Loans Restructured loans include those for which concessions such as reduction of interest rates other than normal market rate adjustments, or deferral of principal or interest payments have been granted due to a borrower's financial condition. Subsequent cash receipts on restructured loans are applied to the outstanding principal balance of the loan, or recognized as interest income depending on management's assessment of the ultimate collectibility of the loan. Reserve for Possible Loan Losses The reserve for possible loan losses is available for future credit losses inherent in the loan portfolio. The level of the reserve is based on management's ongoing review of the growth and composition of the loan portfolio, net charge-off experience, current and expected economic conditions, and other pertinent factors. Loans (or portions thereof) deemed to be uncollectible are charged against the reserve and recoveries of amounts previously charged off are added to the reserve. Loss provisions charged to earnings are added to the reserve to bring it to the desired level. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation for financial reporting purposes is calculated on the straight-line method over the estimated useful lives of assets. Expenditures for major additions and improvements are capitalized while the costs of current maintenance and repairs are charged to operating expenses. Other Real Estate Owned (OREO) Other real estate owned consists of property acquired through foreclosure, and includes loans determined to be "in-substance" foreclosures (ISF's). A loan is considered to be an ISF when the borrower has little or no equity in the underlying collateral property, proceeds for repayment of the loan are dependent upon the sale of the collateral, and the borrower has effectively abandoned control of the property or it is doubtful that the borrower will be able to rebuild equity in the property. OREO is stated at the lower of cost or fair value at the date of acquisition or classification to ISF status. Fair value of such assets is determined based on independent appraisals and other relevant factors. Any write-down to fair value at the time of foreclosure or classification to ISF status is charged to the reserve for possible loan losses. A valuation allowance is maintained for potential declines in market value, known specific declines in market value, and estimated selling costs. Increases to the valuation allowance, expenses associated with ownership of these properties, and gains and losses from their sale are included in foreclosed property costs. Deposit Taxes and Assessments Deposit taxes and assessments consist of amounts assessed to members of the Bank Insurance Fund (BIF) by the Federal Deposit Insurance Corporation (FDIC) and deposit taxes imposed by the State of Rhode Island. These amounts are calculated based on levels of bank deposits. Pension Costs Annual charges to earnings for the Corporation's defined benefit plans are recognized based upon actuarial calculations and other methods. Income Taxes Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS #109). Under SFAS #109, income tax expense is determined based on the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The cumulative effect of adoption of SFAS #109 has been reported in the 1993 Consolidated Statement of Income. Prior to adoption of SFAS #109, the Corporation accounted for income taxes under Accounting Principles Board Opinion No. 11, whereby deferred taxes are provided for income and expense items which are recognized in different time periods for financial reporting and tax return purposes. Earnings Per Share Earnings per share is determined by dividing net income by the average number of common shares and common stock equivalents outstanding, net of shares assumed to be repurchased using the treasury stock method. Common stock equivalents arise from the assumed exercise of outstanding stock options, if dilutive. Cash Flows For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are sold on an overnight basis. In 1993 the Corporation adopted the policy of originating certain mortgage loans specifically for sale in the secondary market. Accordingly, originations and sales of such loans in 1993 are classified as operating activities in the Consolidated Statements of Cash Flows. (2) Cash and Due From Banks The Corporation's bank subsidiary is required to maintain certain average reserve balances with the Federal Reserve. Such reserve balances amounted to $6,249,989 and $5,755,313 at December 31, 1993 and 1992, respectively. (3) Securities Available For Sale Securities available for sale are summarized as follows:
Book Unrealized Unrealized Market Value Gains Losses Value - ------------------------------------------------------------------------------------ December 31, 1993 U.S. Treasury obligations $25,120,650 $1,097,084 $ (12,053) $26,205,681 Corporate debt securities 1,000,000 -- (2,500) 997,500 - ------------------------------------------------------------------------------------ Total debt securities 26,120,650 1,097,084 (14,553) 27,203,181 Corporate stocks 8,143,093 7,161,080 (59,407) 15,244,766 - ------------------------------------------------------------------------------------ Total $34,263,743 $8,258,164 $ (73,960) $42,447,947 ==================================================================================== December 31, 1992 U.S. Treasury obligations $23,165,503 $ 682,210 $(148,788) $23,698,925 Corporate debt securities 1,000,000 -- (30,000) 970,000 - ------------------------------------------------------------------------------------ Total debt securities 24,165,503 682,210 (178,788) 24,668,925 Corporate stocks 9,577,786 7,187,889 (88,279) 16,677,396 - ------------------------------------------------------------------------------------ Total $33,743,289 $7,870,099 $(267,067) $41,346,321 ====================================================================================
Securities available for sale with a carrying value of $2,997,163 and $2,995,195 were pledged to secure public deposits and for other purposes at December 31, 1993 and 1992, respectively. As of December 31, 1993, the contractual maturities of debt securities available for sale and the weighted average yields of those securities are presented in the following table. Debt securities designated as available for sale may be sold prior to their contractual maturity.
