-----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, PEZTKN7zozEyJmDSHmikWqoh0z4vjDFUGHqdk3sBvisG2tQdfBEfbi6ZCAyzsXgS Ge4tsNCbkrihD1+zPj+/VA== 0000737468-98-000008.txt : 19980817 0000737468-98-000008.hdr.sgml : 19980817 ACCESSION NUMBER: 0000737468-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98687530 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 June 30, 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. Yes [X] No [ ] The number of shares of common stock of the registrant outstanding as of August 11, 1998 was 9,962,121. Page 1 FORM 10-Q WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY For The Quarter Ended June 30, 1998 TABLE OF CONTENTS Page Number PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets June 30, 1998 and December 31, 1997 3 Consolidated Statements of Income Three Months and Six Months Ended June 30, 1998 and 1997 4 Consolidated Statements of Changes in Shareholders' Equity Six Months Ended June 30, 1998 and 1997 5 Consolidated Statements of Cash Flows Six Months Ended June 30, 1998 and 1997 6 Condensed Notes to Consolidated Financial Statements 8 Independent Accountants' Review Report 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II. Other Information 18 Signatures 19 This report contains forward-looking information, including statements regarding the Corporation's plans, objectives, expectations and intentions. The Corporation's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, (i) changes in the economy in the geographic region served by the Corporation; (ii) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Corporation must comply; (iii) the effect of changes in accounting policies and practices; (iv) the effect on the Corporation's competitive position within its market area of the increasing consolidation within the banking and financial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as nonbank providers of various financial services; and (v) the effect of changes in interest rates.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 1998 1997 - ----------------------------------------------------------------------------------------------- Assets: Cash and due from banks $22,925 $12,925 Federal funds sold and other short-term investments 11,792 13,203 Mortgage loans held for sale 5,184 3,772 Securities: Available for sale, at fair value 308,397 237,366 Held to maturity, at cost 55,847 51,807 - ----------------------------------------------------------------------------------------------- Total securities 364,244 289,173 Federal Home Loan Bank stock, at cost 16,444 16,444 Loans 454,070 455,910 Less allowance for loan losses 9,712 8,835 - ----------------------------------------------------------------------------------------------- Net loans 444,358 447,075 Premises and equipment, net 22,944 21,821 Accrued interest receivable 5,697 4,896 Other real estate owned, net 63 497 Other assets 5,560 4,587 - ----------------------------------------------------------------------------------------------- Total assets $899,211 $814,393 - ----------------------------------------------------------------------------------------------- Liabilities: Deposits: Demand $89,972 $75,282 Savings 196,858 185,073 Time 264,959 270,571 - ----------------------------------------------------------------------------------------------- Total deposits 551,789 530,926 Dividends payable 1,002 927 Short-term borrowings 26,767 20,337 Federal Home Loan Bank advances 241,331 187,001 Accrued expenses and other liabilities 8,089 7,998 - ----------------------------------------------------------------------------------------------- Total liabilities 828,978 747,189 - ----------------------------------------------------------------------------------------------- Shareholders' Equity: Common stock of $.0625 par value; authorized 30 million shares; issued 9,940,831 shares in 1998 and 6,601,947 shares in 1997 418 413 Paid-in capital 4,054 3,705 Retained earnings 59,265 56,360 Accumulated other comprehensive income 8,272 7,059 Treasury stock, at cost; 55,014 shares in 1998 and 14,205 shares in 1997 (1,776) (333) - ----------------------------------------------------------------------------------------------- Total shareholders' equity 70,233 67,204 - ----------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $899,211 $814,393 - -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands, CONSOLIDATED STATEMENTS OF INCOME except per share data) (Unaudited) Three Months Six Months ------------------------------------------- Periods ended June 30, 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $10,022 $9,712 $20,094 $18,986 Interest on securities 5,132 4,239 9,704 7,977 Dividends on corporate stock and Federal Home Loan Bank stock 535 497 1,043 899 Interest on federal funds sold and other short-term investments 115 70 284 132 - --------------------------------------------------------------------------------------------------------------------- Total interest income 15,804 14,518 31,125 27,994 - --------------------------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 845 860 1,672 1,720 Time deposits 3,926 3,493 7,816 6,769 Federal Home Loan Bank advances 3,331 2,825 6,403 5,171 Other 288 228 520 528 - --------------------------------------------------------------------------------------------------------------------- Total interest expense 8,390 7,406 16,411 14,188 - --------------------------------------------------------------------------------------------------------------------- Net interest income 7,414 7,112 14,714 13,806 Provision for loan losses 450 300 900 600 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 6,964 6,812 13,814 13,206 - --------------------------------------------------------------------------------------------------------------------- Noninterest income: Trust revenue 1,361 1,223 2,585 2,311 Service charges on deposit accounts 742 623 1,375 1,176 Merchant processing fees 222 165 377 281 Net gains on sales of securities 351 373 392 627 Net gains on loan sales 414 62 743 134 Other income 225 256 507 505 - --------------------------------------------------------------------------------------------------------------------- Total noninterest income 3,315 2,702 5,979 5,034 - --------------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 3,472 3,203 6,891 6,156 Net occupancy 502 426 961 809 Equipment 622 506 1,188 970 Merchant processing costs 227 169 338 255 Office supplies 178 230 336 386 Advertising and promotion 169 190 281 312 Other 1,620 1,428 2,985 2,755 - --------------------------------------------------------------------------------------------------------------------- Total noninterest expense 6,790 6,152 12,980 11,643 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 3,489 3,362 6,813 6,597 Income tax expense 977 1,101 1,908 2,185 - --------------------------------------------------------------------------------------------------------------------- Net income $2,512 $2,261 $4,905 $4,412 - --------------------------------------------------------------------------------------------------------------------- Earnings per share - basic $.25 $.23 $.49 $.45 Earnings per share - diluted $.24 $.22 $.47 $.43 Cash dividends declared per share $.10 $.08 $.20 $.17
The accompanying notes are an integral part of these consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Accumulated Other Common Paid-in Retained Comprehensive Treasury Six months ended June 30, Stock Capital Earnings Income Stock Total - ----------------------------------------------------------------------------------------------------------------------- 1998 Balance at beginning of year $413 $3,705 $56,360 $7,059 $(333) $67,204 Net income 4,905 4,905 Other comprehensive income, net of tax: Valuation adjustments for securities available for sale 1,213 1,213 --------- Comprehensive income 6,118 Cash dividends declared (2,000) (2,000) Shares issued for stock option plan and dividend reinvestment plan 5 349 1,282 1,636 Shares repurchased (2,725) (2,725) - ----------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1998 $418 $4,054 $59,265 $8,272 $(1,776) $70,233 - ----------------------------------------------------------------------------------------------------------------------- 1997 Balance at beginning of year $273 $3,764 $50,886 $4,504 $ - $59,427 Net income 4,412 4,412 Other comprehensive income, net of tax: Valuation adjustments for securities available for sale 1,019 1,019 --------- Comprehensive income 5,131 Cash dividends declared (1,664) (1,664) Shares issued for stock option plan and dividend reinvestment plan 2 278 412 692 Shares repurchased (412) (412) - ----------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1997 $275 $4,042 $53,634 $5,523 $ - $63,474 - -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended June 30, 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $4,905 $4,412 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 900 600 Depreciation of premises and equipment 1,171 944 Amortization of premium in excess of accretion of discount on debt securities 604 437 Net gains on sales of securities (392) (627) Net gains on loan sales (743) (134) Proceeds from sales of loans 45,469 9,259 Loans originated for sale (46,182) (10,313) Increase in accrued interest receivable (801) (855) Increase in other assets (973) (740) Increase (decrease) in accrued expenses and other liabilities (533) 262 Other, net (124) (158) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,301 3,087 - ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Securities available for sale: Purchases (122,712) (84,505) Proceeds from sales 22,544 35,410 Maturities and principal repayments 30,761 13,456 Securities held to maturity: Purchases (6,388) (21,998) Maturities and principal repayments 2,349 661 Purchases of Federal Home Loan Bank stock - (4,761) Loan originations under (over) principal collected on loans 1,923 (20,105) Purchase of loans - (324) Proceeds from sales of other real estate owned 504 593 Purchases of premises and equipment (2,301) (2,524) Purchase of deposits, net of premium paid - 7,014 - ------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (73,320) (77,083) - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits 20,862 29,619 Net increase in other short-term borrowings 6,430 1,753 Proceeds from Federal Home Loan Bank advances 313,300 244,100 Repayment of Federal Home Loan Bank advances (258,970) (190,441) Repurchase of common stock (2,725) (412) Proceeds from issuance of common stock 1,636 692 Cash dividends paid (1,925) (1,616) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 78,608 83,695 - ------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 8,589 9,699 Cash and cash equivalents at beginning of year 26,128 18,990 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $34,717 $28,689 - ------------------------------------------------------------------------------------------------------------------- (continued)
