-----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, TGgW/ubYgfkjnDN98kpSNhsAPl3ez6lvuKrEpONtotf5UVD3gp22vXAek0JKlttO BDDdDLH4pdxPO9JsKK9BIQ== 0000737468-99-000012.txt : 19991117 0000737468-99-000012.hdr.sgml : 19991117 ACCESSION NUMBER: 0000737468-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753335 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, 1999 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. [X] Yes [ ] No The number of shares of common stock of the registrant outstanding as of October 31, 1999 was 10,899,858. Page 1 FORM 10-Q WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY For The Quarter Ended September 30, 1999 TABLE OF CONTENTS Page Number PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets September 30, 1999 and December 31, 1998 3 Consolidated Statements of Income Three Months and Nine Months Ended September 30, 1999 and 1998 4 Consolidated Statements of Changes in Shareholders' Equity Nine Months Ended September 30, 1999 and 1998 5 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1999 and 1998 6 Condensed Notes to Consolidated Financial Statements 8 Independent Auditors' Review Report 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 PART II. Other Information 19 Signatures 21 This report 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. WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands) CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 1999 1998 - -------------------------------------------------------------------------------- Assets: Cash and due from banks $19,639 $20,575 Federal funds sold and other short-term investments 7,950 13,902 Mortgage loans held for sale 1,076 5,863 Securities: Available for sale, at fair value 348,369 319,841 Held to maturity, at cost; fair value $107,751 in 1999 and $96,548 in 1998 109,920 95,647 - -------------------------------------------------------------------------------- Total securities 458,289 415,488 Federal Home Loan Bank stock, at cost 16,640 16,583 Loans 534,704 496,970 Less allowance for loan losses 12,179 10,966 - -------------------------------------------------------------------------------- Net loans 522,525 486,004 Premises and equipment, net 23,552 24,021 Accrued interest receivable 6,549 5,913 Other assets 25,464 5,996 - -------------------------------------------------------------------------------- Total assets $1,081,684 $994,345 - -------------------------------------------------------------------------------- Liabilities: Deposits: Demand $107,401 $93,478 Savings 236,467 223,047 Time 318,424 311,238 - -------------------------------------------------------------------------------- Total deposits 662,292 627,763 Dividends payable 1,198 1,005 Short-term borrowings 5,386 15,033 Federal Home Loan Bank advances 326,538 264,106 Accrued expenses and other liabilities 8,054 8,864 - -------------------------------------------------------------------------------- Total liabilities 1,003,468 916,771 - -------------------------------------------------------------------------------- Shareholders' Equity: Common stock of $.0625 par value; authorized 30 million shares; issued 10,891,061 shares in 1999 and 10,751,831 shares in 1998 681 672 Paid-in capital 9,792 8,698 Retained earnings 64,995 60,803 Accumulated other comprehensive income 2,819 7,401 Treasury stock, at cost; 4,155 shares in 1999 (71) - - -------------------------------------------------------------------------------- Total shareholders' equity 78,216 77,574 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,081,684 $994,345 - -------------------------------------------------------------------------------- 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, 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $11,418 $10,973 $33,306 $32,938 Interest on securities 6,518 5,213 18,834 15,076 Dividends on corporate stock and Federal Home Loan Bank stock 487 494 1,539 1,538 Interest on federal funds sold and other short-term investments 130 198 417 551 - --------------------------------------------------------------------------------------------------------------------- Total interest income 18,553 16,878 54,096 50,103 - --------------------------------------------------------------------------------------------------------------------- Interest expense: Savings deposits 1,053 1,004 3,003 2,819 Time deposits 3,987 4,136 11,820 12,780 Federal Home Loan Bank advances 4,257 3,341 12,129 9,744 Other 119 122 593 642 - --------------------------------------------------------------------------------------------------------------------- Total interest expense 9,416 8,603 27,545 25,985 - --------------------------------------------------------------------------------------------------------------------- Net interest income 9,137 8,275 26,551 24,118 Provision for loan losses 450 473 1,390 1,400 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 8,687 7,802 25,161 22,718 - --------------------------------------------------------------------------------------------------------------------- Noninterest income: Trust revenue 1,488 1,344 4,382 3,929 Service charges on deposit accounts 777 746 2,329 2,175 Merchant processing fees 599 557 1,242 935 Mortgage banking activities 295 460 1,171 1,612 Net gains (losses) on sales of securities (4) 232 380 624 Net gain on sale of credit card portfolio 438 - 438 - Other income 644 272 1,677 805 - --------------------------------------------------------------------------------------------------------------------- Total noninterest income 4,237 3,611 11,619 10,080 - --------------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 4,336 3,948 12,758 11,524 Net occupancy 625 660 1,788 1,700 Equipment 767 669 2,246 1,937 Merchant processing costs 524 440 963 778 Office supplies 162 208 497 586 Advertising and promotion 203 239 723 580 Acquisition related expenses 1,588 - 1,588 - Other 1,507 1,495 4,958 4,775 - --------------------------------------------------------------------------------------------------------------------- Total noninterest expense 9,712 7,659 25,521 21,880 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 3,212 3,754 11,259 10,918 Income tax expense 1,193 1,076 3,642 3,126 - --------------------------------------------------------------------------------------------------------------------- Net income $2,019 $2,678 $7,617 $7,792 - --------------------------------------------------------------------------------------------------------------------- Per share information: Basic earnings per share $.19 $.25 $.70 $.73 Diluted earnings per share $.18 $.24 $.69 $.70 Cash dividends declared per share $.11 $.10 $.33 $.30
