-----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, TNxIQeENrk/AtqZ0arf/+3JWk64/h/rCz3pxw5ZrYOdCeLx3is0pnCdjlo6hOYpe kbtBb9p6GWjArw8UU0WcDw== 0000737468-98-000009.txt : 19981116 0000737468-98-000009.hdr.sgml : 19981116 ACCESSION NUMBER: 0000737468-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98749023 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 September 30, 1998 or [X] 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 October 31, 1998 was 9,995,396. Page 1 FORM 10-Q WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY For The Quarter Ended September 30, 1998 TABLE OF CONTENTS Page Number PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets September 30, 1998 and December 31, 1997 3 Consolidated Statements of Income Three Months and Nine Months Ended September 30, 1998 and 1997 4 Consolidated Statements of Changes in Shareholders' Equity Nine Months Ended September 30, 1998 and 1997 5 Consolidated Statements of Cash Flows Nine Months Ended September 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 18 PART II. Other Information 19 Signatures 20
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 - --------------------------------------------------------------------------------------------- Assets: Cash and due from banks $16,106 $12,925 Federal funds sold and other short-term investments 4,505 13,203 Mortgage loans held for sale 4,172 3,772 Securities: Available for sale, at fair value 305,973 237,366 Held to maturity, at cost 58,890 51,807 - --------------------------------------------------------------------------------------------- Total securities 364,863 289,173 Federal Home Loan Bank stock, at cost 16,444 16,444 Loans 448,056 455,910 Less allowance for loan losses 10,074 8,835 - --------------------------------------------------------------------------------------------- Net loans 437,982 447,075 Premises and equipment, net 23,067 21,821 Accrued interest receivable 5,461 4,896 Other real estate owned, net 319 497 Other assets 4,748 4,587 - --------------------------------------------------------------------------------------------- Total assets $877,667 $814,393 - --------------------------------------------------------------------------------------------- Liabilities: Deposits: Demand $91,132 $75,282 Savings 205,181 185,073 Time 271,286 270,571 - --------------------------------------------------------------------------------------------- Total deposits 567,599 530,926 Dividends payable 1,000 927 Short-term borrowings 1,544 20,337 Federal Home Loan Bank advances 227,720 187,001 Accrued expenses and other liabilities 8,319 7,998 - --------------------------------------------------------------------------------------------- Total liabilities 806,182 747,189 - --------------------------------------------------------------------------------------------- Shareholders' Equity: Common stock of $.0625 par value; authorized 30 million shares; issued 10,004,398 shares in 1998 and 6,601,947 shares in 1997 628 413 Paid-in capital 2,894 3,705 Retained earnings 60,626 56,360 Accumulated other comprehensive income 7,531 7,059 Treasury stock, at cost; 9,002 shares in 1998 and 14,205 shares in 1997 (194) (333) - --------------------------------------------------------------------------------------------- Total shareholders' equity 71,485 67,204 - --------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $877,667 $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 Nine Months -------------------------------------------- Periods ended September 30, 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $9,925 $9,954 $30,019 $28,940 Interest on securities 5,133 4,299 14,837 12,276 Dividends on corporate stock and Federal Home Loan Bank stock 494 525 1,538 1,424 Interest on federal funds sold and other short-term investments 162 128 445 259 - --------------------------------------------------------------------------------------------------------------------- Total interest income 15,714 14,906 46,839 42,899 - --------------------------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 920 895 2,592 2,615 Time deposits 3,681 3,776 11,497 10,545 Federal Home Loan Bank advances 3,341 2,812 9,744 7,982 Other 122 126 642 654 - --------------------------------------------------------------------------------------------------------------------- Total interest expense 8,064 7,609 24,475 21,796 - --------------------------------------------------------------------------------------------------------------------- Net interest income 7,650 7,297 22,364 21,103 Provision for loan losses 450 400 1,350 1,000 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 7,200 6,897 21,014 20,103 - --------------------------------------------------------------------------------------------------------------------- Noninterest income: Trust revenue 1,344 1,056 3,929 3,367 Service charges on deposit accounts 714 611 2,089 1,787 Merchant processing fees 557 483 934 764 Net gains on sales of securities 232 56 624 683 Net gains on loan sales 300 209 1,043 343 Other income 254 246 761 751 - --------------------------------------------------------------------------------------------------------------------- Total noninterest income 3,401 2,661 9,380 7,695 - --------------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 3,616 3,241 10,507 9,397 Net occupancy 607 457 1,568 1,266 Equipment 632 535 1,820 1,505 Merchant processing costs 440 370 778 625 Office supplies 181 139 517 525 Advertising and promotion 211 195 492 508 Other 1,347 1,158 4,332 3,912 - --------------------------------------------------------------------------------------------------------------------- Total noninterest