Weighted Amortized Market Average Securities Available for Sale Cost Value Yield ---------------------------------------------------------------------------- Due in 1 year or less $ -- $ -- -- After 1 but within 5 years 25,631,233 26,423,806 5.75% After 5 but within 10 years -- -- -- After 10 years 489,417 779,375 13.16% ---------------------------------------------------------------------------- Total $26,120,650 $27,203,181 5.89% ============================================================================
Proceeds from sales of corporate stocks available for sale during 1993 and 1992 were $7,387,344 and $7,508,250, respectively. Gross gains of $345,844 and $0 were realized on these sales in 1993 and 1992, respectively. Gross realized losses amounted to $170 and $608 on these sales during 1993 and 1992, respectively. Included in proceeds from sales of corporate stocks available for sale are $7.0 million and $7.5 million in 1993 and 1992, respectively, from dispositions of dutch auction preferred stocks with no gain or loss. Purchases of dutch auction preferred stocks available for sale amounted to $5.0 million and $5.5 million in 1993 and 1992, respectively. These are preferred stock instruments whose dividend rate is reset by auction every 49 days to a market rate, resulting in a market value of par. At each auction, the holder can elect not to participate in the auction and therefore liquidate its investment at par (cost). There were no sales of debt securities available for sale during 1993 and 1992. Securities available for sale are reported at the lower of amortized cost or market, with any net unrealized losses charged to earnings. Effective January 1, 1994, the Corporation will adopt Statement of Financial Accounting Standards No. 115 (SFAS #115), "Accounting for Certain Investments in Debt and Equity Securities." SFAS #115 requires that securities available for sale be reported at fair value with unrealized gains and losses reflected as a separate component of shareholders' equity, net of tax. The January 1, 1994 adoption of SFAS #115 resulted in an increase in shareholders' equity of approximately $4,911,000. This component of shareholders' equity will fluctuate with subsequent changes in the fair value of securities available for sale. (4) Investment Securities Investment securities are summarized as follows:
Amortized Unrealized Unrealized Market Cost Gains Losses Value - ----------------------------------------------------------------------------------- December 31, 1993 U.S. Treasury obligations and obligations of U.S. government agencies $19,419,860 $ 26,765 $(131,194) $19,315,431 Mortgage-backed securities 25,401,432 880,196 (33,684) 26,247,944 States and political subdivisions 7,676,540 99,539 (5,859) 7,770,220 - ------------------------------------------------------------------------------------ Total $52,497,832 $1,006,500 $(170,737) $53,333,595 ==================================================================================== December 31, 1992 U.S. Treasury obligations and obligations of U.S. government agencies $ 8,998,075 $123,804 $ -- $ 9,121,879 Mortgage-backed securities 24,202,972 218,797 (5,621) 24,416,148 States and political subdivisions 5,905,595 97,574 -- 6,003,169 - ------------------------------------------------------------------------------------ Total $39,106,642 $440,175 $(5,621) $39,541,196 ====================================================================================
Mortgage-backed securities included in the investment securities portfolio are issued by both the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. These securities represent participating interests in pools of long-term residential mortgage loans. Included in mortgage-backed securities are Federal Home Loan Mortgage Corporation participation certificates backed by mortgage loans originated by the bank subsidiary amounting to $17,273,190 and $19,209,775 at December 31, 1993 and 1992, respectively. Investment securities with a carrying value of $999,636 and $999,914 were pledged to secure public deposits and for other purposes at December 31, 1993 and 1992, respectively. As of December 31, 1993, the contractual maturities of debt securities held for investment and the weighted average yields of those securities are presented in the following table. Mortgage-backed securities are included based on their weighted average maturities, adjusted for anticipated future prepayments.
Weighted Amortized Market Average Investment Securities Cost Value Yield ---------------------------------------------------------------------------- Due in 1 year or less $ 7,887,151 $ 8,046,640 5.80% After 1 but within 5 years 31,015,581 31,352,700 5.39% After 5 but within 10 years 8,881,082 9,145,958 7.01% After 10 years 4,714,018 4,788,297 5.68% ---------------------------------------------------------------------------- Total $52,497,832 $53,333,595 5.75% ============================================================================
Proceeds from sales of equity securities from the investment portfolio amounted to $7,332,350 and $4,814,665 in 1992 and 1991, respectively. Proceeds from sales of debt securities were $0 and $3,127,050 in 1992 and 1991, respectively. Gross realized gains and losses on sales of investment securities amounted to $208,464 and $11,250, respectively, in 1992, and $1,702,201 and $206,748, respectively, in 1991. Included in proceeds from sales of investment securities are $6.5 million and $2.0 million in 1992 and 1991, respectively, from dispositions of dutch auction preferred stocks with no gain or loss. Purchases of dutch auction preferred stocks for the investment portfolio amounted to $13.0 million and $1.0 million in 1992 and 1991, respectively. There were no sales of investment securities subsequent to September 30, 1992. (5) Loans The following is a summary of loans:
December 31, 1993 1992 - ---------------------------------------------------------------------------------- Residential real estate: Mortgages $152,758,727 $140,438,839 Homeowner construction 6,120,171 5,124,603 - ---------------------------------------------------------------------------------- Total residential real estate 158,878,898 145,563,442 Commercial and other: Mortgages (1) 48,011,836 38,921,833 Construction and development (2) 10,051,008 10,947,411 Other (3) 101,636,280 97,344,028 - ---------------------------------------------------------------------------------- Total commercial and other 159,699,124 147,213,272 Installment 33,932,673 32,461,572 - ---------------------------------------------------------------------------------- Total loans $352,510,695 $325,238,286 ================================================================================== (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