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 Stock Capital Earnings Income Stock Total - ---------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1999 $672 $8,698 $60,803 $7,401 $- $77,574 Net income 7,617 7,617 Other comprehensive income net of tax: Net unrealized losses on securities, net of reclassification adjustment (4,582) (4,582) ------------- Comprehensive income 3,035 Cash dividends declared (3,425) (3,425) Shares issued 9 1,094 (71) 1,032 - ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 $681 $9,792 $64,995 $2,819 $(71) $78,216 - ---------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1998 $459 $9,487 $54,586 $7,074 $(333) $71,273 Net income 7,792 7,792 Other comprehensive income net of tax: Net unrealized gains on securities, net of reclassification adjustment 487 487 ------------- Comprehensive income 8,279 Cash dividends declared (3,078) (3,078) 3-for-2 stock split in form of a stock dividend 207 (207) - Shares issued 5 (786) 3,144 2,363 Shares repurchased (3,005) (3,005) - ---------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 $671 $8,701 $59,093 $7,561 $(193) $75,832 - ----------------------------------------------------------------------------------------------------------------------
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, 1999 1998 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $7,617 $7,792 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,390 1,400 Depreciation of premises and equipment 2,251 1,908 Amortization of premium in excess of accretion of discount on debt securities 415 827 Net gains on sales of securities (380) (624) Net gains on loan sales (604) (1,043) Proceeds from sales of loans 42,751 63,345 Loans originated for sale (37,279) (62,797) Increase in accrued interest receivable (636) (629) Increase in other assets (3,445) (150) Increase in accrued expenses and other liabilities 3,346 96 Other, net 179 (95) - -------------------------------------------------------------------------------- Net cash provided by operating activities 15,605 10,030 - -------------------------------------------------------------------------------- Cash flows from investing activities: Securities available for sale: Purchases (134,466) (175,759) Proceeds from sales 44,490 63,066 Maturities and principal repayments 54,481 43,685 Securities held to maturity: Purchases (44,040) (12,162) Maturities and principal repayments 29,756 5,077 Purchase of Federal Home Loan Bank stock (58) (139) Principal collected on loans under loan originations (38,364) (1,541) Proceeds from sales of other real estate owned 510 880 Purchases of premises and equipment (1,916) (3,192) Purchase of bank-owned life insurance (18,000) - - -------------------------------------------------------------------------------- Net cash used in investing activities (107,607) (80,085) - -------------------------------------------------------------------------------- Cash flows from financing activities: Net increase in deposits 34,529 44,483 Net decrease in other short-term borrowings (9,647) (18,794) Proceeds from Federal Home Loan Bank advances 435,336 439,300 Repayment of Federal Home Loan Bank advances (372,904) (398,580) Purchase of treasury stock - (3,005) Proceeds from issuance of common stock 1,032 2,362 Cash dividends paid (3,232) (3,005) - -------------------------------------------------------------------------------- Net cash provided by financing activities 85,114 62,761 - -------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (6,888) (7,294) Cash and cash equivalents at beginning of year 34,477 31,309 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of period $27,589 $24,015 - -------------------------------------------------------------------------------- (Continued) WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Nine months ended September 30, 1999 1998 - -------------------------------------------------------------------------------- Noncash Investing and Financing Activities: Net transfers from loans to other real estate owned $557 $312 Loans charged off 573 456 Loans made to facilitate the sale of other real estate owned 180 - (Decrease) increase in net unrealized gain on securities available for sale (4,582) 487 Supplemental Disclosures: Interest payments $27,112 $26,243 Income tax payments 3,457 2,014 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. and subsidiary (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, 1999 and December 31, 1998 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. In the third quarter of 1999, the Corporation completed its acquisition of Pier Bank, which was accounted for under the pooling of interests method. Accordingly, the consolidated financial statements of the Corporation have been restated to reflect the acquisition at the beginning of each period presented. At December 31, 1998, Pier Bank had total assets of $59,402 and total shareholders' equity of $4,507. 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. The Corporation has not changed its accounting and reporting policies from those disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 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, 1999 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $103,030 $602 $(963) $102,669 Mortgage-backed securities 183,529 564 (1,681) 182,412 Corporate bonds 43,580 87 (937) 42,730 Corporate stocks 12,927 8,226 (595) 20,558 - --------------------------------------------------------------------------------------------------------------------- Total 343,066 9,479 (4,176) 348,369 - --------------------------------------------------------------------------------------------------------------------- December 31, 1998 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies 116,561 1,799 (12) 118,348 Mortgage-backed securities 145,637 677 (508) 145,806 Corporate bonds 27,533 179 (209) 27,503 Corporate stocks 17,864 10,414 (94) 28,184 - --------------------------------------------------------------------------------------------------------------------- Total $307,595 $13,069 $(823) $319,841 - --------------------------------------------------------------------------------------------------------------------- Securities available for sale with a fair value of $49,243 and $27,800 were pledged to secure Treasury Tax and Loan deposits, borrowings and public deposits at September 30, 1999 and December 31, 1998, respectively. For the nine months ended September 30, 1999, proceeds from sales of securities available for sale amounted to $44,490 while net realized gains on these sales amounted to $380.