expense 7,034 6,095 20,014 17,738 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 3,567 3,463 10,380 10,060 Income tax expense 998 1,099 2,906 3,284 - --------------------------------------------------------------------------------------------------------------------- Net income $2,569 $2,364 $7,474 $6,776 - --------------------------------------------------------------------------------------------------------------------- Earnings per share - basic $.26 $.24 $.75 $.69 Earnings per share - diluted $.25 $.23 $.72 $.66 Cash dividends declared per share $.10 $.09 $.30 $.26 The accompanying notes are an integral part of these consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Accumulated Other Common Paid-in Retained Comprehensive Treasury Nine months ended September 30, Stock Capital Earnings Income Stock Total - ----------------------------------------------------------------------------------------------------------------------- 1998 Balance at beginning of year $413 $3,705 $56,360 $7,059 $(333) $67,204 Net income 7,474 7,474 Other comprehensive income, net of tax: Valuation adjustments for securities available for sale 472 472 --------- Comprehensive income 7,946 Cash dividends declared (2,999) (2,999) 3-for-2 stock split in the form of a stock dividend 209 (209) - Shares issued and acquired for stock option plan and dividend reinvestment plan 6 (811) 3,144 2,339 Shares repurchased (3,005) (3,005) - ----------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 $628 $2,894 $60,626 $7,531 $(194) $71,485 - ----------------------------------------------------------------------------------------------------------------------- 1997 Balance at beginning of year $273 $3,764 $50,886 $4,504 $ - $59,427 Net income 6,776 6,776 Other comprehensive income, net of tax: Valuation adjustments for securities available for sale 2,338 2,338 --------- Comprehensive income 9,114 Cash dividends declared (2,543) (2,543) Shares issued and acquired for stock option plan and dividend reinvestment plan 2 272 432 706 Shares repurchased (1,115) (1,115) - ----------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1997 $275 $4,036 $55,119 $6,842 $(683) $65,589 - ----------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine months ended September 30, 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $7,474 $6,776 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,350 1,000 Depreciation of premises and equipment 1,831 1,478 Amortization of premium in excess of accretion of discount on debt securities 831 650 Net gains on sales of securities (624) (683) Net gains on loan sales (1,043) (343) Proceeds from sales of loans 63,345 16,999 Loans originated for sale (62,797) (16,825) Increase in accrued interest receivable (566) (1,121) Increase in other assets (161) (904) Increase in accrued expenses and other liabilities 78 1,985 Other, net (202) (178) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 9,516 8,834 - ------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Securities available for sale: Purchases (173,292) (111,826) Proceeds from sales 62,817 49,677 Maturities and principal repayments 42,377 25,459 Securities held to maturity: Purchases (12,162) (23,756) Maturities and principal repayments 5,077 1,957 Purchases of Federal Home Loan Bank stock - (4,761) Loan originations under (over) principal collected on loans 7,726 (32,709) Purchase of loans - (324) Proceeds from sales of other real estate owned 504 565 Purchases of premises and equipment (3,087) (3,869) Purchase of deposits, net of premium paid - 7,014 - ------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (70,040) (92,573) - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits 36,674 47,401 Net decrease in other short-term borrowings (18,793) (3,445) Proceeds from Federal Home Loan Bank advances 439,300 351,100 Repayment of Federal Home Loan Bank advances (398,581) (301,501) Repurchase of common stock (3,005) (1,115) Proceeds from issuance of common stock 2,339 706 Cash dividends paid (2,927) (2,452) - ------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 55,007 90,694 - ------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (5,517) 6,955 Cash and cash equivalents at beginning of year 26,128 18,990 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $20,611 $25,945 - ------------------------------------------------------------------------------------------------------------------- (continued)
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) Nine months ended September 30, 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Noncash Investing and Financing Activities: Net transfers from loans to other real estate owned $311 $635 Loans charged off 427 960 Loans made to facilitate the sale of other real estate owned - 374 Increase in net unrealized gain on securities available for sale 472 2,338 Supplemental Disclosures: Interest payments $24,731 $21,299 Income tax payments 1,783 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 September 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 the Corporation presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by 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 - --------------------------------------------------------------------------------------------------------------------- September 30, 1998 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $120,870 $2,581 $(95) $123,356 Mortgage-backed securities 141,337 867 (426) 141,778 Corporate bonds 18,465 317 (88) 18,694 Corporate stocks 12,920 9,285 (60) 22,145 - --------------------------------------------------------------------------------------------------------------------- Total 293,592 13,050 (669) 305,973 - --------------------------------------------------------------------------------------------------------------------- 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 $14,212 and $29,127 were pledged to secure Treasury Tax and Loan deposits, short-term borrowings and public deposits at September 30, 1998 and December 31, 1997, respectively. For the nine months ended September 30, 1998, proceeds from sales of securities available for sale amounted to $62,817, while net realized gains on these sales amounted to $624. (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 - -------------------------------------------------------------------------------------------------------------------- September 30, 1998 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $22,975 $226 $ - $23,201 Mortgage-backed securities 9,044 359 - 9,403 States and political subdivisions 26,871 551 - 27,422 - --------------------------------------------------------------------------------------------------------------------- Total 58,890 1,136 - 60,026 - --------------------------------------------------------------------------------------------------------------------- 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 nine months ended September 30, 1998. (4) Loan Portfolio The following is a summary of loans: September 30, December 31, 1998 1997 - -------------------------------------------------------------------------------- Commercial: Mortgages $69,186 $62,264 Construction and development 460 3,539 Other (1) 115,341 127,956 - -------------------------------------------------------------------------------- Total commercial 184,987 193,759 Residential real estate: Mortgages 178,744 181,790 Homeowner construction 7,990 6,097 - -------------------------------------------------------------------------------- Total residential real estate 186,734 187,887 Consumer (2) 76,335 74,264 - -------------------------------------------------------------------------------- Total loans $448,056 $455,910 - -------------------------------------------------------------------------------- (1) Loans to businesses and individuals, a substantial portion of which is fully or partially collateralized by real estate. (2) Includes credit card loans totaling $4.9 million and $5.2 million at September 30, 1998 and December 31, 1997, respectively. (5) Allowance For Loan Losses The following is an analysis of the allowance for loan losses: Three Months Nine Months ------------------------------------------------ Periods ended September 30, 1998 1997 1998 1997 - -------------------------------------------------------------------------------- Balance at beginning of period $9,712 $8,411 $8,835 $8,495 Provision charged to expense 450 400 1,350 1,000 Recoveries 140 144 111 288 Loans charged off (228) (132) (427) (960) - -------------------------------------------------------------------------------- Balance at end of period $10,074 $8,823 $10,074 $8,823 - -------------------------------------------------------------------------------- INDEPENDENT ACCOUNTANT'S REVIEW REPORT The Board of Directors and Shareholders Washington Trust Bancorp, Inc.: We have reviewed the accompanying consolidated balance sheet of Washington Trust Bancorp, Inc. and subsidiary (the "Corporation") as of September 30, 1998, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 1998 and 1997, and changes in shareholders' equity and cash flows for the nine-month periods ended September 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 conducted 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 October 13, 1998 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This form 10-Q contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Corporation's actual results could differ materially from those projected in the forward-looking statements as a result, among other factors, of changes in general national or regional economic conditions, changes in interest rates, reductions in deposit levels necessitating increased borrowing to fund loans and investments, changes in the size and nature of the Corporation's competition, changes in loan default and charge off rates, and changes in the assumptions used in making such forward-looking statements. Results of Operations Net income for the three months ended September 30, 1998 amounted to $2.6 million, up 8.7% over the $2.4 million of net income recorded in the third quarter of 1997. Diluted earnings per share for the quarter ended September 30, 1998 amounted to $.25, up from $.23 per share on net income earned in the comparable 1997 quarter. Net income for the nine months ended September 30, 1998 amounted to $7.5 million, an increase of 10.3% from the $6.8 million reported for the comparable 1997 period. Diluted earnings per share for the nine months ended September 30, 1998 amounted to $.72, up 9.1% from the $.66 per share in the same 1997 period. Net interest income for the third quarter of 1998 increased by 4.8% over the prior year third quarter, to $7.7 million. Net interest income for the nine months ended September 30, 1998 increased by 6.0% over the prior year period, to $22.4 million. This increase was mainly attributable to net interest income generated under an investment securities program. (See additional discussion under the caption "Net Interest Income"). The provision for loan losses for the three months ended September 30, 1998 amounted to $450 thousand, up from $400 thousand for the third quarter of 1997. For the nine months ended September 30, 1998 and 1997, the provision for loan losses amounted to $1.4 million and $1.0 million, respectively. The allowance for loan losses as a percentage of