-----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, Ki0nTwOeHV3a5hcafiXMTjhVoI9Z7eqaAfUajlNMyTJ2+5OBtV8cH6fUIMOu+3m5 JOTFKYT/cYdppVlExE8aSA== 0000737468-98-000006.txt : 19980518 0000737468-98-000006.hdr.sgml : 19980518 ACCESSION NUMBER: 0000737468-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 000-13091 FILM NUMBER: 98622415 BUSINESS ADDRESS: STREET 1: 23 BROAD ST CITY: WESTERLY STATE: RI ZIP: 02891 BUSINESS PHONE: 4013481200 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1998 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 000-13091 ----------------------------------- WASHINGTON TRUST BANCORP, INC. (Exact name of registrant as specified in its charter) ----------------------------------- RHODE ISLAND 05-0404671 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23 BROAD STREET WESTERLY, RHODE ISLAND 02891 (Address of principal executive offices) (Zip Code) (401) 348-1200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares of common stock of the registrant outstanding as of May 7, 1998 was 6,641,968. Page 1 FORM 10-Q WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY For The Quarter Ended March 31, 1998 TABLE OF CONTENTS Page Number PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets March 31, 1998 and December 31, 1997 3 Consolidated Statements of Income Three Months Ended March 31, 1998 and 1997 4 Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 1998 and 1997 5 Consolidated Statements of Cash Flows Three Months Ended March 31, 1998 and 1997 6 Condensed Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II. Other Information 16 Signatures 17
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED BALANCE SHEETS March 31, December 31, 1998 1997 - ---------------------------------------------------------------------------------------- Assets: Cash and due from banks $16,467 $12,925 Federal funds sold and other short-term investments 8,421 13,203 Mortgage loans held for sale 5,582 3,772 Securities: Available for sale, at fair value 302,926 237,366 Held to maturity, at cost; fair value $53,771 in 1998 and $52,586 in 1997 53,005 51,807 - ---------------------------------------------------------------------------------------- Total securities 355,931 289,173 Federal Home Loan Bank stock, at cost 16,444 16,444 Loans 450,909 455,910 Less allowance for loan losses 9,309 8,835 - ---------------------------------------------------------------------------------------- Net loans 441,600 447,075 Premises and equipment, net 22,102 21,821 Accrued interest receivable 5,337 4,896 Other real estate owned, net 233 497 Other assets 4,914 4,587 - ---------------------------------------------------------------------------------------- Total assets $877,031 $814,393 - ---------------------------------------------------------------------------------------- Liabilities: Deposits: Demand $73,845 $75,282 Savings 183,307 185,073 Time 290,626 270,571 - ---------------------------------------------------------------------------------------- Total deposits 547,778 530,926 Dividends payable 998 927 Short-term borrowings 19,727 20,337 Federal Home Loan Bank advances 230,810 187,001 Accrued expenses and other liabilities 8,384 7,998 - ---------------------------------------------------------------------------------------- Total liabilities 807,697 747,189 - ---------------------------------------------------------------------------------------- Shareholders' Equity: Common stock of $.0625 par value; authorized 30 million shares; issued 6,682,418 shares in 1998 and 6,601,947 shares in 1997 418 413 Paid-in capital 4,206 3,705 Retained earnings 57,755 56,360 Accumulated other comprehensive income 7,969 7,059 Treasury stock, at cost; 31,397 shares in 1998 and 14,205 shares in 1997 (1,014) (333) - ---------------------------------------------------------------------------------------- Total shareholders' equity 69,334 67,204 - ---------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $877,031 $814,393 - ----------------------------------------------------------------------------------------
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF INCOME Three months ended March 31, 1998 1997 - --------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $10,072 $9,274 Interest on securities 4,571 3,738 Dividends on corporate stock and Federal Home Loan Bank stock 509 402 Interest on federal funds sold and other short-term investments 169 61 - --------------------------------------------------------------------------------------------------- Total interest income 15,321 13,475 - --------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 827 860 Time deposits 3,890 3,276 Federal Home Loan Bank advances 3,072 2,345 Other 232 300 - --------------------------------------------------------------------------------------------------- Total interest expense 8,021 6,781 - --------------------------------------------------------------------------------------------------- Net interest income 7,300 6,694 Provision for loan losses 450 300 - --------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 6,850 6,394 - --------------------------------------------------------------------------------------------------- Noninterest income: Trust revenue 1,224 1,088 Service charges on deposit accounts 633 553 Merchant processing fees 155 116 Net gains on sales of securities 41 254 Net gains on loan sales 329 72 Other income 282 249 - --------------------------------------------------------------------------------------------------- Total noninterest income 2,664 2,332 - --------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 3,419 2,953 Net occupancy 459 383 Equipment 566 464 Merchant processing costs 111 86 Office supplies 159 156 Advertising and promotion 112 122 Other 1,364 1,327 - --------------------------------------------------------------------------------------------------- Total noninterest expense 6,190 5,491 - --------------------------------------------------------------------------------------------------- Income before income taxes 3,324 3,235 Income tax expense 931 1,084 - --------------------------------------------------------------------------------------------------- Net income $2,393 $2,151 - --------------------------------------------------------------------------------------------------- Earnings per share - basic $.36 $.33 Earnings per share - diluted $.35 $.32 Cash dividends declared per share $.15 $.13
