-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OHlKw2YWfjyO6qJnV5b8mtm6CCV3sFkn3mzWbynKTwQxkBBB92prYd+98bGvAbVA aWq60/wuYRMKgu98nhnxqg== 0000737468-95-000008.txt : 19951119 0000737468-95-000008.hdr.sgml : 19951119 ACCESSION NUMBER: 0000737468-95-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASHINGTON TRUST BANCORP INC CENTRAL INDEX KEY: 0000737468 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 050404671 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13091 FILM NUMBER: 95591344 BUSINESS ADDRESS: STREET 1: 23 BROAD ST CITY: WESTERLY STATE: RI ZIP: 02891 BUSINESS PHONE: 4013481200 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 ------------------------------------------ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from ________________ to _____________ Commission file Number 0-13091 ----------------------------------------------- WASHINGTON TRUST BANCORP, INC. - --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0404671 - ------------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23 BROAD STREET, WESTERLY, RHODE ISLAND 02891 - --------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (401) 348-1200 ------------- N/A - --------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the close of November 3, 1995. Class Outstanding at November 3, 1995 ------------------------------ -------------------------- Common stock, $.0625 par value 2,846,283 Shares Page 1 WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 CONTENTS -------- Page No. PART I. ITEM 1. Financial Information -------- - -------------------------------------- Consolidated Balance Sheets September 30, 1995 and December 31, 1994 3 Consolidated Statements of Income Three Months and Nine Months Ended September 30, 1995 and 1994 4 Consolidated Statements of Changes in Shareholders' Equity Nine Months Ended September 30, 1995 and 1994 5 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1995 and 1994 6 Condensed Notes to Consolidated Financial Statements 7 PART I. ITEM 2. - ---------------- Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II. Other Information 20 - --------------------------- Signatures 21 - ---------- -2- WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
September 30, December 31, ASSETS 1995 1994 Cash and due from banks $ 14,216,990 $ 15,172,421 Federal funds sold and securities purchased under agreements to resell 19,423,506 3,232,489 Securities available for sale, at market value; cost $40,808,179 and $28,940,165 at September 30, 1995 and December 31, 1994, respectively 48,100,308 33,609,315 Mortgage loans held for sale 851,475 203,750 Investment securities, at cost; market value $55,684,635 and $49,395,262 at September 30, 1995 and December 31, 1994, respectively 56,209,498 52,496,616 Federal Home Loan Bank stock, at cost 2,995,000 2,906,800 Loans 387,207,071 393,926,200 Less reserve for possible loan losses 8,339,675 9,327,942 ----------- ----------- Net loans 378,867,396 384,598,258 Premises and equipment, net 14,676,138 14,779,903 Accrued interest receivable 3,925,675 3,232,211 Other real estate owned, net 1,789,674 2,007,212 Other assets 3,457,478 3,440,988 ----------- ----------- Total assets $ 544,513,138 $ 515,679,963 =========== =========== LIABILITIES Demand deposits $ 60,830,228 $ 53,373,386 Savings deposits 178,976,880 192,653,937 Time deposits 230,192,214 194,703,819 ----------- ----------- Total deposits 469,999,322 440,731,142 Dividends payable 681,251 564,686 Federal Home Loan Bank advances 16,961,976 23,522,343 Accrued expenses and other liabilities 5,525,316 5,078,808 ----------- ----------- Total liabilities 493,167,865 469,896,979 ----------- ----------- SHAREHOLDERS' EQUITY Common stock of $.0625 par value; authorized 10,000,000 shares; issued 2,880,000 shares 180,000 180,000 Paid-in capital 2,959,994 2,869,135 Retained earnings 44,311,317 40,613,979 Unrealized gain on securities available for sale, net of tax 4,375,279 2,801,490 Treasury stock, at cost; 39,954 shares at September 30, 1995 and 56,570 shares at December 31, 1994 (481,317) (681,620) ----------- ----------- Total shareholders' equity 51,345,273 45,782,984 ----------- ----------- Total liabilities and shareholders' equity $ 544,513,138 $ 515,679,963 =========== ===========
See accompanying notes to consolidated financial statements. - 3 - WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months Periods ended September 30, 1995 1994 1995 1994 Interest income: Interest and fees on loans $ 9,008,831 $ 7,948,985 $26,683,113 $22,744,533 Investment securities and securities available for sale: Interest 1,224,064 1,136,308 3,450,502 3,398,450 Dividends 260,251 172,259 644,365 543,091 Federal funds sold and securities purchased under agreements to resell 281,664 99,412 575,618 192,330 ---------- --------- ---------- ---------- Total interest income 10,774,810 9,356,964 31,353,598 26,878,404 ---------- --------- ---------- ---------- Interest expense: Savings deposits 993,927 1,104,627 2,949,327 3,225,449 Time deposits 3,123,944 1,974,678 8,616,790 5,779,828 Other 274,886 325,417 1,025,161 1,036,068 ---------- --------- ---------- ---------- Total interest expense 4,392,757 3,404,722 12,591,278 10,041,345 ---------- --------- ---------- ---------- Net interest income 6,382,053 5,952,242 18,762,320 16,837,059 Provision for loan losses 275,000 252,089 725,000 955,436 ---------- --------- ---------- ---------- Net interest income after provision for loan losses 6,107,053 5,700,153 18,037,320 15,881,623 ---------- --------- ---------- ---------- Noninterest income: Trust income 808,735 880,659 2,433,790 2,482,222 Service charges on deposit accounts 491,763 408,265 1,448,328 1,203,900 Merchant processing fees 367,015 326,115 558,633 478,356 Gains on sales of securities available for sale 111,198 -- 280,408 681,558 Gains (losses) on loan sales (193,143) 13,276 (145,068) (18,541) Other income 214,744 193,424 678,671 556,110 ---------- --------- ---------- ---------- Total noninterest income 1,800,312 1,821,739 5,254,762 5,383,605 ---------- --------- ---------- ---------- Noninterest expense: Salaries and employee benefits 2,588,549 2,557,631 7,748,633 7,415,630 Net occupancy 324,673 313,090 903,059 916,833 Equipment 315,748 