nonaccrual loans at September 30, 1998 and December 31, 1997 was 162.72% and 120.45%, respectively. Income tax expense for the third quarter of 1998 amounted to $998 thousand, down from $1.1 million for the third quarter of 1997. For the nine months ended September 30, 1998 and 1997, income tax expense amounted to $2.9 million and $3.3 million, respectively. The Corporation's effective tax rate was 28.0% for the nine months ended September 30, 1998, down from 32.6% for the comparable 1997 period. The decline in the effective tax rate was due to tax planning strategies designed to reduce income taxes which were implemented in the fourth quarter of 1997. Other noninterest income (noninterest income excluding net gains on sales of securities) amounted to $3.2 million for the third quarter of 1998, up 21.7% from the corresponding 1997 period. Other noninterest income amounted to $8.8 million for the nine months ended September 30, 1998, up 24.9% 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. Net gains on loan sales amounted to $1.0 million and $343 thousand for the nine months ended September 30, 1998 and 1997, respectively. The increase in net gains on loan sales is attributable to heavy refinancing activity resulting from lower interest rates. For the three months ended September 30, 1998 and 1997, net gains on sales of securities amounted to approximately $232 thousand and $56 thousand, respectively. For the nine months ended September 30, 1998 and 1997, net gains on sales of securities amounted to $624 thousand and $683 thousand, respectively. Total noninterest expense for the quarter ended September 30, 1998 amounted to $7.0 million, an increase of 15.4% from the comparable 1997 period. Total noninterest expense for the nine months ended September 30, 1998 amounted to $20.0 million, an increase of 12.8% over the comparable 1997 period. These increases were primarily attributable to higher salaries and benefits expense and increases in other expenses resulting from the Corporation's expansion of its market area, and to a lessor extent to costs associated with Year 2000 issues. (See additional discussion of the expansion of the Corporation's market area under the caption "Expansion". Equipment and net occupancy costs for the nine months ended September 30, 1998 rose 23.9% and 20.9%, 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 nine months ended September 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)" is the basis of and should be read in conjunction with this discussion.) FTE net interest income for the nine months ended September 30, 1998 amounted to $23.1 million, up 3.7% over the same 1997 period due primarily to the growth in interest-earning assets described below. The interest rate spread and the net interest margin for the nine months ended September 30, 1998 (3.18% and 3.78%, respectively) have decreased from the comparable percentages for the same period in 1997 (3.55% and 4.12%, respectively). These profitability ratios have declined as a result of changes in interest rates and changes in the mix of interest-earning assets. For the nine months ended September 30, 1998, average interest-earning assets amounted to $814.3 million, an increase of $94.3 million, or 13.1%, over the comparable 1997 amount. The growth in average interest-earning assets was due mainly to increases in average taxable debt securities of $62.5 million and total average loans of $19.7 million. The 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 shareholders' 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 average yield on taxable debt securities for the nine months ended September 30, 1998 was 6.29%, compared to the prior year yield of 6.86%. The FTE rate of return on average interest-earning assets was 7.79% for the nine months ended September 30, 1998, down from 8.16% for the same 1997 period primarily due to growth in taxable debt securities and reduction in yields on taxable debt securities. The average yield on total loans amounted to 8.88% for the nine months ended September 30, 1998, down from 8.96% in the comparable 1997 period due primarily to lower yields on new loan originations. Average total loans for the nine months ended September 30, 1998 rose 4.6% over the prior year average and amounted to $452.4 million. While all categories of loans are up on average over the prior year, total loans have declined $7.9 million since December 31, 1997. The decrease in total loans is attributable to heavy mortgage refinancing activity, spurred by a low interest rate environment, as well as aggressive competition for commercial and consumer loans. (See Note 4 to the Consolidated Financial Statements for additional detail on the loan portfolio.) The average yield on residential real estate loans amounted to 8.12% for the nine months ended September 30, 1998, down slightly from the prior year period yield of 8.15%. Average total consumer loans increased 12.4% over the prior year and amounted to $74.8 million. The increase in consumer loan balances is primarily attributable to demand for home equity lines. The average yield on consumer loans was 9.08% for the nine months ended September 30, 1998, down from 9.32% for the comparable 1997 period. This decline in yield is primarily attributable to pricing on the home equity line portfolio. The average yield on the home equity line portfolio was 8.84% and 9.64%, respectively for the nine months ended September 30, 1998 and 1997. The average yield on commercial loans amounted to 9.54%, down slightly from the prior year yield of 9.59%. The Corporation's cost of funds on interest-bearing liabilities amounted to 4.61% for the nine months ended