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Accumulated Other Common Paid-in Retained Comprehensive Treasury Three months ended March 31, Stock Capital Earnings Income Stock Total - ----------------------------------------------------------------------------------------------------------------------- 1997 Balance at beginning of year $273 $3,764 $50,886 $4,504 $ - $59,427 Net income 2,151 2,151 Other comprehensive income, net of tax: Valuation adjustments for securities available for sale (524) (524) ------------- Comprehensive income 1,627 Cash dividends declared (831) (831) Shares issued for stock option plan and dividend reinvestment plan - 98 - 98 Shares repurchased - - - ----------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1997 $273 $3,862 $52,206 $3,980 $ - $60,321 - ----------------------------------------------------------------------------------------------------------------------- 1998 Balance at beginning of year $413 $3,705 $56,360 $7,059 $(333) $67,204 Net income 2,393 2,393 Other comprehensive income, net of tax: Valuation adjustments for securities available for sale 910 910 ------------- Comprehensive income 3,303 Cash dividends declared (998) (998) Shares issued for stock option plan and dividend reinvestment plan 5 501 1,003 1,509 Shares repurchased (1,684) (1,684) - ----------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1998 $418 $4,206 $57,755 $7,969 $(1,014) $69,334 - -----------------------------------------------------------------------------------------------------------------------
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended March 31, 1998 1997 - --------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $2,393 $2,151 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 450 300 Depreciation of premises and equipment 573 449 Amortization of premium in excess of accretion of discount on debt securities 284 217 Net gains on sales of securities (41) (254) Net gains on loan sales (329) (72) Proceeds from sales of loans 22,265 4,249 Loans originated for sale (24,016) (5,219) Increase in accrued interest receivable (441) (976) Increase in other assets (327) (417) Increase (decrease) in accrued expenses and other liabilities (79) 912 Other, net (53) (33) - --------------------------------------------------------------------------------------------------- Net cash provided by operating activities 679 1,307 - --------------------------------------------------------------------------------------------------- Cash flows from investing activities: Securities available for sale: Purchases (95,619) (63,389) Proceeds from sales 19,532 1,847 Maturities and principal repayments 11,658 6,931 Securities held to maturity: Purchases (1,567) (105) Maturities and principal repayments 370 444 Purchases of Federal Home Loan Bank stock - (4,572) Loan originations under (over) principal collected on loans 5,276 (4,926) Purchase of loans - (324) Proceeds from sales of other real estate owned 340 15 Purchases of premises and equipment (858) (1,644) Purchase of deposits, net of premium paid - 7,029 - --------------------------------------------------------------------------------------------------- Net cash used in investing activities (60,868) (58,694) - --------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits 16,852 4,322 Net increase (decrease) in other short-term borrowings (610) 5,309 Proceeds from Federal Home Loan Bank advances 168,400 132,600 Repayment of Federal Home Loan Bank advances (124,591) (78,025) Repurchase of common stock (1,684) - Proceeds from issuance of common stock 1,509 98 Cash dividends paid (927) (785) - --------------------------------------------------------------------------------------------------- Net cash provided by financing activities 58,949 63,519 - --------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (1,240) 6,132 Cash and cash equivalents at beginning of year 26,128 18,990 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $24,888 $25,122 - --------------------------------------------------------------------------------------------------- (continued)
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Three months ended March 31, 1998 1997 - --------------------------------------------------------------------------------------------------- Noncash Investing and Financing Activities: Net transfers from loans to other real estate owned $44 $248 Loans charged off 55 316 Loans made to facilitate the sale of other real estate owned - 77 Increase (decrease) in net unrealized gain on securities available for sale 910 (524) Supplemental Disclosures: Interest payments $4,541 $3,599 Income tax payments 2 44
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 of the banking industry. In the opinion of management, the accompanying consolidated financial statements present fairly the Corporation's financial position as of March 31, 1998 and December 31, 1997 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. 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, 1997, included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. In June 1997, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130 established standards for reporting and displaying comprehensive income, which is defined as all changes to equity except investments by and distributions to shareholders. Net income is a component of comprehensive income, with all other components referred to in the aggregate as other comprehensive income. The Corporation has adopted SFAS No. 130 effective for the quarter ended March 31, 1998. (2) Securities Available for Sale