300,599 936,428 903,496 Deposit taxes and assessments 40,036 295,726 659,002 893,649 Foreclosed property costs, net 48,648 80,719 224,396 106,204 Office supplies 85,802 177,227 360,732 507,587 Advertising and promotion 148,052 64,923 418,379 327,095 Credit and collection 65,226 106,404 312,586 397,201 Charitable contributions 40,000 -- 80,000 699,897 Other 1,138,810 1,011,339 2,970,807 2,575,914 ---------- --------- ---------- ---------- Total noninterest expense 4,795,544 4,907,658 14,614,022 14,743,506 ---------- --------- ---------- ---------- Income before income taxes 3,111,821 2,614,234 8,678,060 6,521,722 Applicable income taxes 1,079,000 844,000 3,056,000 2,103,000 ---------- --------- ---------- ---------- Net income $ 2,032,821 $ 1,770,234 $ 5,622,060 $ 4,418,722 ========== ========= ========== ========== Weighted average shares outstanding - primary 2,922,855 2,890,790 2,898,750 2,864,835 Weighted average shares outstanding - fully diluted 2,922,824 2,893,509 2,918,155 2,889,828 Earnings per share - primary $ .70 $ .61 $1.94 $1.54 Earnings per share - fully diluted $ .70 $ .61 $1.93 $1.53 Cash dividends declared per share $ .24 $ .20 $ .68 $ .53
See accompanying notes to consolidated financial statements. - 4 - WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended September 30, 1995 1994 - --------------------------------------------------------------------------------- Common Stock Balance at beginning of year $ 180,000 $ 120,000 3-for-2 stock split in the form of a 50% stock dividend -- 60,000 - --------------------------------------------------------------------------------- Balance at end of period 180,000 180,000 - --------------------------------------------------------------------------------- Paid-in Capital Balance at beginning of year 2,869,135 2,822,908 Issuance of common stock for dividend reinvestment and stock option plans 90,859 77,083 3-for-2 stock split in the form of a 50% stock dividend -- (60,000) - --------------------------------------------------------------------------------- Balance at end of period 2,959,994 2,839,991 - --------------------------------------------------------------------------------- Retained Earnings Balance at beginning of year 40,613,979 36,418,073 Net income 5,622,060 4,418,722 Cash dividends declared (1,924,722) (1,504,048) - --------------------------------------------------------------------------------- Balance at end of period 44,311,317 39,332,747 - --------------------------------------------------------------------------------- Unrealized Gain on Securities Available for Sale Balance at beginning of year 2,801,490 -- Adoption of SFAS No. 115 -- 4,910,522 Change in unrealized gain on securities available for sale, net of tax 1,573,789 (1,714,716) - --------------------------------------------------------------------------------- Balance at end of period 4,375,279 3,195,806 - --------------------------------------------------------------------------------- Treasury Stock Balance at beginning of year (681,620) (898,056) Issuance of common stock for dividend reinvestment and stock option plans 200,303 156,194 - --------------------------------------------------------------------------------- Balance at end of period (481,317) (741,862) - --------------------------------------------------------------------------------- Total Shareholders' Equity $51,345,273 $44,806,682 =================================================================================
See accompanying notes to consolidated financial statements. -5- WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, ------------------------- 1995 1994 ---------- ---------- Cash flows from operating activities: Net income $ 5,622,060 4,418,722 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 725,000 955,436 Provision for valuation of other real estate owned 62,999 153,151 Depreciation of premises and equipment 997,176 999,962 Amortization of net deferred loan fees and costs (471,351) (589,745) Gains on sales of securities available for sale (280,408) (681,558) Losses (gains) on sales of other real estate owned 34,268 (287,094) Losses on loan sales 145,068 18,541 Proceeds from sales of loans 12,396,410 12,824,764 Loans originated for sale (12,959,203) (9,133,806) Increase in accrued interest receivable (693,464) (322,858) Increase in other assets (1,065,680) (394,800) Increase (decrease) in accrued expenses and other liabilities 446,508 (338,743) Other, net 61,702 146,877 ---------- ---------- Net cash provided by operating activities 5,021,085 7,768,849 ---------- ---------- Cash flows from investing activities: Securities available for sale: Purchases (19,085,354) (4,500,313) Proceeds from sales of equity securities 2,464,969 6,449,897 Maturities 5,000,000 -- Investment securities: Purchases (7,980,165) (6,738,381) Maturities and principal repayments 4,227,979 7,260,281 Investment in Federal Home Loan Bank stock (88,200) (934,000) Loan originations (over) under principal collected on loans 5,337,870 (26,552,508) Proceeds from sales and other reductions of other real estate owned 57,459 566,418 Purchases of premises and equipment (910,875) (1,248,831) ---------- ---------- Net cash used in investing activities (10,976,317) (25,697,437) ---------- ---------- Cash flows from financing activities: Net increase in deposits 29,268,180 16,137,693 Proceeds from Federal Home Loan Bank advances 12,564,839 11,051,500 Payments of Federal Home Loan Bank advances (19,125,206) (12,019,106) Proceeds from issuance of commmon stock from treasury 291,162 233,277 Cash dividends paid (1,808,157) (1,351,785) ---------- ---------- Net cash provided by financing activities 21,190,818 14,051,579 ---------- ---------- Net increase (decrease) in cash and cash equivalents 15,235,586 (3,877,009) Cash and cash equivalents at beginning of period 18,404,910 21,650,128 ---------- ---------- Cash and cash equivalents at end of period $ 33,640,496 17,773,119 ========== ========== Noncash Investing Activities: Transfers from loans to other real estate owned $ 233,328 1,046,601 Loans charged off 2,168,958 1,107,760 Loans made to facilitate the sale of OREO 304,550 1,089,048 Change in unrealized gain on securities available for sale, net of tax 1,573,789 3,195,806 Supplemental Disclosures: Interest payments $ 5,529,806 5,548,249 Income tax payments 2,511,250 2,322,787