September 30, 1998, unchanged from the comparable 1997 period. FHLB advances have the highest overall cost of funds rate of the bank's interest-bearing liabilities. Average total FHLB advances for the nine months ended September 30, 1998 amounted to $222.1 million, up 22.4% from the $181.5 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 nine months ended September 30, 1998 was 5.85%, compared to the prior year rate of 5.86%. Average total time deposits rose 8.7% from the prior year amount, to $280.4 million. The rate paid on time deposits amounted to 5.47%, up slightly from the prior year rate. Average total savings deposits for the nine months ended September 30, 1998 increased 11.6% from the comparable 1997 amount to $102.0 million. The rate paid on these deposits was 2.31% for the first nine months of 1998, down 17 basis points from the same 1997 period. For the nine months ended September 30, 1998, average total demand deposits, an interest-free funding source, were up by $11.1 million, or 16.0%, 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.
Nine months ended September 30, 1998 1997 - ------------------------------------------ ------------------------------------ ---------------------------------- Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate - -------------------------------------- ------------- ------------ ---------- -------------- ----------- ----------- Interest-earning assets: Residential real estate loans $187,220 $11,396 8.12% $178,411 $10,909 8.15% Commercial and other loans 190,414 13,629 9.54% 187,757 13,501 9.59% Consumer loans 74,766 5,093 9.08% 66,515 4,651 9.32% - ------------------------------------------------------------------------------------------------------------------- Total loans 452,400 30,118 8.88% 432,683 29,061 8.96% Federal funds sold and other short-term investments 10,803 445 5.50% 6,394 259 5.41% Taxable debt securities 299,791 14,151 6.29% 237,340 12,207 6.86% Nontaxable debt securities 21,310 1,037 6.49% 15,647 779 6.64% Corporate stocks and FHLB stock 29,966 1,805 8.03% 27,944 1,743 8.32% - ------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 814,270 47,556 7.79% 720,008 44,049 8.16% Non interest-earning assets 50,834 46,088 - ------------------------------------------------------------------------------------------------------------------- Total assets $865,204 $766,096 - ------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities: Savings deposits $101,956 $1,764 2.31% $91,320 $1,698 2.48% NOW account deposits 64,563 454 .94% 59,121 464 1.05% Money market deposits 23,466 374 2.12% 25,017 453 2.41% Time deposits 280,393 11,497 5.47% 257,893 10,545 5.45% FHLB advances 222,127 9,744 5.85% 181,546 7,982 5.86% Other 15,108 642 5.66% 15,621 654 5.59% - ------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 707,613 24,475 4.61% 630,518 21,796 4.61% Demand deposits 80,175 69,108 Non interest-bearing liabilities 7,421 5,176 - ------------------------------------------------------------------------------------------------------------------- Total liabilities 795,209 704,802 Total shareholders' equity 69,995 61,294 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $865,204 $766,096 - ------------------------------------------------------------------------------------------------------------------- Net interest income / interest rate spread $23,081 3.18% $22,253 3.55% - ------------------------------------------------------------------------------------------------------------------- Net interest margin 3.78% 4.12% - ------------------------------------------------------------------------------------------------------------------- Interest income amounts presented in the table above include the following adjustments for taxable equivalency: (Dollars in thousands) Nine months ended September 30, 1998 1997 - -------------------------------------------------------------------------------- Commercial and other loans $99 $121 Taxable debt securities - 434 Nontaxable debt securities 351 276 Corporate stocks 267 319
Financial Condition and Liquidity Total assets amounted to $877.7 million at September 30, 1998, an increase of $63.3 million, or 7.8%, from the December 31, 1997 amount of $814.4 million. Average assets totaled $865.2 million for the nine months ended September 30, 1998, up by 12.9% over the comparable 1997 period. Securities Available for Sale - The carrying value of securities available for sale at September 30, 1998 amounted to $306.0 million, an increase of 28.9% over the December 31, 1997 amount of $237.4 million. This increase was primarily attributable to purchases of securities under the Corporation's investment program. The net unrealized gain on securities available for sale amounted to $12.4 million, up 5.8% from the December 31, 1997 balance of $11.7 million. This increase was attributable to the decline in interest rates occurring in 1998, as well as the year to date increase in portfolio balances. Securities Held to Maturity - The carrying value of securities held to maturity totaled $58.9 million at September 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 totaled approximately $1.1 million at September 30, 1998, up from $779 thousand at December 31, 1997. Loans - Total loans amounted to $448.1 million at September 30, 1998, down from the December 31, 1997 balance of $455.9 million. The decrease in total loans can be attributed to heavy mortgage refinancing activity, spurred by a low interest rate environment, as well as aggressive competition for commercial and consumer loans. Commercial loans totaled $185.0 million at September 30, 1998, a decline of $8.8 million or 4.5% from December 31, 1997 