Concentrations of Credit Risk The Corporation's lending activities are primarily conducted in southern Rhode Island and southeastern Connecticut. The Corporation grants single family and multi-family residential loans, commercial real estate loans, commercial loans, and a variety of consumer loans. In addition, loans are granted for the construction of residential homes, multi-family properties, commercial real estate properties, and for land development. The ability and willingness of the single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability and willingness of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in the market area. Nonaccrual Loans The balance of loans on nonaccrual status as of December 31, 1993 and 1992 was $11,370,726 and $12,563,329, respectively. Interest income that would have been recognized had these loans been performing at originally contracted rates was approximately $1,021,000 in 1993, $1,290,000 in 1992, and $2,194,000 in 1991. Interest income attributable to these loans included in the Consolidated Statements of Income amounted to approximately $597,000 in 1993, $709,000 in 1992 and $396,000 in 1991. Troubled Debt Restructurings Loans restructured during 1993 amounted to $404,595 and are included in nonaccrual loans reported above. At December 31, 1993, there were no commitments to lend additional funds to borrowers whose loans had been restructured. Mortgage Servicing Activities Mortgage loans sold to others and serviced by the Corporation on a fee basis under various agreements amounted to $91,341,476 and $86,048,859 at December 31, 1993 and 1992, respectively. Loans serviced for others are not included in the Consolidated Balance Sheets. (6) Reserve for Possible Loan Losses The following is an analysis of the reserve for possible loan losses:
Years ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------------- Balance at beginning of year $7,342,276 $6,474,272 $8,487,196 Provision charged to expense 2,500,000 4,000,000 5,200,000 Recoveries of loans previously charged off 327,208 284,993 228,625 Loans charged off (1,512,221) (3,416,989) (7,441,549) - ------------------------------------------------------------------------------------- Balance at end of year $8,657,263 $7,342,276 $6,474,272 =====================================================================================
Management believes that the reserve for possible loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the reserve may be necessary based on changes in economic conditions, particularly in the northeastern United States. In addition, various regulatory agencies may periodically review the Corporation's reserve for possible loan losses. Such agencies may require the recognition of additions to the reserve based on their judgments about information available to them at the time of their examination. (7) Financial Instruments with Off-Balance Sheet Risk The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The contractual amounts of financial instruments with off-balance sheet risk are as follows:
December 31, 1993 1992 - ------------------------------------------------------------------------------ Loans sold with recourse $ 2,104,375 $ 2,861,059 Standby letters of credit 848,253 976,835 Commitments to extend credit: Revolving, open-end loans secured by residential properties; home equity lines 8,791,330 7,924,635 Credit card lines 9,845,871 8,167,724 Homeowner construction loans 3,257,811 2,276,114 Construction and development loans 1,329,486 1,179,891 Commercial and other loans 19,837,556 13,894,671
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each borrower's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained is based on management's credit evaluation of the borrower. The Corporation has retained credit risk on certain residential mortgage loans sold with recourse. In the event of default by the mortgagor, the Corporation could become obligated to repurchase the loan. Such repurchases have been insignificant and have not resulted in any losses to the Corporation. (8) Premises and Equipment The following is a summary of premises and equipment:
December 31, 1993 1992 - ---------------------------------------------------------------------------- Land and improvements $ 1,530,736 $ 1,530,736 Premises and improvements 15,050,701 14,935,201 Furniture, fixtures, and equipment 7,748,246 7,126,314 - ---------------------------------------------------------------------------- 24,329,683 23,592,251 Less accumulated depreciation 9,974,952 8,543,063 - ---------------------------------------------------------------------------- Total premises and equipment, net $14,354,731 $15,049,188 ============================================================================
(9) Other Real Estate Owned An analysis of the composition of OREO, including in-substance foreclosures, follows:
December 31, 1993 1992 - --------------------------------------------------------------------------- Property acquired through foreclosure: Commercial real estate $2,354,325 $ 2,605,917 Residential real estate 382,209 1,719,389 Construction and development 715,599 935,578 Land 1,115,988 1,233,510 - --------------------------------------------------------------------------- Total property acquired through foreclosure 4,568,121 6,494,394 - --------------------------------------------------------------------------- In-substance foreclosures: Commercial real estate 1,670,646 3,194,919 Residential real estate 1,443,285 3,860,372 Construction and development 989,617 786,185 Land 625,777 891,472 Other 325,672 406,077 - --------------------------------------------------------------------------- Total in-substance foreclosures 5,054,997 9,139,025 - --------------------------------------------------------------------------- Valuation allowance (1,791,972) (2,177,930) - --------------------------------------------------------------------------- Other real estate owned, net $7,831,146 $13,455,489 ===========================================================================
In the fourth quarter of 1992, the Corporation adopted Statement of Position (SOP) 92-3, "Accounting for Foreclosed Assets". This statement requires that other real estate owned be carried at the lower of cost or fair value minus estimated costs to sell. A valuation allowance is maintained for known specific and potential market declines and for estimated selling expenses. The valuation allowance is reduced by selling expenses incurred and increased by charges to earnings. Realized gains and losses on dispositions are recognized in earnings. Prior to the adoption of SOP 92-3, the Corporation provided for estimated selling expenses and known specific market declines as a reduction of the cost basis of OREO, rather than through the valuation allowance. Adoption of SOP 92- 3 resulted in increases of $798,541 to the OREO cost basis and the valuation allowance in 1992. Prior to the adoption of SOP 92-3, realized gains and losses on dispositions of properties were credited or charged to the valuation allowance. An analysis of the activity relating to other real estate owned, including in- substance foreclosures, follows:
Years ended December 31, 1993 1992 - ---------------------------------------------------------------------------- Balance at beginning of year $15,633,419 $12,154,074 Net transfers from loans 1,440,156 9,959,742 Adoption of SOP 92-3 -- 798,541 Sales and other reductions (7,526,597) (7,417,693) Write-downs charged to expense -- (30,000) Other, net 76,140 168,755 - ---------------------------------------------------------------------------- 9,623,118 15,633,419 Valuation allowance (1,791,972) (2,177,930) - ---------------------------------------------------------------------------- Balance at end of year $ 7,831,146 $13,455,489 ============================================================================