See accompanying notes to consolidated financial statements. -6- WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 AND 1994 (1) BASIS OF PRESENTATION - ------------------------- The accounting and reporting policies of Washington Trust Bancorp, Inc. (the "Corporation") are in accordance with generally accepted accounting principles and conform to general practices within the banking industry. In the opinion of management, the accompanying consolidated financial statements present fairly the Corporation's financial position as of September 30, 1995 and December 31, 1994 and the results of operations and cash flows for the interim periods presented. The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The Washington Trust Company. All significant intercompany balances and transactions have been eliminated. Certain amounts in the 1994 consolidated financial statements have been reclassified to conform to the current reporting format. The unaudited consolidated financial statements of Washington Trust Bancorp, Inc. presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1994, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. (2) RECENT ACCOUNTING DEVELOPMENTS - ---------------------------------- In May 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 122, "Accounting for Mortgage Servicing Rights" (SFAS No. 122). This statement requires that the rights to service mortgage loans for others be recognized as an asset, including rights acquired through both purchases and originations. SFAS No. 122 also requires that capitalized mortgage servicing rights be assessed for impairment based on the fair value of the rights. The statement is effective for fiscal years ending after December 15, 1995. The adoption of this pronouncement is not expected to have a material impact on the Corporation's financial condition or results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation", which is effective for fiscal years beginning after December 15, 1995. The statement establishes financial accounting and reporting standards for stock-based compensation plans. SFAS No. 123 encourages, but does not require, a fair value based method of accounting for stock-based compensation plans. The statement allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method prescribed by APB Opinion No. 25. For those entities electing to use the intrinsic value based method, SFAS No. 123 requires pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied. The Corporation intends to continue to account for stock-based compensation costs under APB Opinion No. 25, and will provide the additional required disclosures relating to 1995 and 1996 stock options in its 1996 Annual Report. The FASB has recently announced that it will allow companies to reassess the appropriateness of their current securities classifications under FASB No. 115. According to the draft announcement, transfers between "held to maturity" and "available for sale" classifications would continue to be made at fair value in accordance with FASB No. 115. Any transfers made in connection with this announcement would be required to be made after issuance of the final guidelines, which are expected to be issued on November 15, 1995, but prior to December 31, 1995. This change allows for securities currently classified as "held to maturity" to be reclassified to "available for sale" without marking the entire held to maturity portfolio to fair value. Washington Trust may consider the reclassification of a portion of its held to maturity portfolio to the available for sale category prior to December 31, 1995. (3) SECURITIES AVAILABLE FOR SALE - --------------------------------- Securities available for sale are those which the Corporation intends to use as part of its asset/liability strategy or that may be sold as a result of changes in market conditions, changes in prepayment risk, rate fluctuations, liquidity or capital requirements. Securities available for sale are summarized as follows:
Amortized Unrealized Unrealized Market September 30, 1995 Cost Gains Losses Value ------------------ ---------- ---------- ---------- ----------- U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $30,151,700 373,158 (89,840) $30,435,018 Corporate stocks 10,656,479 7,017,306 (8,495) 17,665,290 ----------- ---------- --------- ---------- $40,808,179 7,390,464 (98,335) $48,100,308 =========== ========== ========= =========== Amortized Unrealized Unrealized Market December 31, 1994 Cost Gains Losses Value ----------------- ---------- ---------- --------- ----------- U.S. Treasury obligations $25,059,480 181,660 (707,920) $24,533,220 Corporate stocks 3,880,685 5,215,167 (19,757) 9,076,095 ----------- ---------- --------- ---------- $28,940,165 5,396,827 (727,677) $33,609,315 =========== ========== ========= ===========
Included in corporate stocks at September 30, 1995 and December 31, 1994 were $7.0 million and $500,000, respectively, of auction rate preferred stocks. These are preferred stock instruments whose dividend rate is reset by auction every 49 days to a market rate which results in a market value of par. U.S. Treasury obligations with a carrying value of $3,136,318 and $2,999,133 were pledged to secure public deposits and for other purposes at September 30, 1995 and December 31, 1994, respectively. For the nine months ended September 30, 1995, proceeds from sales of corporate stocks and gains realized on these sales amounted to $2,464,969 and $280,408, respectively. No losses were realized on these sales. Realized gains from sales of corporate stocks were determined using the average cost method. (4) INVESTMENT SECURITIES - ------------------------- Those debt securities that the Corporation has the ability and intent to hold until maturity are classified as investment securities. Debt securities held in the investment portfolio are carried at cost, adjusted for amortization of premium and accretion of discount. The amortized cost and market values of investment securities are summarized as follows:
Carrying Unrealized Unrealized Market September 30, 1995 Value Gains Losses Value ------------------ ---------- ---------- ---------- ----------- U.S. Treasury obligations and obligations of U.S. government and government-sponsored agencies $20,409,898 20,495 (685,338) $19,745,055 Mortgage-backed securities 23,651,232 311,100 (180,825) 23,781,507 States and political subdivisions 12,148,368 48,725 (39,020) 12,158,073 ----------- ---------- --------- ----------- $56,209,498 380,320 (905,183) $55,684,635 =========== ========== ========= =========== Carrying Unrealized Unrealized Market December 31, 1994 Value Gains Losses Value ----------------- ---------- ---------- ---------- ----------- U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $20,413,017 -- (1,714,040) $18,698,977 Mortgage-backed securities 21,696,508 -- (1,160,590) 20,535,918 States and political subdivisions 10,387,091 9,385 (236,109) 10,160,367 ----------- ---------- --------- ----------- $52,496,616 9,385 (3,110,739) $49,395,262 =========== ========== ========= ===========
Investment securities with a carrying value of $1,399,638 and $999,828 were pledged to secure public deposits and for other purposes at September 30, 1995 and December 31, 1994, respectively. There were no sales or transfers of investment securities during the nine months ended September 30, 1995. (5) LOAN PORTFOLIO - ------------------ The following is a summary of loans:
September 30, December 31, 1995 1994 ----------- ----------- Residential real estate: Mortgages $169,358,624 $170,366,731 Homeowner construction 2,702,808 6,933,793 ----------- ----------- Total residential real estate 172,061,432 177,300,524 ----------- ----------- Commercial: Mortgages 60,149,124 56,014,628 Construction and development 5,925,061 12,089,966 Other 96,832,493 103,334,837 ----------- ----------- Total commercial 162,906,678 171,439,431 ----------- ----------- Installment 52,238,961 45,186,245 ----------- ----------- $387,207,071 $393,926,200 =========== ===========
Amounts presented for December 31, 1994 have been restated as a result of the implementation of SFAS No. 114 and No. 118. (6) RESERVE FOR POSSIBLE LOAN LOSSES - ------------------------------------ The following is an analysis of the reserve for possible loan losses:
Three months ended Nine months ended September 30, September 30, --------------------- ---------------------- 1995 1994 1995 1994 --------- --------- --------- --------- Balance at beginning of period $8,630,876 $9,146,419 $9,327,942 $9,089,775 Provision charged to expense 275,000 252,089 725,000 955,436 Recoveries 269,704 87,349 455,691 220,434 Loans charged off (835,905) (327,972) (2,168,958) (1,107,760) --------- --------- --------- --------- Balance at end of period $8,339,675 $9,157,885 $8,339,675 $9,157,885 ========= ========= ========= =========
Prior period amounts presented have been restated as a result of the implementation of SFAS No. 114 and No. 118. (7) NONACCRUAL LOAN POLICY - -------------------------- Loans, with the exception of credit card loans and certain residential mortgage loans, are placed on nonaccrual status and interest recognition is suspended when such loans are 90 days or more overdue with respect to principal and/or interest. Interest previously accrued, but not collected on such loans is reversed against current period income. Cash receipts on nonaccrual loans are applied to the outstanding principal balance of the loan, or recognized as interest income depending on management's assessment of the ultimate collectibility of the loan. Loans are removed from nonaccrual status when they have been current as to principal and interest for a period of time, the borrower has demonstrated an ability to comply with the repayment terms, and when, in management's option, the loans are considered to be fully collectible. Effective January 1, 1995, residential mortgages are placed on nonaccrual status when they are 90 days or more overdue, unless in management's judgment the value of the underlying collateral is sufficient to preclude any loss of principal and interest and the loans are in the process of collection. Previously, all residential mortgages were placed on nonaccrual status when they became 90 days past due. The effect of this change on the results of operations was insignificant. (8) INTEREST RATE RISK MANAGEMENT POLICY - ---------------------------------------- The Corporation uses interest rate swaps and interest rate floor contracts as part of its interest rate risk management strategy. Swaps are agreements in which the Corporation and another party agree to exchange interest payments on a notional principal amount. A floor is a purchased contract that entitles the Corporation to receive payment from a counterparty if a rate index falls below a contractual rate. The amount of the payment is the difference between the contractual floor rate and the rate index multiplied by the notional principal amount of the contract. If the contractual rate does not fall below the floor rate, no payment is received. The credit risk associated with these types of transactions is risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate contracts only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the Corporation's potential loss exposure. Interest rate risk contracts outstanding at September 30, 1995 are summarized in the following table: Notional Description amount Terms - ----------- ----------- ----- Interest rate swaps $10,000,000 Pay 3-month LIBOR; resetting quarterly Receive 6.1% fixed Expiration date: May, 1996 Floor contracts $30,000,000 Receive payment if prime rate falls below 9% Expiration date: February, 2000 Floor contract $20,000,000 Receive payment if 3-month LIBOR falls below 6.1875%; resetting quarterly Expiration date: February, 2000 The purpose of the swap agreements is to convert the fixed rate paid on certain time deposits to a quarterly-resetting rate. The purpose of the floor contracts is to offset the risk of future reductions in interest earned on certain floating rate loans. Amounts paid or received related to outstanding contracts that are used to manage interest rate risk and the amortization of the cost of the floor contracts are recognized in earnings as an adjustment to the related interest income or expense over the life of the contracts. At September 30, 1995, the Corporation was receiving a fixed rate of 6.1% on the swap agreements, while the weighted average rate paid by the Corporation on these agreements was 5.875%. The Corporation receives payment under the floor contracts when the prime rate falls below 9.0% and when the 3-month LIBOR rate at the quarterly resetting dates is below 6.1875%. At September 30, 1995, the prime rate and 3-month LIBOR rate applicable to the outstanding floor contracts was 8.75% and 5.9375%, respectively. The Corporation has not terminated any interest rate contracts and there are no unamortized deferred gains or losses. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Quarters Ended September 30, 1995 and 1994 - ------------------------------------------------------------------ Net income for the three months ended September 30, 1995 amounted to $2,032,821, up 14.8% over the $1,770,234 of net income recorded in the same quarter of 1994. Earnings per share for the quarter ended September 30, 1995 amounted to $.70, 14.8% higher than the $.61 per share earned in the quarter ended September 30, 1994. Net interest income for the three months ended September 30, 1995 increased $430,000, or 7.2%, over the prior year quarter. This increase was primarily attributable to the growth in interest-earning assets that was partially offset by a decrease in the interest rate spread. The difference between the average balances of interest-earning assets and interest-bearing liabilities was $10.2 million higher for the third quarter of 1995 than for the same 1994 quarter. (See additional discussion under the caption "Net Interest Income".) The provision for loan losses amounted to $275,000 for the third quarter of 1995, up from $252,089 for the third quarter of 1994. Total noninterest income for the three months ended September 30, 1995 amounted to $1.8 million, down slightly from the same 1994 period. The 1995 amount includes gains on sales of securities available for sale of $111,198. There were no sales of securities in the third quarter of 1994. Also included in the 1995 amount are net losses on sales of loans of $193,143. During the third quarter of 1995, the Corporation sold a pool of loans with a book value of approximately $3.3 million, most of which were nonperforming. A loss of approximately $200,000 was recorded on this sale. Noninterest income excluding securities gains and gains and losses on loan sales rose 4.1% over the prior year quarter due to fee increases and higher transaction volume. Total noninterest expense for the quarter ended September 30, 1995 amounted to $4.8 million, down slightly from the 1994 amount of $4.9 million. During the third quarter of 1995 the FDIC reduced rates paid by banks for deposit insurance premiums. This reduction lowered the Corporation's quarterly FDIC premium expense by approximately $206,000. In addition, a reduction in the third quarter expense of $68,000 was recorded to reflect the reduction in rates retroactive to June 1, 1995. Results of Operations - Nine Months Ended September 30, 1995 and 1994 - --------------------------------------------------------------------- Net income for the nine months ended September 30, 1995 amounted to $5,622,060 or 27.2% higher than the $4,418,722 net income recorded in the comparable 1994 period. Fully diluted earnings per share for the nine months ended September 30, 1995 amounted to $1.93 compared to $1.53 per share on net income for the comparable 1994 period. The increase in net income in 1995 is primarily attributable to the increase in net interest income of approximately $1.9 million. This increase reflects higher average loans outstanding in 1995 due to strong loan growth in 1994. The prime rate increases which occurred in 1994 also contributed to the increase in net interest income in 1995 as periodic repricing loans that were scheduled to reprice in 1995 adjusted upward. (See additional discussion under the caption "Net Interest Income".) For the nine months ended September 30, 1995 and 1994, the provision for loan losses was $725,000 and $955,436, respectively. Total noninterest income for the nine months ended September 30, 1995 amounted to $5.3 million, down slightly from the $5.4 million recorded for the same 1994 period. Included in these amounts are gains on sales of securities available for sale of $280,408 in 1995 and $681,558 in 1994. The 1994 securities gains were taken in connection with a nonrecurring contribution expense of approximately $700,000 recorded in the first quarter of 1994 for the establishment of a charitable trust. For the nine months ended September 30, 1995, the Corporation recorded net losses on sales of loans of $145,068. Included in this amount is a loss of approximately $200,000 recorded on the third quarter sale of a pool of loans with a book value of approximately $3.3 million, most of which were nonperforming. Noninterest income excluding securities gains and net losses on loan sales rose 8.4% over the prior year due to fee increases and higher transaction volume. Included in salaries and benefits in 1994 is the effect of the first quarter adoption of SFAS No. 112, "Employers' Accounting for Postemployment Benefits". The effect of the adoption was not material to the Corporation's financial position or results of operations. Excluding the effect of the adoption of SFAS No. 112, salaries and employee benefits rose 6.2% in 1995 over the prior year. This increase is primarily attributable to normal salary adjustments and increased staffing levels. Deposit taxes and assessments were approximately $235,000 lower for the nine months ended September 30, 1995 than for the comparable 1994 period. During the third quarter of 1995, the FDIC reduced rates paid by banks for deposit insurance premiums. This reduction, retroactive to June 1, 1995, reduced the Corporation's 1995 expense by approximately $274,000 through the third quarter of 1995. Net foreclosed property costs amounted to $224,396 and $106,204 for the nine months ended September 30, 1995 and 1994, respectively. The increase is due to a higher amount of net gains realized on sales of other real estate owned in the 1994 period.