balance. Residential real estate loans amounted to $186.7 million at September 30, 1998, down from the December 31, 1997 balance of $187.9 million. Total consumer loan balances rose $2.1 million to $76.3 million during the first nine months of 1998. Deposits - Total deposits amounted to $567.6 million at September 30, 1998, up by 6.9% from the December 31, 1997 total of $530.9 million. Savings and demand deposits increased by $20.1 million and $15.9 million, respectively, during this period due to normal seasonal deposit inflow. Time deposits amounted to $271.3 million at September 30, 1998, compared to $270.6 million at December 31, 1997. Borrowings - The Corporation utilizes FHLB advances as a funding source. FHLB advances amounted to $227.7 million at September 30, 1998, up by $40.7 million from the December 31, 1997 amount. The additional FHLB advances were used to purchase securities under the investment program. Short-term borrowings outstanding at September 30, 1998 amounted to $1.5 million, down $18.8 million from the balance at December 31, 1997. For the nine months ended September 30, 1998, net cash provided by operations amounted to $9.5 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 nine months of 1998 amounted to $62.8 million, significantly higher than the $16.8 million originated in the corresponding 1997 period. Proceeds from sales of loans in the nine months ended September 30, 1998 amounted to $63.3 million, up from $17.0 million in the comparable 1997 period. Net cash used in investing activities amounted to $70.0 million and was primarily used to purchase securities available for sale. Net cash provided by financing activities of $55.0 million was generated mainly by a net increase in FHLB advances of $40.7 million, and by an increase in deposits of $36.7 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. In October 1998, the Corporation announced an agreement to provide trust and investment management services to customers of Bank Rhode Island and Pier Bank, two Rhode Island financial institutions. Under the agreement, the Corporation will provide a full-line of investment management and trust services, including financial planning, estate and tax planning. The alliances enable the Corporation to generate fee income and also enable Bank Rhode Island and Pier Bank to offer professional trust services to their customers. Nonperforming Assets Nonperforming assets are summarized in the following table: September 30, December 31, (Dollars in thousands) 1998 1997 - -------------------------------------------------------------------------------- Nonaccrual loans 90 days or more past due $3,258 $4,089 Nonaccrual loans less than 90 days past due 2,933 3,246 - -------------------------------------------------------------------------------- Total nonaccrual loans 6,191 7,335 Other real estate owned 319 497 - -------------------------------------------------------------------------------- Total nonperforming assets $6,510 $7,832 - -------------------------------------------------------------------------------- Nonaccrual loans as a % of total loans 1.38% 1.61% Nonperforming assets as a % of total assets .74% .96% Allowance for loan losses to nonaccrual loans 162.72% 120.45% Not included in the analysis of nonperforming assets at September 30, 1998 and December 31, 1997 above are approximately $155 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. Impaired loans consist of all nonaccrual commercial loans. At September 30, 1998, the recorded investment in impaired loans was $4.3 million, including $4.1 million which had a related allowance amounting to $867 thousand. The balance of impaired loans which did not require an allowance at September 30, 1998 was $168 thousand. During the nine months ended September 30, 1998, the average recorded investment in impaired loans was $5.5 million. Also during this period, interest income recognized on impaired loans amounted to approximately $284 thousand. Interest income on impaired loans is recognized on a cash basis only. The following is an analysis of nonaccrual loans by loan category: September 30, December 31, (Dollars in thousands) 1998 1997 - -------------------------------------------------------------------------------- Residential mortgages $1,309 $1,290 Commercial: Mortgages 1,475 1,977 Other (1) 2,806 3,616 Consumer 601 452 - -------------------------------------------------------------------------------- Total nonaccrual loans $6,191 $7,335 - -------------------------------------------------------------------------------- (1) Loans to businesses and individuals, a substantial portion of which is fully or partially collateralized by real estate. Capital Resources Total equity capital amounted to $71.5 million, or 8.1% of total assets at September 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 $4.3 million from December 31, 1997. This increase was principally attributable to a $4.7 million increase in earnings retention. (See the Consolidated Statements of Changes in Shareholders' Equity for additional information.) At September 30, 1998, the Corporation's Tier 1 capital ratio was 13.30% and the total risk-adjusted capital ratio was 15.43%. These ratios were all above the ratios required to be categorized as well-capitalized. Dividends payable at September 30, 1998 totaled approximately $1.0 million, representing $.10 per share paid on October 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. The intent of the stock split was to increase the stock's liquidity and place it in a trading range that is more attractive to investors interested in the Corporation. 