Securities available for sale are summarized as follows: Amortized Unrealized Unrealized Fair Cost Gains Losses Value - -------------------------------------------------------------------------------------------------------------------- March 31, 1998 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $116,134 $985 $(377) $116,742 Mortgage-backed securities 152,561 638 (212) 152,987 Corporate bonds 7,097 13 (21) 7,089 Corporate stocks 14,091 12,078 (61) 26,108 - -------------------------------------------------------------------------------------------------------------------- Total 289,883 13,714 (671) 302,926 - -------------------------------------------------------------------------------------------------------------------- December 31, 1997 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies 89,632 1,000 (40) 90,592 Mortgage-backed securities 121,728 865 (61) 122,532 Corporate bonds 1,985 15 - 2,000 Corporate stocks 12,319 9,976 (53) 22,242 - -------------------------------------------------------------------------------------------------------------------- Total $225,664 $11,856 $(154) $237,366 - --------------------------------------------------------------------------------------------------------------------
Securities available for sale with a fair value of $33,609 and $29,127 were pledged to secure Treasury Tax and Loan deposits, short-term borrowings and public deposits at March 31, 1998 and December 31, 1997, respectively. For the three months ended March 31, 1998, proceeds from sales of securities available for sale amounted to $19,532 , while net realized gains on these sales amounted to $41. (3) Securities Held to Maturity
The amortized cost and fair value of securities held to maturity are summarized as follows: Amortized Unrealized Unrealized Fair Cost Gains Losses Value - -------------------------------------------------------------------------------------------------------------------- March 31, 1998 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $23,947 $265 $(1) $24,211 Mortgage-backed securities 10,442 371 - 10,813 States and political subdivisions 18,616 143 (12) 18,747 - -------------------------------------------------------------------------------------------------------------------- Total 53,005 779 (13) 53,771 - -------------------------------------------------------------------------------------------------------------------- December 31, 1997 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies 23,932 245 (4) 24,173 Mortgage-backed securities 10,695 377 - 11,072 States and political subdivisions 17,180 161 - 17,341 - -------------------------------------------------------------------------------------------------------------------- Total $51,807 $783 $(4) $52,586 - --------------------------------------------------------------------------------------------------------------------
There were no sales or transfers of securities held to maturity during the three months ended March 31, 1998. (4) Loan Portfolio The following is a summary of loans: March 31, December 31, 1998 1997 - ----------------------------------------------------------------------------- Commercial: Mortgages $63,310 $62,264 Construction and development 928 3,539 Other 127,201 127,956 - ----------------------------------------------------------------------------- Total commercial 191,439 193,759 Residential real estate: Mortgages 179,311 181,790 Homeowner construction 5,974 6,097 - ----------------------------------------------------------------------------- Total residential real estate 185,285 187,887 Consumer 74,185 74,264 - ----------------------------------------------------------------------------- Total loans $450,909 $455,910 - ----------------------------------------------------------------------------- (5) Allowance For Loan Losses The following is an analysis of the allowance for loan losses: Three months ended March 31, 1998 1997 - ----------------------------------------------------------------------------- Balance at beginning of period $8,835 $8,495 Provision charged to expense 450 300 Recoveries 79 106 Loans charged off (55) (316) - ----------------------------------------------------------------------------- Balance at end of period $9,309 $8,585 - ----------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Quarters Ended March 31, 1998 and 1997 Net income for the three months ended March 31, 1998 amounted to $2.4 million, up 11.3% over the $2.2 million of net income recorded in the first quarter of 1997. Diluted earnings per share for the quarter ended March 31, 1998 amounted to $.35, up from $.32 per share on net income earned in the comparable 1997 quarter. Net interest income for the first quarter of 1998 increased by 9.1% over the prior year quarter, to $7.3 million. This increase was primarily attributable to net interest income generated under an investment program, as well as higher interest and fees on loans. (See additional discussion under the caption "Net Interest Income".) The provision for loan losses for the three months ended March 31, 1998 amounted to $450 thousand, up from $300 thousand for the first quarter of 1997. Other noninterest income (noninterest income excluding net gains on sales of securities) amounted to $2.6 million for the first quarter of 1998, up 26.2% from the same 1997 period. This increase was primarily due to increases in net gains on loan sales, higher revenues for trust services as well as increases in service charges earned on deposit accounts. For the three months ended March 31, 1998 and 1997, net gains on sales of securities amounted to approximately $41 thousand and $254 thousand, respectively. Total noninterest expense for the quarter ended