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) Six months ended June 30, 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Noncash Investing and Financing Activities: Net transfers from loans to other real estate owned $44 $248 Loans charged off 199 828 Loans made to facilitate the sale of other real estate owned - 270 Increase in net unrealized gain on securities available for sale 1,213 1,019 Supplemental Disclosures: Interest payments $16,385 $13,694 Income tax payments 1,183 2,002
The accompanying notes are an integral part of these consolidated financial statements. WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) 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 June 30, 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. All share and per share amounts have been adjusted to reflect a 3-for-2 split of the Corporation's common stock effected on August 3, 1998. 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 - --------------------------------------------------------------------------------------------------------------------- June 30, 1998 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $120,633 $1,090 $(116) $121,607 Mortgage-backed securities 144,967 888 (127) 145,728 Corporate bonds 16,088 52 (19) 16,121 Corporate stocks 13,234 11,776 (69) 24,941 - --------------------------------------------------------------------------------------------------------------------- Total 294,922 13,806 (331) 308,397 - --------------------------------------------------------------------------------------------------------------------- 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 $34,277 and $29,127 were pledged to secure Treasury Tax and Loan deposits, short-term borrowings and public deposits at June 30, 1998 and December 31, 1997, respectively. For the six months ended June 30, 1998, proceeds from sales of securities available for sale amounted to $22,544, while net realized gains on these sales amounted to $392. (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 - -------------------------------------------------------------------------------------------------------------------- June 30, 1998 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $22,961 $228 $ - $23,189 Mortgage-backed securities 9,870 339 - 10,209 States and political subdivisions 23,016 162 (14) 23,164 - --------------------------------------------------------------------------------------------------------------------- Total 55,847 729 (14) 56,562 - --------------------------------------------------------------------------------------------------------------------- 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 six months ended June 30, 1998. (4) Loan Portfolio The following is a summary of loans: June 30, December 31, 1998 1997 - -------------------------------------------------------------------------------- Commercial: Mortgages $68,170 $62,264 Construction and development 423 3,539 Other 126,119 127,956 - -------------------------------------------------------------------------------- Total commercial 194,712 193,759 Residential real estate: Mortgages 175,602 181,790 Homeowner construction 6,844 6,097 - -------------------------------------------------------------------------------- Total residential real estate 182,446 187,887 Consumer (1) 76,912 74,264 - -------------------------------------------------------------------------------- Total loans $454,070 $455,910 - -------------------------------------------------------------------------------- (1) Includes credit card loans totaling $5.0 million (5) Allowance For Loan Losses The following is an analysis of the allowance for loan losses: Three Months Six Months --------------------------------------------- Periods ended June 30, 1998 1997 1998 1997 - -------------------------------------------------------------------------------- Balance at beginning of period $9,309 $8,585 $8,835 $8,495 Provision charged to expense 450 300 900 600 Recoveries 97 38 176 144 Loans charged off (144) (512) (199) (828) - -------------------------------------------------------------------------------- Balance at end of period $9,712 $8,411 $9,712 $8,411 - -------------------------------------------------------------------------------- INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders Washington Trust Bancorp, Inc.: We have reviewed the accompanying consolidated balance sheets of Washington Trust Bancorp, Inc. and subsidiary (the "Corporation") as of June 30, 1998, and the related consolidated statements of income for the three month and six-month periods ended June 30, 1998 and 1997, changes in shareholders' equity and cash flows for six-month periods ended June 30, 1998 and 1997. These consolidated financial statements are the responsibility of the Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. KPMG PEAT MARWICK, LLP Providence, Rhode Island July 17, 1998 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net income for the three months ended June 30, 1998 amounted to $2.5 million, up 11.1% over the $2.3 million of net income recorded in the second quarter of 1997. Diluted earnings per share for the quarter ended June 30, 1998 amounted to $.24, up from $.22 per share on net income earned in the comparable 1997 