The following is an analysis of activity relating to the OREO valuation allowance:
Years ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------- Balance at beginning of year $2,177,930 $ 505,268 $346,511 Provision charged to expense 1,042,428 579,170 276,329 Net gains (losses) on dispositions -- 462,852 (117,572) Specific write-downs -- (189,600) -- Adoption of SOP 92-3 -- 798,541 -- Sales and other reductions (1,274,911) (86,398) -- Selling expenses incurred (114,712) (19,287) -- Other, net (38,763) 127,384 -- - ------------------------------------------------------------------------------- Balance at end of year $1,791,972 $2,177,930 $505,268 ===============================================================================
Net charges to earnings for potential declines in market value, specific write- downs, estimated costs to sell, and gains or losses on dispositions of properties amounted to $368,098, $477,212, and $556,021 in 1993, 1992, and 1991, respectively. These amounts are included in foreclosed property costs on the Consolidated Statements of Income. (10) Time Certificates of Deposit The aggregate amount of time certificates of deposit in denominations of $100,000 or more was $21,719,195 at December 31, 1993 and $29,739,213 at December 31, 1992. (11) Federal Home Loan Bank Advances The following table presents scheduled maturities and interest rates of Federal Home Loan Bank advances outstanding at December 31, 1993:
Years ending Weighted December 31, Average Rate Amount -------------------------------------------------- 1994 3.88% $ 2,500,000 1995 5.03% 4,000,000 1996 5.54% 3,500,000 1997 6.64% 7,000,000 1998 5.53% 2,500,000 1999 6.02% 1,000,000 -------------------------------------------------- $20,500,000 ==================================================
The Corporation's subsidiary bank is a member of the Federal Home Loan Bank of Boston (FHLBB). In addition to the outstanding advances, the subsidiary bank also has access to an unused line of credit equal to 2% of assets at December 31, 1993. Under agreement with the FHLBB, the subsidiary bank 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. Qualified collateral may consist of residential mortgage loans, U.S. government or agency securities, and amounts maintained on deposit at the FHLBB. The subsidiary bank maintains qualified collateral in excess of the amount required to collateralize the line of credit and outstanding advances at December 31, 1993. (12) Employee Benefits Pension Plan The Corporation's noncontributory defined benefit pension plan covers substantially all full-time employees. Benefits are based on an employee's years of service and highest 3-year compensation. The plan is funded on a current basis, in compliance with the requirements of the Employee Retirement Income Security Act. The following table presents the funded status of the plan and amounts presented in the consolidated financial statements:
October 1, 1993 1992 - ----------------------------------------------------------------------------------------- Plan funded status: Vested accumulated benefit obligation $(5,892,300) $(5,064,700) Nonvested accumulated benefit obligation (104,400) (112,100) Effect of future compensation increases (1,502,700) (1,592,300) - ----------------------------------------------------------------------------------------- Projected benefit obligation (7,499,400) (6,769,100) Plan assets (primarily listed stocks and fixed income securities), at fair value 8,221,100 7,854,000 - ----------------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 721,700 1,084,900 Unrecognized net gain (740,200) (1,153,300) Unrecognized prior service cost 456,800 487,300 Unrecognized net transition asset being amortized over 21 years (84,600) (90,500) - ----------------------------------------------------------------------------------------- Prepaid pension cost $ 353,700 $ 328,400 ========================================================================================= Assumptions used in determining the actuarial present value of the projected benefit obligation were as follows: Discount rate 6.75% 7.50% Rate of increase in compensation levels 5.00% 6.00%
Years ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------------------- Net pension cost: Service cost; benefits earned during the period $303,200 $283,700 $ 352,700 Interest cost on projected benefit obligation 521,100 486,500 507,100 Actual return on plan assets (350,700) (705,400) (1,148,800) Net amortization and deferral (238,800) 153,500 617,400 - ----------------------------------------------------------------------------------------- Net periodic pension cost $234,800 $218,300 $ 328,400 ========================================================================================= The decrease in pension expense from 1991 to 1992 was primarily attributable to changes in various actuarial cost methods. Assumptions used in determining net periodic pension expense were as follows: Discount rate 7.50% 7.50% 7.50% Rate of increase in compensation levels 6.00% 6.00% 6.25% Expected long term rate of return on plan assets 8.50% 8.50% 8.50%
Savings and Profit Sharing Plan The Corporation has a qualified savings and profit sharing plan. The plan provides a specified match of employee contributions for substantially all full- time employees. In addition, full-time employees, excluding those key employees participating in the Short-Term Incentive Plan, are eligible for an annual benefit pursuant to a formula based on pre-tax income. All employer contributions were suspended from February 1, 1991 through June 30, 1992 as a cost containment measure. Total employer matching contributions under this plan amounted to $165,300, $81,900, and $10,400 in 1993, 1992, and 1991, respectively. The amount of the profit sharing benefit for 1993 was $110,800. There were no profit sharing distributions during 1992 and 1991. Short-Term Incentive Plan The Corporation established a nonqualified Short-Term Incentive Plan in 1992 to reward key employees for their contributions to the Corporation's success. This plan provides for annual payments up to a maximum percentage of each participant's base salary, which percentages vary among participants. Payment amounts are based on the achievement of target levels of return on equity and/or the achievement of individual objectives. Participants in this plan are not eligible to receive benefits provided under the profit sharing component of the Savings and Profit Sharing Plan. The expense of the Short-Term Incentive Plan amounted to $462,500 in 1993 and $85,700 in 1992. Postemployment Benefits The Financial Accounting Standards Board adopted Statement of Financial Accounting Standards #112 "Employers' Accounting for Postemployment Benefits" which is effective for fiscal years beginning after December 15, 1993. This statement establishes standards of accounting for the expected cost of providing benefits to former or inactive employees after employment but before retirement. It requires employers to accrue for these benefits during the period in which the employee renders service. The Corporation provides disability-related benefits and other benefits to certain former or inactive employees. The implementation of SFAS #112 as