March 31, 1998 amounted to $6.2 million, an increase of 12.7% from the comparable 1997 amount. This increase was primarily attributable to higher salaries and benefits expense and increases in other expenses resulting from the opening of five additional branch offices throughout 1997 and the March 1998 opening of a financial services branch office located in New London, Connecticut. (See additional discussion of the expansion of the Corporation's market area under the caption "Financial Condition and Liquidity".) Equipment and net occupancy costs rose 22.0% and 19.8%, respectively, over the prior year period due primarily to rental expense and depreciation of premises and equipment incurred in connection with the Corporation's market area expansion efforts. Net Interest Income (The accompanying schedule entitled "Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis (FTE)" should be read in conjunction with this discussion.) FTE net interest income for the three months ended March 31, 1998 amounted to $7.5 million, up by 7.2% over the same 1997 period due primarily to the growth in interest-earning assets. The interest rate spread and the net interest margin for the three months ended March 31, 1998 amounted to 3.24% and 3.81%, respectively. Comparable amounts for quarter ended March 31, 1997 were 3.55% and 4.10%, respectively. For the three months ended March 31, 1998, average interest-earning assets amounted to $790.4 million, an increase of $105.7 million, or 15.4%, over the comparable 1997 amount. The growth in average interest-earning assets was due primarily to increases in total average loans and average taxable debt securities. The $59.1 million increase in average taxable debt securities resulted primarily from an investment securities purchase program. The objective of the program is to increase net interest income and improve returns on equity, while incurring limited interest rate risk. The securities purchased under this program were funded with Federal Home Loan Bank (FHLB) advances with similar interest rate repricing characteristics and growth in deposits. The FTE rate of return on average interest-earning assets was 7.87% for the three months ended March 31, 1998, down from 8.06% for the same 1997 period primarily due to reduction in yields on taxable debt securities. The yield on average total loans amounted to 8.87% for the three months ended March 31, 1998, up from 8.84% in the comparable 1997 period due primarily to growth in average consumer and commercial loans. Average total loans for the three months ended March 31, 1998 rose 8.1% over the prior year and amounted to $455.6 million. Average consumer loans rose by 16.1% over the prior year, while the average balance of residential real estate and commercial loans increased by 7.8% and 5.6%, respectively. The yield on consumer loans amounted to 9.10%, down from the prior year yield of 9.15%. The yield on commercial loans declined slightly from the first quarter of 1997 to 9.43%. The yields on total residential real estate loans amounted to 8.21%, up 11 basis points from the comparable 1997 period as a result of the refinancing of adjustable-rate mortgages with new loans which are being sold in the secondary market. The Corporation's total cost of funds on interest-bearing liabilities amounted to 4.63% for the three months ended March 31, 1998, up from 4.51% for the comparable 1997 period. This increase was due primarily to higher average FHLB advances outstanding as well as increases in average balances and rates paid on time deposits. FHLB advances have the highest overall cost of funds rate of the bank's interest-bearing liabilities. Average FHLB advances for the three months ended March 31, 1998 amounted to $210.5 million, up 28.6% from the $163.7 million average balance for the same 1997 period. The additional advances were used primarily to purchase securities under the investment program. The average rate paid on FHLB advances for the three months ended March 31, 1998 was 5.84%, an increase of 11 basis points from the prior year rate. Average time deposits rose 15.8% from the prior year amount, to $283.9 million due to a certificate of deposit promotion conducted in February 1998. The rate paid on time deposits increased to 5.48%, up 14 basis points from the prior year rate. Average savings deposits for the three months ended March 31, 1998 increased 6.6% from the comparable 1997 amount to $182.2 million. The rate paid on these deposits was 1.82% for the first three months of 1998, down from 2.01% for the same 1997 period. For the three months ended March 31, 1998, average demand deposits, an interest-free funding source, were up by $8.9 million, or 14.2%, from the same prior year period. The Corporation supplements its interest rate risk management strategies with off-balance sheet transactions. In March 1998, the Corporation entered into a five year interest rate floor contract with a notional amount of $20 million. This floor contract entitles the Corporation to receive payment from a counterparty if the three month LIBOR rate falls below 5.50%. The amount of the payment is the difference between the contractual floor rate and the three month LIBOR rate 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 this type of transaction is risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate contracts only with creditworthy counterparties. The notional amount of the agreement does not represent the amount exchanged by the parties and, therefore, is not a measure of the Corporation's potential loss exposure. Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis The following table sets forth average balance and interest rate information. Income is presented on a fully taxable equivalent basis (FTE). For dividends on corporate stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency. 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.