quarter. Net income for the six months ended June 30, 1998 amounted to $4.9 million, an increase of 11.2% from the $4.4 million reported for the comparable 1997 period. Diluted earnings per share for the six months ended June 30, 1998 amounted to $.47, up 9.3% from the $.43 per share on net income earned in the same 1997 period. Net interest income for the first quarter of 1998 increased by 4.2% over the prior year quarter, to $7.4 million. Net interest income for the six months ended June 30, 1998 increased by 6.6% over the prior year period, to $14.7 million. This increase was mainly 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 June 30, 1998 amounted to $450 thousand, up from $300 thousand for the second quarter of 1997. For the six months ended June 30, 1998 and 1997, the provision for loan losses amounted to $900 thousand and $600 thousand, respectively. Other noninterest income (noninterest income excluding net gains on sales of securities) amounted to $3.0 million for the second quarter of 1998, up 27.3% from the corresponding 1997 period. Other noninterest income amounted to $5.6 million for the six months ended June 30, 1998, up 26.8% from the corresponding 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 June 30, 1998 and 1997, net gains on sales of securities amounted to approximately $351 thousand and $373 thousand, respectively. For the six months ended June 30, 1998 and 1997, net gains on sales of securities amounted to $392 thousand and $627 thousand, respectively. Total noninterest expense for the quarter ended June 30, 1998 amounted to $6.8 million, an increase of 10.4% from the comparable 1997 amount. Total noninterest expense for the six months ended June 30, 1998 amounted to $13.0 million, an increase of 11.5% over the comparable 1997 amount. Theses increase were primarily attributable to higher salaries and benefits expense and increases in other expenses resulting from the Corporation's expansion of its market area. (See additional discussion of the expansion of the Corporation's market area under the caption "Expansion"). Equipment and net occupancy costs for the six months ended June 30, 1998 rose 22.5% and 18.8%, 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. Included in other noninterest expense were contributions to the Corporation's charitable foundation amounting to $323 thousand and $227 thousand for the three months ended June 30, 1998 and 1997, respectively. This donation resulted in realized securities gains of $313 thousand and $208 thousand, respectively, for the same periods. 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 six months ended June 30, 1998 amounted to $15.2 million, up 4.6% 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 six months ended June 30, 1998 amounted to 3.18% and 3.76%, respectively. Comparable amounts for period ended June 30, 1997 were 3.58% and 4.12%, respectively. For the six months ended June 30, 1998, average interest-earning assets amounted to $808.8 million, an increase of $102.9 million, or 14.6%, over the comparable 1997 amount. The growth in average interest-earning assets was due principally to increases in average taxable debt securities and total average loans. The $63.3 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 7.82% for the six months ended June 30, 1998, down from 8.14% 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 six months ended June 30, 1998, down from 8.94% in the comparable 1997 period due primarily to lower yields on new loan originations. Average total loans for the six months ended June 30, 1998 rose 6.6% over the prior year and amounted to $454.4 million. All categories of loans exhibited increases over prior year amounts, with the largest increase in consumer loans. The yield on consumer loans declined 20 basis points from the second quarter of 1997 to 9.08%. The yield on commercial loans amounted to 9.48%, down from the prior year yield of 9.57%, while the yield on total residential real estate loans amounted to 8.17%, up slightly from the comparable 1997 period. The Corporation's total cost of funds on interest-bearing liabilities amounted to 4.64% for the six months ended June 30, 1998, up from 4.56% for the comparable 1997 period. This increase was due mainly 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 six months ended June 30, 1998 amounted to $219.4 million, up 22.9% from the $178.6 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 six months ended June 30, 1998 was 5.84%, an increase of 5 basis points from the prior year rate. Average time deposits rose 13.3% from the prior year amount, to $284.2 million due to a certificate of deposit promotion conducted in early 1998. The rate paid on time deposits increased to 5.50%, up 10 basis points from the prior year rate. Average savings deposits for the six months ended June 30, 1998 increased 7.1% from the comparable 1997 amount to $185.5 million. The rate paid on these deposits was 1.80% for the first six months of 1998, down from 1.99% for the same 1997 period. For the six months ended June 30, 1998, average demand deposits, an interest-free funding source, were up by $10.6 million, or 16.6%, 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. The purpose of the floor contract is to offset the risk of future reductions in interest earned on certain floating rate loans. 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.