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 the applicable 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. Nine months ended September 30, 1995 1994 --------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate --------------------------------------------------------------------------------------------------------- Interest-earning assets: Residential real estate $176,397 11,019 8.33% $169,156 9,935 7.83% Commercial and other 170,141 12,142 9.52% 165,927 10,157 8.16% Installment loans 47,599 3,585 10.04% 36,993 2,717 9.79% --------------------------------------------------------------------------------------------------------- Total loans 394,137 26,746 9.05% 372,076 22,809 8.17% Federal funds sold and securities purchased under agreements to resell 13,241 575 5.80% 6,963 192 3.68% Taxable securities 77,201 4,097 7.08% 77,378 3,837 6.61% Nontaxable securities 10,608 523 6.57% 8,368 396 6.31% --------------------------------------------------------------------------------------------------------- Total interest-earning assets 495,187 31,941 8.60% 464,785 27,234 7.81% Non interest-earning assets 36,838 34,348 --------------------------------------------------------------------------------------------------------- Total assets $532,025 $499,133 ========================================================================================================= Interest-bearing liabilities: Savings deposits $178,519 2,949 2.20% $196,481 3,225 2.19% Time deposits 221,956 8,617 5.18% 181,896 5,780 4.24% FHLB advances 21,790 1,006 6.15% 23,124 981 5.66% Other 442 19 5.89% 1,821 55 4.01% --------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 422,707 12,591 3.97% 403,322 10,041 3.32% Non interest-bearing liabilities 60,534 51,811 --------------------------------------------------------------------------------------------------------- Total liabilities 483,241 455,133 Total shareholders' equity 48,784 44,000 --------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $532,025 $499,133 ========================================================================================================= Net interest income / interest rate spread $19,350 4.63% $17,193 4.49% ========================================================================================================= Net interest margin 5.21% 4.93% ========================================================================================================= Interest income amounts presented in the table above include the following adjustments for taxable equivalency (in thousands): September 30, 1995 September 30, 1994 ------------------ ------------------ Commercial and other loans $ 63 $ 65 Nontaxable debt securities 337 140 Corporate stocks 187 151
Net Interest Income - ------------------- (The accompanying schedule on page 14 should be read in conjunction with this discussion.) Fully taxable equivalent (FTE) net interest income for the nine months ended September 30, 1995 amounted to $19.4 million, up 12.5% over the corresponding 1994 period. The increase in net interest income was attributable to higher yields on assets, combined with a slower rate of increase in rates paid on interest-bearing liabilities. Increased average loan and investment volumes also contributed to higher net interest income. These changes were reflected in improved net interest spreads and margins. The FTE interest rate spread (the average rate of return on interest-earning assets less the average cost of interest-bearing funds) amounted to 4.63% for the nine months ended September 30, 1995, up from 4.49% for the same 1994 period. The net interest margin (net interest income as a percentage of average interest-earning assets) amounted to 5.21% and 4.93% for the nine months ended September 30, 1995 and 1994, respectively. The FTE yield on total loans amounted to 9.05% for the nine months ended September 30, 1995, compared to 8.17% for the comparable 1994 period. Loan yields for all categories of loans increased from 1994 to 1995. Strong loan originations during 1994 contributed to higher net interest income in 1995. Total average loans amounted to $394.1 million for the nine months ended September 30, 1995, compared to $372.1 million for the year-earlier period. Demand for commercial loans and residential real estate loans has weakened in 1995. Demand for residential and commercial construction loans has been particularly affected as evidenced by the declines from year-end balances. Total commercial and residential real estate loans at September 30, 1995 were down by 5.0% and 3.0%, respectively, from year-end balances. Additionally, commercial loan balances have decreased due to the sale of a pool of mostly nonperforming commercial loans. The average balance of federal funds sold and securities purchased under agreements to resell for the nine months ended September 30, 1995 were up $6.3 million due to strong deposit growth and reduced loan demand. The rate earned on these assets sold rose from 3.68% for the nine months ended September 30, 1994 to 5.8% for the corresponding 1995 period. Rates paid on interest-bearing liabilities also rose from 1994 levels. The overall cost of funds on interest-bearing liabilities rose to 3.97% for the nine months ended September 30, 1995, up from 3.32% for the same 1994 period. Rates paid on time deposits and borrowed funds increased, while rates paid on savings deposits were almost unchanged. This differential in rates paid created a shift of balances out of savings deposits into higher-cost time deposits during early 1995. Average time deposits for the nine months ended September 30, 1995 rose $40.1 million from the 1994 amount, while average savings deposits fell by $18.0 million over the same period. For the quarter ended September 30, 1995, the Corporation's FTE interest rate spread amounted to 4.57%, compared to 4.78% and 4.54% for the first and second quarter of 1995, respectively. The decrease in the spread from the beginning of the year was