Three months ended March 31, 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate - -------------------------------------- ------------- ------------ ---------- -------------- ----------- ----------- Interest-earning assets: Residential real estate loans $189,444 3,891 8.21% $175,687 3,558 8.10% Commercial and other loans 192,136 4,532 9.43% 182,002 4,293 9.44% Consumer loans 73,970 1,682 9.10% 63,687 1,456 9.15% - ------------------------------------------------------------------------------------------------------------------- Total loans 455,550 10,105 8.87% 421,376 9,307 8.84% Federal funds sold and other short-term investments 12,405 168 5.43% 4,819 61 5.11% Taxable debt securities 275,253 4,380 6.37% 216,114 3,670 6.79% Nontaxable debt securities 17,774 290 6.52% 15,678 259 6.61% Corporate stocks and FHLB stock 29,448 607 8.25% 26,699 507 7.59% - ------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 790,430 15,550 7.87% 684,686 13,804 8.06% Non interest-earning assets 49,231 43,132 - ------------------------------------------------------------------------------------------------------------------- Total assets $839,661 $727,818 - ------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities: Savings deposits $182,156 827 1.82% $170,830 860 2.01% Time deposits 283,880 3,890 5.48% 245,245 3,276 5.34% FHLB advances 210,466 3,072 5.84% 163,714 2,345 5.73% Other 16,649 232 5.57% 21,627 300 5.54% - ------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 693,151 8,021 4.63% 601,416 6,781 4.51% Demand deposits 71,149 62,287 Non interest-bearing liabilities 8,539 3,641 - ------------------------------------------------------------------------------------------------------------------- Total liabilities 772,839 667,344 Total shareholders' equity 66,822 60,474 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $839,661 $727,818 - ------------------------------------------------------------------------------------------------------------------- Net interest income / interest rate spread $7,529 3.24% $7,023 3.55% - ------------------------------------------------------------------------------------------------------------------- Net interest margin 3.81% 4.10% - ------------------------------------------------------------------------------------------------------------------- Interest income amounts presented in the table above include the following adjustments for taxable equivalency: (Dollars in thousands) Three months ended March 31, 1998 1997 - -------------------------------------------------------------------------------- Commercial and other loans $33 $33 Taxable debt securities - 99 Nontaxable debt securities 98 92 Corporate stocks 98 105
Financial Condition and Liquidity Total assets amounted to $877.0 million at March 31, 1998, an increase of $62.6 million, or 7.7%, from the December 31, 1997 amount of $814.4 million. Average assets totaled $839.7 million for the three months ended March 31, 1998, up by 15.4% over the comparable 1997 period. Securities Available for Sale - The carrying value of securities available for sale at March 31, 1998 amounted to $302.9 million, an increase of 27.6% over the December 31, 1997 amount of $237.4 million. This increase is attributable to purchases of mortgage-backed securities and obligations of U.S. government-sponsored agencies. The net unrealized gain on securities available for sale amounted to $13.0 million, up 11.5% from the December 31, 1997 balance of $11.7 million. This increase was attributable to the rise in the equity market that occurred in the first quarter of 1998. Securities Held to Maturity - The carrying value of securities held to maturity amounted to $53.0 million at March 31, 1998, up from $51.8 million at December 31, 1997. The net unrealized gain on securities held to maturity amounted to approximately $766 thousand at March 31, 1998, down from $779 thousand at December 31, 1997. Loans - Total loans amounted to $450.9 million at March 31, 1998, a decrease of $5.0 million, or 1.1%, from the December 31, 1997 balance of $455.9 million. The $2.6 million decline in residential real estate loans was primarily due to refinancings of adjustable-rate mortgages with new loans largely sold into the secondary market. Commercial loans decreased $2.3 million mainly due to construction and development loan payoffs. Deposits - Total deposits amounted to $547.8 million at March 31, 1998, up by 3.1% from the December 31, 1997 amount of $530.9 million. This increase was attributable to a 7.4% rise in time deposits resulting from a certificate of deposit promotion held in February 1998. Savings deposits decreased by $1.8 million or 1.0% from the December 31, 1997 balance. Demand deposits amounted to $73.8 million, down 1.9% from the December 31, 1997 balance of $75.2 million. Borrowings - The Corporation utilizes FHLB advances as a funding source. FHLB advances amounted to $230.8 million at March 31, 1998, up by $43.8 million from the December 31, 1997 amount. In addition, short-term borrowings outstanding at March 31, 1998 amounted to $19.7 million. The additional FHLB advances were used to purchase securities under the investment program. For the three months ended March 31, 1998, net cash provided by operations amounted to $679 thousand, the majority of which was generated by net income. A lower interest rate environment lead to volume growth in both mortgage loan originations and loans sold into the secondary market. Loans originated for sale in the first three months of 1998 amounted to $24.0 million, significantly higher than the $5.2 million originated in the first quarter of 1997. Proceeds from sales of loans in the three months ended March 31, 1998 amounted to $22.3 million, up from $4.2 million in the comparable 1997 period. Net cash used in investing activities amounted to $60.9 million and was primarily used to purchase securities available for sale. Net cash provided by investing activities of $58.9 million was generated mainly by a net increase in FHLB advances of $43.8 million, and by an increase in deposits of $16.9 million. (See Consolidated Statements of Cash Flows for additional information.) Expansion During the first quarter of 1998, the Corporation opened a financial services branch office in New London, Connecticut. Financial services provided at the office include trust and investment management, commercial lending and residential mortgage origination. The office does not currently accept deposits or perform other retail banking services, but may offer them in the future. The Corporation has also announced the opening of an operations center to be located in Westerly, Rhode Island. Operations functions currently performed at the Corporation's headquarters are expected to be relocated to this leased facility during the second quarter of 1998. Asset Quality Nonperforming assets are summarized in the following table: March 31, December 31, (Dollars in thousands) 1998 1997 - -------------------------------------------------------------------------------- Nonaccrual loans 90 days or more past due $3,688 $4,089 Nonaccrual loans less than 90 days past due 3,777 3,246 - -------------------------------------------------------------------------------- Total nonaccrual loans 7,465 7,335 Other real estate owned 233 497 - -------------------------------------------------------------------------------- Total nonperforming assets $7,698 $7,832 - -------------------------------------------------------------------------------- Nonaccrual loans as a % of total loans 1.66% 1.61% Nonperforming assets as a % of total assets .88% .96% Allowance for loan losses to nonaccrual loans 124.71% 120.45% Not included in the analysis of nonperforming assets at March 31, 1998 and December 31, 1997 above are approximately $731 thousand and $644 thousand, respectively, 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 nonaccrual loans by loan category: March 31, December 31, (Dollars in thousands) 1998 1997 - -------------------------------------------------------------------------------- Residential mortgages $1,431 $1,290 Commercial: Mortgages 1,616 1,977 Other (1) 3,903 3,616 Consumer 515 452 - -------------------------------------------------------------------------------- Total nonaccrual loans $7,465 $7,335 - -------------------------------------------------------------------------------- (1) Loans to businesses and individuals, a substantial portion of which is fully or partially collateralized by real estate. Impaired loans consist of all nonaccrual commercial loans. At March 31, 1998, the recorded investment in impaired loans was $5.5 million, including $5.2 million which had a related allowance amounting to $1.1 million. The balance of impaired loans which did not require an allowance at March 31, 1998 was $356 thousand. During the three months ended March 31, 1998, the average recorded investment in impaired loans was $6.0 million. Also during this period, interest income recognized on impaired loans amounted to approximately $87 thousand. Interest income on impaired loans is recognized on a cash basis only. Capital Resources Total equity capital amounted to $69.3 million, or 7.9% of total assets at March 31, 1998. This compares to $67.2 million, or 8.3% at December 31, 1997. The reduction in this ratio is due primarily to the growth in assets resulting from the investment program. Total equity increased by approximately $2.1 million from December 31, 1997. This increase was primarily attributable to a $2.4 million increase in earnings retention. (See the Consolidated Statements of Changes in Shareholders' Equity for additional information.) At March 31, 1998, the Corporation's Tier 1 capital ratio was 13.19%, the total risk-adjusted capital ratio was 14.45% and the leverage ratio was 7.28%. These ratios were all above the ratios required to be categorized as well-capitalized. Dividends payable at March 31, 1998 amounted to approximately $998 thousand, representing $.15 per share payable on April 15, 1998, an increase of 7.1% over the $.14 per share declared in the fourth quarter of 1997. 