Six months ended June 30, 1998 1997 - ------------------------------------------ ------------------------------------ ---------------------------------- Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate - -------------------------------------- ------------- ------------ ---------- -------------- ----------- ----------- Interest-earning assets: Residential real estate loans $187,998 7,680 8.17% $176,664 7,200 8.15% Commercial and other loans 192,091 9,108 9.48% 184,773 8,841 9.57% Consumer loans 74,285 3,371 9.08% 64,972 3,016 9.28% - ------------------------------------------------------------------------------------------------------------------- Total loans 454,374 20,159 8.87% 426,409 19,057 8.94% Federal funds sold and other short-term investments 10,394 284 5.46% 4,842 132 5.44% Taxable debt securities 294,408 9,285 6.31% 231,061 7,892 6.83% Nontaxable debt securities 19,411 633 6.52% 15,669 519 6.63% Corporate stocks and FHLB stock 30,191 1,250 8.28% 27,902 1,115 7.99% - ------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 808,778 31,611 7.82% 705,883 28,715 8.14% Non interest-earning assets 50,613 44,449 - ------------------------------------------------------------------------------------------------------------------- Total assets $859,391 $750,332 - ------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities: Savings deposits $99,018 1,141 2.31% $89,900 1,119 2.49% NOW account deposits 63,590 288 .91% 58,369 304 1.04% Money market deposits 22,863 243 2.12% 24,954 297 2.38% Time deposits 284,222 7,816 5.50% 250,866 6,769 5.40% FHLB advances 219,364 6,403 5.84% 178,550 5,171 5.79% Other 18,421 520 5.65% 19,063 528 5.54% - ------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 707,478 16,411 4.64% 621,702 14,188 4.56% Demand deposits 74,562 63,964 Non interest-bearing liabilities 7,743 3,278 - ------------------------------------------------------------------------------------------------------------------- Total liabilities 789,783 688,944 Total shareholders' equity 69,608 61,388 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $859,391 $750,332 - ------------------------------------------------------------------------------------------------------------------- Net interest income / interest rate spread $15,200 3.18% $14,527 3.58% - ------------------------------------------------------------------------------------------------------------------- Net interest margin 3.76% 4.12% - ------------------------------------------------------------------------------------------------------------------- Interest income amounts presented in the table above include the following adjustments for taxable equivalency: (Dollars in thousands) Six months ended June 30, 1998 1997 - -------------------------------------------------------------------------------- Commercial and other loans $65 $71 Taxable debt securities - 250 Nontaxable debt securities 214 185 Corporate stocks 207 215
Financial Condition and Liquidity Total assets amounted to $899.2 million at June 30, 1998, an increase of $84.8 million, or 10.4%, from the December 31, 1997 amount of $814.4 million. Average assets totaled $859.4 million for the six months ended June 30, 1998, up by 14.5% over the comparable 1997 period. Securities Available for Sale - The carrying value of securities available for sale at June 30, 1998 amounted to $308.4 million, an increase of 29.9% over the December 31, 1997 amount of $237.4 million. This increase is attributable to purchases of securities under the Corporation's investment program. The net unrealized gain on securities available for sale amounted to $13.5 million, up 15.2% 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 six months of 1998. Securities Held to Maturity - The carrying value of securities held to maturity amounted to $55.8 million at June 30, 1998, up from $51.8 million at December 31, 1997. This increase is due to purchases of securities of states and political subdivisions. The net unrealized gain on securities held to maturity amounted to approximately $715 thousand at June 30, 1998, down from $779 thousand at December 31, 1997. Loans - Total loans amounted to $454.1 million at June 30, 1998, down slightly from the December 31, 1997 balance of $455.9 million. The balance of residential real estate loans declined by $5.4 million, primarily due to refinancings of adjustable-rate mortgages with new loans largely sold into the secondary market. Consumer loans rose 3.6% during the first six months of 1998 while commercial loan growth remained flat. Deposits - Total deposits amounted to $551.8 million at June 30, 1998, up by 3.9% from the December 31, 1997 amount of $530.9 million. Demand and savings deposits increased by $14.7 million and $11.8 million, respectively, due to normal seasonal deposit inflow. Time deposits amounted to $265.0 million, a decline of $5.6 million or 2.1% from the December 31, 1997 balance of $270.6 million. Borrowings - The Corporation utilizes FHLB advances as a funding source. FHLB advances amounted to $241.3 million at June 30, 1998, up by $54.3 million from the December 31, 1997 amount. In addition, short-term borrowings outstanding at June 30, 1998 amounted to $26.8 million. The