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. Book value per share as of September 30, 1998 and 1997 amounted to $7.15 and $6.64, respectively. Year 2000 The Corporation has developed a Year 2000 Project Plan (the "Plan") to address the computer-related issues concerning the Century Date Change (the transition from the year 1999 to 2000). The Corporation's information technology (IT) and non-information technology (non IT) systems have been included in the Plan. The Corporation uses internal computer systems, data communications systems and telecommunications systems as well as outside service providers (including hardware and software) to support and account for loans, deposits, fiduciary services and other purposes. Substantially all of the application software used by the Corporation is provided by outside vendors, under license or through outside service bureaus. The Corporation has distinguished between mission-critical and other, less critical, systems in assessing the needs of the Plan. The Plan includes five phases: awareness, assessment, renovation, validation and testing, and contingency planning. The Corporation has substantially completed the assessment phase of its computer systems, and has identified those areas that are considered mission critical. The Plan calls for validation and testing with respect to all internal mission critical systems to be completed by December 31, 1998, and outsourced mission critical systems by March 31, 1999. The Plan also calls for the Corporation to complete these procedures for non-mission critical IT systems as well as embedded microcontrollers in non IT systems by the third quarter of 1999. Although the evaluation process is on-going and dynamic, management believes that the Corporation is currently on schedule in accordance with the Plan. The Corporation's evaluation is subject to on-going verification and review by its internal audit staff. The Corporation expects that the total costs associated with the project will amount to approximately $500 thousand. Included in noninterest expense for the nine-month period ending September 30, 1998 are costs totaling approximately $121 thousand, consisting primarily of system testing and modification, internal staffing and consulting. Approximately $88 thousand of the remaining project costs are expected to be incurred during the fourth quarter of 1998, the majority of which will be included in noninterest expense. Most of the remaining project costs will be incurred throughout 1999. The Corporation plans to account for most of these costs as expense items. In some cases, acquired hardware and software items will be capitalized and amortized in accordance with the Corporation's existing accounting policy. The costs of the project and the date on which the Corporation plans to complete Year 2000 testing are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. There can be no guarantee that the systems of other companies, or outside vendors on which the Corporation's systems rely, will be remedied on a timely basis. Therefore, the Corporation could possibly experience a negative impact to the extent other entities not affiliated with the Corporation are not Year 2000 compliant. The Corporation is in the process of evaluating the risk of customer failure to prepare for the Century Date Change, any associated effect on the ability of customers to repay outstanding loans, and impact on the adequacy of the level of the allowance for loan losses. Because these efforts are now on-going, the Corporation is unable to assess the likelihood of any material adverse effect at this time. The Corporation's risk management program includes emergency backup and recovery procedures to be followed in the event of failure of a business-critical system. These procedures will be expanded to include specific procedures for potential Year 2000 issues, and contingency plans to protect against Year 2000-related interruptions. These plans will include development of backup procedures and identification of alternative suppliers. Contingency plans are expected to be complete by June 30, 1999. While the Corporation believes that it is taking reasonable steps with respect to the Year 2000 issue, if the phases of the Plan are not completed on time, the costs associated with becoming Year 2000 compliant exceed the Corporation's estimates, third party providers are not Year 2000 compliant on a timely basis, or customers with material loan obligations are unable to meet their repayment obligations due to Year 2000 problems, the Year 2000 issue could have a material impact on the Corporation's financial results. In addition, the Corporation's efforts to address the Year 2000 issue are being monitored by its federal banking regulators. Failure to be Year 2000 compliant on a timely basis could subject the Corporation to formal supervisory or enforcement actions. The preceding "Year 2000" discussion contains forward-looking statements which represent the Corporation's beliefs or expectations regarding future events. When used in the Year 2000 discussion, the words "believes," "expects," "estimates," and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, without limitation, the Corporation's expectations as to when it will complete the phases of the Plan, its estimated costs, and its belief that its statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected results. Factors that may cause these differences include, but are not limited to, the availability of qualified personnel and other information technology resources, the ability to identify and remediate all date sensitive lines of computer code, and the actions of governmental agencies or other third parties with respect to Year 2000 problems. Recent Accounting Developments Statement of Financial Accounting Standards (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. The adoption of this pronouncement may result in additional disclosures in the Corporation's financial statements. 