of January 1, 1994 did not have a material effect on the Corporation's financial condition or results of operations. Directors' Retainer Continuation Plan The Corporation has a nonqualified plan which provides retirement benefits to non-officer directors. The plan pays the regular quarterly retainer in effect at the time of departure for as many quarters as the director served with the Corporation or a subsidiary. The benefit commences upon departure and is reduced for departure occurring before age 65. Accrued and unpaid benefits under this plan are an unfunded obligation of the subsidiary bank. Prior service cost is being amortized over the expected remaining service period of each director. Current cost is being recognized based on the present value of expected future benefits. The expense of this plan is included in other noninterest expense and amounted to $77,800, $78,800, and $112,500 for 1993, 1992, and 1991, respectively. (13) Income Taxes As discussed in Note 1, the Corporation adopted SFAS #109 as of January 1, 1993. The cumulative effect of this change in accounting for income taxes was an increase of $305,000 in consolidated net income. Prior years' financial statements have not been restated to apply the provisions of SFAS #109. Prior year allocations between current and deferred taxes have been restated to reflect actual timing differences. The total income tax expense is not affected by this restatement. The components of income tax expense were as follows:
Years ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------------------- Current expense: Federal $2,614,000 $2,047,000 $ 995,000 State 522,000 390,000 117,000 - ----------------------------------------------------------------------------------------- Total current expense 3,136,000 2,437,000 1,112,000 - ----------------------------------------------------------------------------------------- Deferred expense (benefit): Federal (715,000) (834,000) (17,000) State (186,000) 1,000 -- Change in valuation allowance for deferred tax assets 20,000 -- -- - ----------------------------------------------------------------------------------------- Total deferred taxes (881,000) (833,000) (17,000) - ----------------------------------------------------------------------------------------- Total income tax expense $2,255,000 $1,604,000 $1,095,000 =========================================================================================
Total income tax expense varied from the amount determined by applying the Federal income tax rate to income before income taxes. The reasons for the differences were as follows:
Years ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------------------- Tax expense at Federal statutory rate of 34% $2,289,000 $1,617,000 $1,215,000 Increase (decrease) in taxes resulting from: Tax-exempt income (134,000) (148,000) (169,000) Dividends received deduction (179,000) (150,000) (179,000) State tax, net of Federal income tax benefit 222,000 258,000 77,000 Appreciated value of donated assets (30,000) (24,000) -- Change in valuation allowance for deferred tax assets 20,000 -- -- Other 67,000 51,000 151,000 - ----------------------------------------------------------------------------------------- Total income tax expense $2,255,000 $1,604,000 $1,095,000 =========================================================================================
For the years ended December 31, 1992 and 1991, deferred income taxes resulted from timing differences in the recognition of certain revenue and deductions for tax and financial statement purposes. The sources of these differences and the tax expense (benefit) of each were as follows:
Years ended December 31, 1992 1991 - ----------------------------------------------------------------------------- Provision for loan losses $(172,000) $438,000 Depreciation (6,000) (49,000) Write-downs of foreclosed property (157,000) (156,000) Deferred compensation and employee benefits (66,000) (18,000) Deferred loan fees and costs (242,000) (134,000) Cash basis recognition of income and expense (197,000) (90,000) Other, net 7,000 (8,000) - ----------------------------------------------------------------------------- Total deferred tax benefit $(833,000) $(17,000) =============================================================================
The approximate tax effects of temporary differences that give rise to gross deferred tax assets and gross deferred tax liabilities at December 31, 1993 are as follows: Gross deferred tax assets: Reserve for possible loan losses $2,313,000 Other real estate owned 417,000 Deferred loan origination fees 1,394,000 Interest on nonperforming loans 430,000 Other 480,000 - ---------------------------------------------------------------------- Gross deferred tax assets 5,034,000 Valuation allowance (168,000) - ---------------------------------------------------------------------- Gross deferred tax assets, net of valuation allowance 4,866,000 - ---------------------------------------------------------------------- Gross deferred tax liabilities: Premises and equipment 955,000 Deferred loan origination costs 460,000 Other 146,000 - ---------------------------------------------------------------------- Gross deferred tax liabilities 1,561,000 - ---------------------------------------------------------------------- Net deferred tax asset $3,305,000 ======================================================================
In addition to future taxable income, a primary source of recovery of deferred tax assets is taxes paid in prior years available for carryback. A valuation allowance has been established for a portion of the deferred tax asset that relates to the state tax effect of temporary differences for which no carryback is allowed. (14) Loans to Related Parties At December 31, 1993, the Corporation has made loans in the ordinary course of business to certain directors and executive officers including their immediate families and their affiliated companies. Such loans were made under normal interest rate and collateralization terms. Activity related to these loans in 1993 was as follows: Balance at December 31, 1992 $1,914,876 Additions 1,503,548 Reductions (1,083,292) - ---------------------------------------------------------------------------- Balance at December 31, 1993 $2,335,132 ============================================================================
(15) Litigation The Corporation is involved in various 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 these matters will not materially affect the consolidated financial position or results of operations of the Corporation. (16) Shareholders' Equity Stock Option Plan The Stock Option Plan provides for the granting of options to directors, officers, and key employees. Up to 400,000 shares of the Corporation's common stock may be used from authorized but unissued shares, treasury stock, or shares available from expired options. Options are designated either as non-qualified or as incentive options and may be granted with stock appreciation rights (SAR's). The exercise price of an option may not be less than the fair market value on the date of grant. The option price is payable in cash, by the delivery of shares of the Corporation's common stock already owned by the grantee, or a combination thereof. Options may be granted at any time until December 31, 1997. As of December 31, 1993, no options have been granted with SAR's. All options granted prior to 1992 are exercisable. Options granted in 1993 and 1992 become vested over a three year period. The following table presents changes in options outstanding during 1993 and 1992:
$27.75 $20.875 $17.50 to to to Exercise price per share $24.875 $19.875 $16.50 $13.75 - ------------------------------------------------------------------------------- Outstanding at December 31, 1991 144,900 -- -- 5,000 Granted during 1992 -- -- 36,675 -- Cancelled during 1992 (10,100) -- (1,401) -- - ------------------------------------------------------------------------------- Outstanding at December 31, 1992 134,800 -- 35,274 5,000 Granted during 1993 -- 32,543 -- -- Exercised during 1993 -- -- (227) -- - ------------------------------------------------------------------------------- Outstanding at December 31, 1993 134,800 32,543 35,047 5,000 ===============================================================================
Dividend Reinvestment Under the Dividend Reinvestment and Stock Purchase Plan, 120,000 shares of common stock were originally reserved to be issued for dividends reinvested and cash payments to the plan. As of December 31, 1993, a total of 464,922 common stock shares were reserved for issuance under the Stock Option Plan and the Dividend Reinvestment and Stock Purchase Plan. Dividends The source of funds for dividends paid by the Corporation is dividends received from its subsidiary bank. The Corporation and its subsidiary bank are regulated enterprises and their abilities to pay dividends are subject to regulatory review and restriction. Certain regulatory and statutory restrictions exist regarding dividends, loans, and advances from the subsidiary bank to the Corporation. Generally the subsidiary bank has the ability to pay dividends to the parent subject to minimum regulatory capital requirements and subject to "Guaranty Fund" requirements of the State of Rhode Island. Under the most restrictive of these requirements, the subsidiary bank could have declared, as of December 31, 1993, aggregate additional dividends of $16.4 million. On February 28, 1994, the subsidiary bank's primary regulator, the Federal Deposit Insurance Corporation, agreed to release the subsidiary bank from a January 1993 board of directors resolution regarding the payment of dividends. The resolution stated that the subsidiary bank would not pay any dividend to the Corporation unless it provided advance notification to its regulators and received no reasonable objection. (17) Fair Value of Financial Instruments Statement of Financial Accounting Standards #107, "Disclosures about Fair Value of Financial Instruments", requires that the Corporation disclose estimated fair values of its financial instruments. Fair value estimates are made as of a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any pricing adjustments that could result from the sale of the Corporation's entire holding of a particular financial instrument. Because no quoted market exists for a significant portion of the financial instruments, fair value estimates are based on subjective judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. Changes in assumptions could significantly affect the estimates of fair value. Fair value estimates, methods, and assumptions are set forth as follows: Cash and Investments The carrying amount of short-term instruments such as cash and federal funds sold is used as an estimate of fair value. The fair value of longer-term investments is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations. No market exists for shares of the Federal Home Loan Bank of Boston. Such stock may be redeemed at par upon termination of FHLBB membership. Mortgage Loans Held for Sale The fair value of mortgage loans held for sale is estimated using the quoted market prices for sales of similar loans on the secondary market. Loans Fair values are estimated for categories of loans with similar financial characteristics. Loans are segregated by type and are then further segmented into fixed rate and adjustable rate interest terms to determine their fair value. The fair value of fixed rate commercial and consumer loans is calculated by discounting scheduled cash flows through the estimated maturity of the loan using interest rates offered at December 31, 1993 and 1992 that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Corporation's historical repayment experience. For residential mortgages, fair value is estimated by using quoted market prices for sales of similar loans on the secondary market, adjusted for servicing costs. The fair value of variable rate commercial and consumer loans approximates carrying value. The fair value of nonaccrual loans is calculated by discounting estimated cash flows, using a rate commensurate with the risk associated with the loan type or by other methods that give consideration to the value of the underlying collateral. Deposit Liabilities The fair value of demand deposits, savings accounts, and certain money market accounts, is equal to the amount payable on demand as of December 31, 1993 and 1992. The discounted values of cash flows using the rates currently offered for deposits of similar remaining maturities were used to estimate the fair value of certificates of deposit. Federal Home Loan Bank Advances Rates currently available to the Corporation for advances with similar terms and remaining maturities are used to estimate fair value of existing advances. Off-Balance Sheet Instruments The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties. The following table presents the fair values of the Corporation's financial instruments:
December 31, 1993 1992 - ---------------------------------------------------------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - ---------------------------------------------------------------------------------------------- Financial assets: Cash and cash equivalents $ 21,650,128 $ 21,650,128 $ 21,817,649 $ 21,817,649 Securities available for sale 34,263,743 42,447,947 33,743,289 41,346,321 Mortgage loans held for sale 3,709,499 3,715,708 8,639,573 8,713,549 Investment securities 52,497,832 53,333,595 39,106,642 39,541,196 Federal Home Loan Bank of Boston stock 1,972,800 1,972,800 1,942,000 1,942,000 Loans, net of reserve for possible loan losses 343,853,432 355,979,418 317,896,010 332,309,921 Accrued interest receivable 2,870,911 2,870,911 2,861,497 2,861,497 Financial liabilities: Noninterest bearing demand deposits $ 43,924,560 $ 43,924,560 $ 35,901,578 $ 35,901,578 Non-term savings accounts 200,846,347 200,846,347 191,084,591 191,084,591 Certificates of deposit 178,603,713 180,232,100 177,673,836 179,688,273 Federal Home Loan Bank advances 20,500,000 20,859,510 14,000,000 14,216,026 Accrued interest payable 1,111,184 1,111,184 1,235,673 1,235,673 Off-Balance Sheet Instruments: Off-balance sheet instruments, consisting largely of loan commitments, contain provisions for fees, conditions and term periods which are consistent with customary market practices. Accordingly, the fair value amounts (considered to be the discounted present value of the remaining contractual fees over the unexpired commitment period) would not be material.