additional FHLB advances were used to purchase securities under the investment program. For the six months ended June 30, 1998, net cash provided by operations amounted to $3.3 million, the majority of which was generated by net income. A lower interest rate environment resulted in increased volume of mortgage loans originated for sale into the secondary market. Loans originated for sale in the first six months of 1998 amounted to $46.2 million, significantly higher than the $10.3 million originated in the corresponding 1997 period. Proceeds from sales of loans in the six months ended June 30, 1998 amounted to $45.5 million, up from $9.3 million in the comparable 1997 period. Net cash used in investing activities amounted to $73.3 million and was primarily used to purchase securities available for sale. Net cash provided by financing activities of $78.6 million was generated mainly by a net increase in FHLB advances of $54.3 million, and by an increase in deposits of $20.9 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 nor perform other retail banking services, but may offer them in the future. The Corporation has also opened an operations center located in Westerly, Rhode Island. Operations functions previously performed at the Corporation's headquarters were relocated to this leased facility during the second quarter of 1998. Asset Quality Nonperforming assets are summarized in the following table: June 30, December 31, (Dollars in thousands) 1998 1997 - -------------------------------------------------------------------------------- Nonaccrual loans 90 days or more past due $4,440 $4,089 Nonaccrual loans less than 90 days past due 2,887 3,246 - -------------------------------------------------------------------------------- Total nonaccrual loans 7,327 7,335 Other real estate owned 63 497 - -------------------------------------------------------------------------------- Total nonperforming assets $7,390 $7,832 - -------------------------------------------------------------------------------- Nonaccrual loans as a % of total loans 1.61% 1.61% Nonperforming assets as a % of total assets .82% .96% Allowance for loan losses to nonaccrual loans 132.55% 120.45% Not included in the analysis of nonperforming assets at June 30, 1998 and December 31, 1997 above are approximately $285 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: June 30, December 31, (Dollars in thousands) 1998 1997 - -------------------------------------------------------------------------------- Residential mortgages $1,530 $1,290 Commercial: Mortgages 2,106 1,977 Other (1) 3,132 3,616 Consumer 559 452 - -------------------------------------------------------------------------------- Total nonaccrual loans $7,327 $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 June 30, 1998, the recorded investment in impaired loans was $5.3 million, including $4.7 million which had a related allowance amounting to $903 thousand. The balance of impaired loans which did not require an allowance at June 30, 1998 was $591 thousand. During the six months ended June 30, 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 $184 thousand. Interest income on impaired loans is recognized on a cash basis only. Capital Resources Total equity capital amounted to $70.2 million, or 7.8% of total assets at June 30, 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 $3.0 million from December 31, 1997. This increase was principally attributable to a $2.5 million increase in earnings retention. (See the Consolidated Statements of Changes in Shareholders' Equity for additional information.) At June 30, 1998, the Corporation's Tier 1 capital ratio was 12.84%, the total risk-adjusted capital ratio was 14.10% and the leverage ratio was 7.03%. These ratios were all above the ratios required to be categorized as well-capitalized. Dividends payable at June 30, 1998 amounted to approximately $1.0 million, representing $.10 per share payable on July 15, 1998, an increase of 11.1% over the $.09 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. On June 18, 1998, the Corporation's board of directors voted to approve a 3-for-2 stock split of the Corporation's common stock. The stock split, in the form of a stock dividend, was paid on August 3, 1998 to shareholders of record as of July 17, 1998. Cash payments were made in lieu of issuing fractional shares. The cash payment for fractional shares was based on the closing price of the common stock as reported by Nasdaq on the record date. Year 2000 The Corporation has developed a Year 2000 Project Plan (the "Plan") which includes an assessment of its computer hardware and software systems, as well as vendor supplied systems. Substantially all of the software used by the Corporation is provided by outside vendors, including both internal systems as well as certain applications provided by outside service bureaus. The Plan calls for validation and testing with respect to all internal mission critical systems to be completed by December 31, 1998. Validation and testing of outsourced mission critical systems of vendor supplied systems is expected to be completed by March 31, 1999. Management believes that its state of readiness is appropriate. The Plan