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity and Liquidity See discussion and analysis of interest rate sensitivity and liquidity provided in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. There have been no material changes in reported market risks faced by the Corporation since the filing of the Corporation's 1997 Annual Report on Form 10-K. PART II OTHER INFORMATION Item 1. Legal Proceedings On January 28, 1997, a suit was filed against the Bank in the Superior Court of Washington County, Rhode Island by Maxson Automatic Machinery Company ("Maxson"), a corporate customer, and Maxson's shareholders for damages which the plaintiffs allegedly incurred as a result of an embezzlement by Maxson's former president and treasurer. The suit alleges that the Bank wrongly permitted this individual, while an officer of Maxson, to divert funds from Maxson's account at the Bank for his personal benefit. The claims against the Bank are based upon theories of breach of fiduciary duties, negligence, breach of contract, unjust enrichment and conversion. The suit as originally filed sought recovery for losses alleged to be directly related to the embezzlement of approximately $3.1 million, as well as consequential damages amounting to approximately $2.6 million. On March 19, 1998, Maxson amended its claims to seek recovery of an additional $2.6 million in losses, plus an unspecified amount of interest thereon, which are alleged to be directly related to the embezzlement. Management believes, based on its review with counsel of the development of this matter to date, that the Bank has asserted meritorious defenses in this litigation. Additionally, the Bank has filed counterclaims against Maxson and its principal shareholder as well as claims against the officer responsible for the embezzlement. The Bank intends to vigorously defend the suit as well as to vigorously pursue its counterclaims. Management and legal counsel are unable to form an opinion regarding the outcome of this matter. Consequently, no loss provision has been recorded. The Corporation is involved in various other claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such other matters will not materially affect the consolidated financial position or results of operations of the Corporation. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibit index Exhibit No. 11 Statement re Computation of Per Share Earnings (b) There were no reports on Form 8-K filed during the quarter ended March 31, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WASHINGTON TRUST BANCORP, INC. (Registrant) May 14, 1998 By: John C. Warren ---------------------------------------- John C. Warren President and Chief Executive Officer (principal executive officer) May 14, 1998 By: David V. Devault ----------------------------------------------------- David V. Devault Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer) EX-11 2
EXHIBIT 11 Washington Trust Bancorp, Inc. Computation of Per Share Earnings For the Three Months Ended March 31, 1998 and 1997 (In thousands, except per share amounts) 1998 1997 - ----------------------------------------------------------------------- ------------------------- Basic Diluted Basic Diluted ------------ ------------ ------------ ------------ Net income $2,393 $2,393 $2,151 $2,151 Share amounts, in thousands: Average outstanding 6,649.3 6,649.3 6,549.4 6,549.4 Common stock equivalents - 274.4 - 264.3 - --------------------------------------------- ------------ ------------ ------------ ------------ Weighted average outstanding 6,649.3 6,923.7 6,549.4 6,813.7 - --------------------------------------------- ------------ ------------ ------------ ------------ Earnings per share $.36 $.35 $.33 $.32 - --------------------------------------------- ------------ ------------ ------------ ------------
EX-27 3
9 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF WASHINGTON TRUST BANCORP, INC. AS OF MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 MAR-31-1998 16,467 0 8,421 0 302,926 53,005 53,771 450,909 9,309 877,031 547,778 19,727 240,192 0 0 0 418 68,916 877,031 10,072 5,080 169 15,321 4,717 8,021 7,300 450 41 6,190 3,324 3,324 0 0 2,393 .36 .35 3.81 0 0 0 0 8,835 55 79 9,309 0 0 0
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