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 (FASB) issued 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 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. SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, an amendment of FASB Statement No. 65", is effective for the first fiscal quarter beginning after December 15, 1998. This Statement amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities", to require that after the securitization of a mortgage loan held for sale, any retained mortgage-backed securities should be classified in accordance with the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". This Statement also requires that a mortgage banking enterprise classify as trading any retained mortgage-backed securities that it commits to sell before or during the securitization process. The adoption of this pronouncement is not expected to have a material impact on the Corporation's financial statements. 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 September 30, 1998, the Corporation's estimated exposure as a percentage of net interest income for the next 12 month period and the subsequent 12 month period thereafter (months 13 - 24), respectively, is as follows: Months 1 - 12 Months 13 - 24 -------------------------------------- ---------------- ---------------- 200 basis point increase in rates -0.6% -2.8% 200 basis point decrease in rates +0.2% -3.3% 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 using both parallel rate shifts of up to 200 basis points and "value at risk" analysis. The purpose is to determine market value exposure which may not be captured by income simulation, but which might result in changes to the Corporation's capital position. Results are calculated using industry-standard modeling analytics and securities data. The Corporation uses the results to manage the effect of market value changes on the Corporation's capital position. As of September 30, 1998, an immediate 200 basis point rise in rates would result in a 3.7% 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 2.1% increase in the value of the Corporation's available for sale debt securities. "Value at risk" analysis measures the theoretical maximum market value loss over a given time period based on recent historical price activity of different classes of securities. The anticipated maximum market value reduction for the bank's available for sale securities portfolio at September 30, 1998, including both debt and equity securities, was 5.0%, assuming a one-year time horizon and a 5% probability of occurrence for "value at risk" analysis. 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 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 27 Financial Data Schedule (b) There were no reports on Form 8-K filed during the quarter ended September 30, 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) November 13, 1998 By: John C. Warren ----------------------- John C. Warren President and Chief Executive Officer (principal executive officer) November 13, 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 September 30, 1998 and 1997 Three months ended September 30, 1998 1997 - ---------------------------------------------- ---------------------------------- ------------------------------ (In thousands, except per share amounts) Basic Diluted Basic Diluted ----------------- ---------------- ---------------- ------------- Net income $2,569 $2,569 $2,364 $2,364 Share amounts: (1) Average outstanding 9,966.9 9,966.9 9,886.7 9,886.7 Common stock equivalents - 388.4 - 347.3 - --------------------------------------------- ----------------- ---------------- ---------------- -------------- Weighted average outstanding 9,966.9 10,355.3 9,886.7 10,234.0 - --------------------------------------------- ----------------- ---------------- ---------------- -------------- Earnings per share $.26 $.25 $.24 $.23 - --------------------------------------------- ----------------- ---------------- ---------------- -------------- Nine months ended September 30, 1998 1997 - --------------------------------------------- ---------------------------------- ------------------------------- (In thousands, except per share amounts) Basic Diluted Basic Diluted ----------------- ---------------- ---------------- -------------- Net income $7,474 $7,474 $6,776 $6,776 Share amounts: (1) Average outstanding 9,966.9 9,966.9 9,860.5 9,860.5 Common stock equivalents - 394.7 - 362.8 - ----------------------------------------------- ---------------- ----------------- ---------------- -------------- Weighted average outstanding 9,966.9 10,361.6 9,860.5 10,223.3 - ----------------------------------------------- ---------------- ----------------- ---------------- -------------- Earnings per share $.75 $.72 $.69 $.66 - ----------------------------------------------- ---------------- ----------------- ---------------- -------------- (1) Share amounts have been adjusted to reflect the three-for-two stock split paid August 3, 1998.
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 SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 SEP-30-1998 16,106 0 4,505 0 305,973 58,890 60,026 448,056 10,074 877,667 567,599 1,544 237,039 0 0 0 628 70,857 877,667 30,019 16,375 445 46,839 14,089 24,475 22,364 1,350 624 20,014 10,380 10,380 0 0 7,474 .75 .72 4.12 0 0 0 0 8,835 427 111 10,074 0 0 0
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