calls for contingency strategies addressing action plans for mission critical items including the evaluation of potential alternative solutions. Costs associated with Year 2000 preparation include internal staffing, consulting, system testing and modification. The Corporation has estimated that costs associated with the project will amount to approximately $500,000 and will largely be incurred beginning in the third quarter of 1998 through year-end 1999. Most of these costs will be expensed, while others will be incurred for certain capital improvements. An additional concern for the Corporation is the risk of a customer's failure to prepare for Year 2000 compliance and the impact this could have on their ability to repay their loans in accordance with their terms. The Corporation is in the process of gathering the necessary information from its commercial customers and assessing the impact that this issue will have on the adequacy of the level of the allowance for loan losses. Target dates associated with the Plan's completion, as well as applicable costs are estimates. The risk of not completing the Plan as outlined could affect the Corporation's results of operations. Recent Accounting Developments SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", is effective for financial statements of public business enterprises for periods beginning after December 15, 1997. This Statement provides reporting standards for financial and descriptive information on reportable operating segments. An operating segment is defined as a component of an enterprise for which separate financial information is available and reviewed regularly by the chief operating decision maker in order to make decisions about resources to be allocated to the segment and also to evaluate the segment's performance. SFAS No. 131 requires a corporation to disclose certain balance sheet and income statement information by operating segment, as well as provide a reconciliation of operating segment information to the corporation's consolidated balances. Effective January 1, 1998, the Corporation will adopt SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits, an amendment of SFAS Nos. 87, 88 and 106". SFAS No. 132 standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures required by SFAS Nos. 87, 88 and 106. The adoption of this pronouncement also requires restatement of disclosures for earlier periods. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 requires a corporation to recognize all derivatives as either assets or liabilities in the balance sheet and to measure those instruments at fair value. This Statement defines conditions and criteria to be used in designating a derivative as a specific type of hedging instrument. SFAS No. 133 also explains the accounting for changes in the fair value of a derivative which depends on the intended use and the resulting designation. Under this Statement, a corporation is required to establish at the inception of the hedge the method to be used for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the corporation's approach to managing risk. SFAS No. 133 applies to all entities. This Statement amends SFAS No. 52, "Foreign Currency Translation" and No. 107, "Disclosures about Fair Value of Financial Instruments". The Statement also supersedes SFAS No. 80, "Accounting for Futures Contracts", No. 105, "Disclosures of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk", and No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments". SFAS No. 133 is effective for all fiscal quarters beginning after June 15, 1999 and is not to be applied retroactively to financial statements of prior periods. The Corporation has not yet determined what the effect of the adoption of this pronouncement will have on the financial position and earnings of the Corporation. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity and Liquidity Interest rate risk is one of the major market risks faced by the Corporation. The Corporation's objective is to manage assets and funding sources to produce results which are consistent with its liquidity, capital adequacy, growth, risk and profitability goals. The Corporation manages interest rate risk using income simulation to measure interest rate risk inherent in its on-balance sheet and off-balance sheet financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 24 month period. The simulation results are reviewed to determine whether the negative exposure of net interest income to changes in interest rates remains within established tolerance levels over a 24-month horizon, and to develop appropriate strategies to manage this exposure. As of June 30, 1998, the Corporation's estimated exposure as a percentage of net interest income for the next 12 and 24 months, respectively, is as follows: 200 basis point increase in rates: - 0.4% / - 0.5% 200 basis point decrease in rates: - 1.3% / - 4.6% Since this simulation assumes the Corporation's balance sheet will remain static over the 24-month simulation horizon, the results do not reflect adjustments in strategy that the Corporation could implement in response to rate shifts, and should therefore not be relied upon as a projection of net interest