primarily due to both higher average time deposit balances and increasing rates paid on those balances throughout 1995, as well as excess liquidity resulting from deposit growth that was invested in short-term, lower-yielding assets during this period of relatively weak loan demand. The FTE rate of return on loans increased for each quarter during the nine months ended September 30, 1995. Interest rates began to decline, however, in the third quarter as a result of a 25 basis point reduction in the prime rate. Accordingly, loan yields on prime-based loans are expected to decline as rates earned on periodic repricing loans adjust downward. The Corporation's cost of funds for the third quarter of 1995 was 4.11%, up from 3.75% and 4.05% during the first and second quarters, respectively. The rate paid on time deposits has risen during each of these quarters, while rates paid on savings deposits were largely unchanged over the same period. Average Federal Home Loan Bank (FHLB) advances for the third quarter of 1995 amounted to $17.2 million, down from $21.9 million for the second quarter and $26.3 million for the first quarter of 1995. This net reduction resulted from increased liquidity created by strong seasonal deposit growth and limited loan demand. The average rates of interest paid on FHLB advances were 6.29%, 6.16% and 6.06% for the third, second and first quarters of 1995, respectively. The Corporation supplements its interest rate risk management strategies with off-balance sheet transactions. At September 30, 1995 the notional principal amount of interest rate contracts amounted to $60 million and included $10 million in interest rate swaps and $50 million in interest rate floor contracts which were purchased during the first quarter of 1995. The effect of these interest rate contracts on net interest income for the quarter ended September 30, 1995 was not material. (See Note 8 to the Consolidated Financial Statements for additional discussion.) Financial Condition and Liquidity - --------------------------------- Total assets amounted to $544.5 million at September 30, 1995, 5.6% higher than the December 31, 1994 amount of $515.7 million. Average assets totalled $532.0 million for the nine months ended September 30, 1995, up 6.6% over the comparable 1994 period. Securities Available for Sale - During the nine months ended September 30, 1995, the net unrealized gain on corporate stocks increased approximately $1.8 million, reflecting an improvement in general equity market conditions. In addition, there was a net increase in the market value of U.S. Treasury obligations and obligations of U.S. government-sponsored agencies amounting to $809,758 that has occurred since December 31, 1994. This turnaround is primarily attributable to the decline in medium-term and long-term Treasury rates that has occurred thus far in 1995. Investment Securities - The carrying value of investment securities amounted to $56.2 million at September 30, 1995, up from $52.5 million at December 31, 1994. The net unrealized loss on investment securities amounted to approximately $525,000 at September 30, 1995, compared to $3.1 million at December 31, 1994, representing an improvement of $2.6 million during this nine-month period. This improvement was attributable to the decline in medium-term and long-term Treasury rates occurring in 1995. Loans - Total loans amounted to $387.2 million at September 30, 1995, a decrease of 1.7% from the December 31, 1994 balance of $393.9 million. While residential real estate and commercial loans decreased 3.0% and 5.0%, respectively, installment loans increased $7.1 million, or 15.6%, over the year-end 1994 amount. This increase was due to the increase in both home equity loans and other consumer installment loans. Deposits and Other Borrowings - Total deposits amounted to $470.0 million at September 30, 1995, up 6.6% from $440.7 million at December 31, 1994. Depositors reacted to rising time deposit interest rates by shifting deposits into longer-term accounts during the first quarter of 1995. Accordingly, time deposits at September 30, 1995 were up by $35.5 million, or 18.2%, over the 1994 year-end amount. Conversely, savings deposits were reduced by $13.7 million, or 7.1%, from the December 31, 1994 amount. Time deposits composed 49.0% of total deposits at September 30, 1995, compared to 44.2% of total deposits at December 31, 1994. The Corporation utilizes Federal Home Loan Bank (FHLB) advances as a funding source. FHLB advances amounted to $17.0 million at September 30, 1995, with maturities generally less than five years. There were no other short-term borrowings outstanding at September 30, 1995. For the nine months ended September 30, 1995, net cash provided by operations amounted to $5.0 million, the majority of which was generated by net income. Net cash used in investing activities amounted to $11.0 million and was primarily used to purchase securities available for sale. The funding for cash used in investing activities was generated from a net increase in deposits of $29.3 million during the period. These funds were also used in part to fund a net reduction in Federal Home Loan Bank advances outstanding of $6.6 million. Asset Quality - ------------- Nonperforming assets are summarized in the following table: (Dollars in thousands) 09/30/95 12/31/94 -------- -------- Nonaccrual loans 90 days or more past due $4,502 $ 7,183 Nonaccrual loans less than 90 days past due 3,130 3,729 ------- -------- Total nonperforming loans 7,632 10,912 ------- -------- Other real estate owned: Properties acquired through foreclosure 2,363 2,578 Valuation allowance (573) (571) ------- -------- Total other real estate owned 1,790 2,007 ------- -------- Total nonperforming assets $9,422 $12,919 ======= ======== Nonperforming loans as a % of total loans 1.8% 2.8% Nonperforming assets as a % of total assets 1.7% 2.5% Reserve for loan losses to nonperforming loans 109.3% 85.5% Not included in the analysis of