(18) Parent Company Financial Statements The following are condensed parent company only financial statements of Washington Trust Bancorp, Inc. reflecting the investment in the bank subsidiary on the equity basis of accounting:
Balance Sheets December 31, 1993 1992 - -------------------------------------------------------------------------------------- Assets: Cash on deposit with bank subsidiary $ 281,447 $ 182,817 Investment in bank subsidiary at equity value 38,250,951 34,837,420 Dividend receivable from bank subsidiary 342,000 300,000 - -------------------------------------------------------------------------------------- Total assets $38,874,398 $35,320,237 ====================================================================================== Liabilities: Dividends payable $ 411,473 $ 370,442 - -------------------------------------------------------------------------------------- Shareholders' Equity: Common stock of $.0625 par value; authorized 3,000,000 shares; issued 1,920,000 shares 120,000 120,000 Paid-in capital 2,822,908 2,784,205 Retained earnings 36,418,073 33,276,746 Treasury stock, at cost; 49,670 shares in 1993 and 67,788 shares in 1992 (898,056) (1,231,156) - -------------------------------------------------------------------------------------- Total shareholders' equity 38,462,925 34,949,795 - -------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $38,874,398 $35,320,237 ======================================================================================
Statements of Income Years ended December 31, 1993 1992 1991 - ----------------------------------------------------------------------------------------- Dividends from bank subsidiary $1,368,000 $1,200,000 $1,176,000 Equity in undistributed earnings of subsidiary 3,413,531 1,950,356 1,301,032 - ----------------------------------------------------------------------------------------- Net income $4,781,531 $3,150,356 $2,477,032 =========================================================================================
Statements of Cash Flows Years ended December 31, 1993 1992 1991 - ---------------------------------------------------------------------------------------- Increase (Decrease) in Cash: Cash flows from operating activities: Net income $4,781,531 $3,150,356 $2,477,032 Reconciliation of net income to net cash provided by operating activities: Equity effect of undistributed earnings of subsidiary (3,413,531) (1,950,356) (1,301,032) Increase in dividend receivable (42,000) (300,000) -- - ----------------------------------------------------------------------------------------- Net cash provided by operating activities 1,326,000 900,000 1,176,000 - ----------------------------------------------------------------------------------------- Cash flows from financing activities: Issuance of common stock from treasury 371,803 236,053 239,941 Cash dividends paid (1,599,173) (1,105,595) (1,460,640) - ----------------------------------------------------------------------------------------- Net cash used in financing activities (1,227,370) (869,542) (1,220,699) - ----------------------------------------------------------------------------------------- Net increase (decrease) in cash 98,630 30,458 (44,699) Cash at beginning of year 182,817 152,359 197,058 - ----------------------------------------------------------------------------------------- Cash at end of year $ 281,447 $ 182,817 $ 152,359 =========================================================================================
Independent Auditors' Report The Board of Directors and Shareholders Washington Trust Bancorp, Inc.: We have audited the accompanying consolidated balance sheets of Washington Trust Bancorp, Inc. and subsidiary (the Corporation) as of December 31, 1993 and 1992 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1993. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Washington Trust Bancorp, Inc. and subsidiary at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in notes 1 and 13 to the financial statements, the Corporation adopted a new method of accounting for income taxes effective January 1, 1993. KPMG Peat Marwick Providence, Rhode Island January 17, 1994, except for note 16, as to which the date is February 28, 1994 Summary of Unaudited Quarterly Financial Information Washington Trust Bancorp, Inc. and Subsidiary
1993 Q1 Q2 Q3 Q4 Year - --------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $7,377,871 $7,279,792 $7,497,066 $7,410,389 $29,565,118 Income from investment securities and securities available for sale 1,174,731 1,181,934 1,304,507 1,379,994 5,041,166 Interest on federal funds sold 59,175 64,335 117,045 81,024 321,579 - --------------------------------------------------------------------------------------------------------------- Total interest income 8,611,777 8,526,061 8,918,618 8,871,407 34,927,863 - --------------------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 1,279,003 1,328,257 1,201,234 1,155,529 4,964,023 Time deposits 2,105,547 1,982,487 2,040,109 1,983,363 8,111,506 Other 238,270 289,275 287,044 288,661 1,103,250 - --------------------------------------------------------------------------------------------------------------- Total interest expense 3,622,820 3,600,019 3,528,387 3,427,553 14,178,779 - --------------------------------------------------------------------------------------------------------------- Net interest income 4,988,957 4,926,042 5,390,231 5,443,854 20,749,084 Provision for loan losses 800,000 600,000 600,000 500,000 2,500,000 - --------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 4,188,957 4,326,042 4,790,231 4,943,854 18,249,084 - --------------------------------------------------------------------------------------------------------------- Noninterest income: Trust income 713,883 758,794 722,648 756,891 2,952,216 Service charges on deposit accounts 328,010 369,831 355,101 393,327 1,446,269 Merchant processing fees 53,128 77,359 274,576 116,482 521,545 Gains (losses) on sales of securities -- 147,599 198,245 (170) 345,674 Gains on loan sales 190,253 72,918 167,612 54,177 484,960 Other income 189,611 156,242 162,134 170,523 678,510 - --------------------------------------------------------------------------------------------------------------- Total noninterest income 1,474,885 1,582,743 1,880,316 1,491,230 6,429,174 - --------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 1,975,721 2,165,042 2,363,261 2,182,286 8,686,310 Net occupancy 266,686 347,320 287,690 286,241 1,187,937 Equipment 313,139 308,556 302,300 406,057 1,330,052 Deposit taxes and assessments 316,832 317,662 290,782 291,464 1,216,740 Foreclosed property costs, net 384,646 115,273 51,961 349,440 901,320 Office supplies 129,540 133,538 120,956 157,983 542,017 Other 827,618 974,326 1,237,724 1,042,683 4,082,351 - --------------------------------------------------------------------------------------------------------------- Total noninterest expense 4,214,182 4,361,717 4,654,674 4,716,154 17,946,727 - --------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of accounting change 1,449,660 1,547,068 2,015,873 1,718,930 6,731,531 Applicable income taxes 485,800 518,200 701,000 550,000 2,255,000 - --------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 963,860 1,028,868 1,314,873 1,168,930 4,476,531 Cumulative effect of change in accounting for income taxes 305,000 -- -- -- 305,000 - --------------------------------------------------------------------------------------------------------------- Net income $1,268,860 $1,028,868 $1,314,873 $1,168,930 $ 4,781,531 =============================================================================================================== Fully diluted earnings per share: Income before cumulative effect of accounting change $ .52 $ .55 $ .70 $ .62 $2.38 Cumulative effect of change in accounting for income taxes .16 -- -- -- .16 ----- ----- ----- ----- ----- Net income $ .68 $ .55 $ .70 $ .62 $2.54 ===== ===== ===== ===== ===== Cash dividends declared per share $ .22 $ .22 $ .22 $ .22 $ .88
1992 Q1 Q2 Q3 Q4 Year - --------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $8,713,244 $8,147,579 $7,719,100 $7,500,745 $32,080,668 Income from investment securities and securities available for sale 652,184 720,122 951,200 1,172,315 3,495,821 Interest on federal funds sold 44,962 76,530 105,724 65,042 292,258 - --------------------------------------------------------------------------------------------------------------- Total interest income 9,410,390 8,944,231 8,776,024 8,738,102 35,868,747 - --------------------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 1,665,211 1,468,430 1,364,628 1,311,842 5,810,111 Time deposits 2,903,491 2,603,487 2,455,203 2,318,369 10,280,550 Other 127,800 157,789 205,280 218,688 709,557 - --------------------------------------------------------------------------------------------------------------- Total interest expense 4,696,502 4,229,706 4,025,111 3,848,899 16,800,218 - --------------------------------------------------------------------------------------------------------------- Net interest income 4,713,888 4,714,525 4,750,913 4,889,203 19,068,529 Provision for loan losses 1,200,000 1,200,000 900,000 700,000 4,000,000 - --------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 3,513,888 3,514,525 3,850,913 4,189,203 15,068,529 - --------------------------------------------------------------------------------------------------------------- Noninterest income: Trust income 709,674 630,459 655,378 682,571 2,678,082 Service charges on deposit accounts 299,699 303,430 309,866 315,615 1,228,610 Merchant processing fees 48,042 66,721 221,462 100,286 436,511 Gains (losses) on sales of securities 7,500 189,714 -- (608) 196,606 Gains on loan sales 233,441 11,113 238,669 964 484,187 Other income 153,324 139,022 187,919 270,030 750,295 - --------------------------------------------------------------------------------------------------------------- Total noninterest income 1,451,680 1,340,459 1,613,294 1,368,858 5,774,291 - --------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 1,756,396 1,828,914 2,027,032 2,024,501 7,636,843 Net occupancy 244,951 248,164 274,710 245,881 1,013,706 Equipment 322,874 292,816 302,321 300,214 1,218,225 Deposit taxes and assessments 292,658 294,315 287,183 275,527 1,149,683 Foreclosed property costs, net 360,620 98,606 183,104 411,438 1,053,768 Office supplies 129,155 122,393 104,487 145,975 502,010 Other 777,401 915,966 926,238 894,624 3,514,229 - --------------------------------------------------------------------------------------------------------------- Total noninterest expense 3,884,055 3,801,174 4,105,075 4,298,160 16,088,464 - --------------------------------------------------------------------------------------------------------------- Income before income taxes 1,081,513 1,053,810 1,359,132 1,259,901 4,754,356 Applicable income taxes 324,000 316,000 460,000 504,000 1,604,000 - --------------------------------------------------------------------------------------------------------------- Net income $ 757,513 $ 737,810 $ 899,132 $ 755,901 $ 3,150,356 =============================================================================================================== Fully diluted earnings per share $ .41 $ .40 $ .49 $ .41 $1.71 Cash dividends declared per share $ .20 $ .20 $ .20 $ .20 $ .80
EX-21 4 EXHIBIT 21 ---------- Subsidiaries of the Registrant Name of Subsidiary State of Incorporation - ------------------ ---------------------- The Washington Trust Company of Westerly Rhode Island EX-23 5 EXHIBIT 23 ---------- Accountants' Consent The Board of Directors Washington Trust Bancorp, Inc.: We consent to incorporation by reference in the Registration Statement No. 33- 23048 on Form S-8 and in the Registration Statement No. 33-28065 on Form S-3 of Washington Trust Bancorp, Inc. of our report dated January 17, 1994, except for note 16, as to which the date is February 28, 1994 relating to the consolidated balance sheets of Washington Trust Bancorp, Inc. and subsidiary as of December 31, 1993 and 1992 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1993, which report has been incorporated by reference in the 1993 annual report of Washington Trust Bancorp, Inc. on Form 10-K. KPMG Peat Marwick Providence, Rhode Island March 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----