income. For a complete discussion of interest rate sensitivity and liquidity, including simulation assumptions, see the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. The Corporation also monitors the potential change in market value of its available for sale debt securities in parallel rate shifts of up to 200 basis points. The purpose is to determine market value exposure which may not be captured by income simulation, but which might result in changes to the Corporation's capital position. Results are calculated using industry-standard modeling analytics and securities data. The Corporation uses the results to manage the effect of market value changes on the Corporation's capital position. As of June 30, 1998, an immediate 200 basis point rise in rates would result in a 5.0% decline in the value of the Corporation's available for sale debt securities. Conversely, a 200 basis point fall in rates would result in a 2.3% increase in the value of the Corporation's available for sale debt securities. PART II OTHER INFORMATION Item 1. Legal Proceedings No material changes since the filing of the Registrant's Form 10-Q for the quarter ended March 31, 1998. 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 (a) The Annual Meeting of Shareholders was held on April 28, 1998. (c) The results of matters voted upon are presented below. These amounts have not been adjusted for the three-for-two stock split paid on August 3, 1998. i. A proposal to elect Alcino G. Almeida, Katherine W. Hoxsie, Brendan P. O'Donnell, Anthony J. Rose, Jr. and John C. Warren as directors of the Corporation for three year terms expiring at the 2001 Annual Meeting of Shareholders passed as follows: Abstentions Votes Votes and Broker In Favor Withheld Non-votes --------------------- ---------------------------------------- Alcino G. Almeida 5,705,233.83 36,813.60 0 Katherine W. Hoxsie 5,685,963.83 56,082.60 0 Brendan P. O'Donnell 5,671,635.14 70,411.29 0 Anthony J. Rose, Jr. 5,692,593.83 49,452.60 0 John C. Warren 5,706,296.59 35,749.84 0 ii. A proposal for the ratification of KPMG Peat Marwick LLP to serve as independent auditors of the Corporation for the current fiscal year ending December 31, 1998 was passed by a vote of 5,716,220.59 shares in favor; 7,018.15 shares against; with no abstentions or broker non-votes. 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) On June 19, 1998, a Form 8-K was filed which reported that the Corporation's Board of Directors voted to approve a 3-for-2 stock split of the Registrant's common stock. The stock split, in the form of a stock dividend, was paid on August 3, 1998 to shareholders of record as of July 17, 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) August 14, 1998 By: John C. Warren --------------------------------------- John C. Warren President and Chief Executive Officer (principal executive officer) August 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 Periods Ended June 30, 1998 and 1997 Three months ended June 30, 1998 1997 - ----------------------------------------------- --------------------------- -------------------------- (In thousands, except per share amounts) Basic Diluted Basic Diluted ------------- ------------- ------------- ------------ Net income $2,512 $2,512 $2,261 $2,261 Share amounts: (1) Average outstanding 9,959.9 9,959.9 9,869.9 9,869.9 Common stock equivalents - 384.1 - 344.9 - ----------------------------------------------- ------------- ------------- ------------- ------------ Weighted average outstanding 9,959.9 10,344.0 9,869.9 10,214.8 - ----------------------------------------------- ------------- ------------- ------------- ------------ Earnings per share $.25 $.24 $.23 $.22 - ----------------------------------------------- ------------- ------------- ------------- ------------ Six months ended June 30, 1998 1997 - ----------------------------------------------- --------------------------- -------------------------- (In thousands, except per share amounts) Basic Diluted Basic Diluted ------------- ------------- ------------- ------------ Net income $4,905 $4,905 $4,412 $4,412 Share amounts: (1) Average outstanding 9,966.9 9,966.9 9,847.1 9,847.1 Common stock equivalents - 397.8 - 370.7 - ----------------------------------------------- ------------- ------------- ------------- ------------ Weighted average outstanding 9,966.9 10,364.7 9,847.1 10,217.8 - ----------------------------------------------- ------------- ------------- ------------- ------------ Earnings per share $.49 $.47 $.45 $.43 - ----------------------------------------------- ------------- ------------- ------------- ------------ (1) Share amounts have been adjusted to reflect the three-for-two stock split paid August 3, 1998.
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9 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF WASHINGTON TRUST BANCORP, INC. AS OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 22,925 0 11,792 0 308,397 55,847 56,562 454,070 9,712 899,211 551,789 26,767 250,422 0 0 0 418 69,815 899,211 20,094 10,747 284 31,125 9,488 16,411 14,714 900 392 12,980 6,813 6,813 0 0 4,905 .49 .47 3.76 0 0 0 0 8,835 199 176 9,712 0 0 0
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