nonperforming assets at September 30, 1995 above are approximately $196,000 of loans greater than 90 days past due, and still accruing. These loans consist primarily of residential mortgages which are considered well-collateralized and in the process of collection and therefore are deemed to have no loss exposure. The following is an analysis of nonperforming loans by loan category: (In thousands) 09/30/95 12/31/94 -------- -------- Residential mortgages $2,332 $3,681 Commercial: Mortgages 1,402 1,700 Construction and development 685 689 Other (1) 2,650 4,191 Installment 563 651 ------- -------- Total nonperforming loans $7,632 $10,912 ======= ======== (1) Loans to businesses and individuals, a substantial portion of which is fully or partially collateralized by real estate. The Corporation implemented SFAS No. 114 and No. 118 as of January 1, 1995. Amounts for periods prior to the adoption have been restated. The effect of the implementation of these pronouncements was a reclassification of loans previously accounted for as in-substance foreclosures to loans in the amount of $3.8 million. Additionally, $492,000 of related OREO valuation reserve was reclassified to the reserve for possible loan losses. Impaired loans consist of all nonaccrual commercial loans. At September 30, 1995, the recorded investment in impaired loans was $4,737,000, including $3,799,000 which had a related allowance amounting to $722,000. The balance of impaired loans which did not require an allowance was $938,000. During the nine months ended September 30, 1995, the average recorded investment in impaired loans was $5,571,000. Also during this period, interest income recognized on impaired loans amounted to approximately $203,000. Interest income on impaired loans is recognized on a cash basis only. During the third quarter of 1995, the Corporation sold a pool of loans with a book value of approximately $3.3 million, approximately $2.5 million of which were nonperforming loans. A loss of approximately $200,000 was recorded on this sale. Additionally, the allowance for impaired loans was reduced by approximately $280,000 as a result of the sale. The balance of other real estate owned is comprised of the following types of properties (in thousands): 09/30/95 12/31/94 -------- -------- Commercial real estate $ 752 $ 752 Residential real estate 298 457 Construction and development 302 401 Land 1,011 968 ------ ------ 2,363 2,578 Valuation allowance (573) (571) ------ ------ Total other real estate owned $1,790 $2,007 ====== ====== An analysis of the activity relating to other real estate owned for the nine months ended September 30, 1995 follows (in thousands): Balance at beginning of year $ 2,578 Transfers from loans, net 233 Sales and other reductions (456) Other 8 ------- 2,363 Valuation allowance (573) ------- Balance at end of period $ 1,790 ======= During the nine months ended September 30, 1995, the Corporation sold property with a carrying value of approximately $415,000. The following is an analysis of the OREO valuation allowance for the nine months ended September 30, 1995 (in thousands): Balance at beginning of period $ 571 Provision charged to expense 63 Sales and other reductions (61) ----- Balance at end of period $ 573 ===== Capital Resources - ----------------- Total equity capital amounted to $51.3 million, or 9.4% of total assets at September 30, 1995. This compares to $45.8 million, or 8.9% at December 31, 1994. The $5.6 million increase in total equity from year-end is primarily attributable to an increase in unrealized gains on securities available for sale of $1.6 million and $3.7 million resulting from earnings retention. The Corporation's total risk-adjusted capital ratio amounted to 14.82% at September 30, 1995. Banks are required to maintain a minimum capital to risk- adjusted asset ratio of 8%. The Corporation's leverage ratio amounted to 8.65% at September 30, 1995, well above the regulatory requirement of 3% for banking organizations with strong earnings, liquidity and asset quality who do not anticipate significant growth and who have well-diversified risk. Dividends payable at September 30, 1995 amounted to $681,251, representing $.24 per share payable on October 16, 1995, an increase of 20% over the $.20 per share paid in the third quarter of 1994. The source of funds for dividends paid by the Corporation is dividends received from its subsidiary bank. The subsidiary bank is a regulated enterprise, and as such its ability to pay dividends to the parent is subject to regulatory review and restriction. PART II OTHER INFORMATION ----------------- Item 1. Legal Proceedings - ------ ----------------- None Item 2. Changes in Securities - ------ --------------------- None Item 3. Defaults upon Senior Securities - ------ ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- None Item 5. Other Information - ------ ----------------- None Item 6. Exhibits and Reports on Form 8-K - ------ -------------------------------- None SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WASHINGTON TRUST BANCORP, INC. ------------------------------ (Registrant) November 13, 1995 By: Joseph J. Kirby -------------------------------- Joseph J. Kirby President (principal executive officer) November 13, 1995 By: David V. Devault -------------------------------- David V. Devault Vice President and Chief Financial Officer (principal financial officer) EX-27 2
9 THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF WASHINGTON TRUST BANCORP, INC. AS OF SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1995 SEP-30-1995 14,216,990 0 19,423,506 0 48,100,308 56,209,498 55,684,635 387,207,071 8,339,675 544,513,138 469,999,322 16,961,976 6,206,567 0 180,000 0 0 51,165,273 544,513,138 26,683,113 4,094,867 575,618 31,353,598 11,566,117 12,591,278 18,762,320 725,000 280,408 14,614,022 8,678,060 8,678,060 0 0 5,622,060 1.94 1.93 8.60 0 0 0 0 9,327,942 2,168,958 455,691 8,339,675 0 0 0
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