(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, 1999 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies $25,926 $29 $(497) $25,458 Mortgage-backed securities 57,191 142 (1,578) 55,755 States and political subdivisions 26,803 51 (316) 26,538 - --------------------------------------------------------------------------------------------------------------------- Total 109,920 222 (2,391) 107,751 - --------------------------------------------------------------------------------------------------------------------- December 31, 1998 U.S. Treasury obligations and obligations of U.S. government-sponsored agencies 21,987 133 (1) 22,119 Mortgage-backed securities 46,088 335 (96) 46,327 States and political subdivisions 27,572 531 (1) 28,102 - --------------------------------------------------------------------------------------------------------------------- Total $95,647 $999 $(98) $96,548 - --------------------------------------------------------------------------------------------------------------------- There were no sales or transfers of securities held to maturity during the nine months ended September 30, 1999.
(4) Loan Portfolio The following is a summary of loans: September 30, December 31, 1999 1998 - -------------------------------------------------------------------------------- Commercial: Mortgages $114,086 $87,132 Construction and development 3,338 2,855 Other (1) 110,905 113,372 - -------------------------------------------------------------------------------- Total commercial 228,329 203,359 Residential real estate: Mortgages 203,081 191,101 Homeowner construction 14,304 15,052 - -------------------------------------------------------------------------------- Total residential real estate 217,385 206,153 Consumer (2) 88,990 87,458 - -------------------------------------------------------------------------------- Total loans $534,704 $496,970 - -------------------------------------------------------------------------------- (1) Loans to businesses and individuals, a substantial portion of which is fully or partially collateralized by real estate (2) The Corporation sold its $4.6 million credit card portfolio in the third quarter of 1999. Credit card loans totaled $5.4 million at December 31,1998. (5) Allowance For Loan Losses The following is an analysis of the allowance for loan losses: Three Months Nine Months ------------------------------------------- Periods ended September 30, 1999 1998 1999 1998 - -------------------------------------------------------------------------------- Balance at beginning of period $11,770 $10,227 $10,966 $9,335 Provision charged to expense 450 473 1,390 1,400 Recoveries 101 140 396 320 Loans charged off (142) (241) (573) (456) - -------------------------------------------------------------------------------- Balance at end of period $12,179 $10,599 $12,179 $10,599 - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REVIEW REPORT The Board of Directors and Shareholders Washington Trust Bancorp, Inc.: We have reviewed the consolidated balance sheet of Washington Trust Bancorp, Inc. and subsidiary (the "Corporation") as of September 30, 1999, the related consolidated statements of income for the three-month and nine-month periods ended September 30, 1999 and 1998, and changes in shareholders' equity and cash flows for the nine-month periods ended September 30, 1999 and 1998. 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 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. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1998, is fairly stated, in all material respects. KPMG LLP Providence, Rhode Island October 25, 1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Corporation reported net income of $2.0 million, or $.18 per diluted share, for the third quarter of 1999. Net income for the third quarter of 1998 amounted to $2.7 million, or $.24 per diluted share. In the third quarter of 1999, the Corporation completed the acquisition of Pier Bank, which was accounted for under the pooling of interests method. Accordingly, the consolidated financial statements of the Corporation have been restated to reflect the acquisition at the beginning of each period presented. Third quarter 1999 results included one-time acquisition-related expenses of $1.6 million ($1.3 million, net of tax). Also during the third quarter of 1999, the Corporation sold its $4.6 million portfolio of credit card loans at a gain of $438 thousand ($285 thousand net of expenses and related income tax). Results excluding these nonrecurring items are referred to herein as operating. Operating earnings for the three months ended September 30, 1999 amounted to $3.0 million, or $.27 per diluted share, a 13.3% increase from the $2.7 million earned in the three months ended September 30, 1998. The Corporation's rates of return on average assets and average equity for the third quarter of 1999, on an operating basis, were 1.13% and 15.37%, respectively. Comparable amounts for the third quarter of 1998 were 1.14% and 14.33%. Operating earnings for the nine months ended September 30, 1999 amounted to $8.6 million, an increase of 10.8% from the $7.8 million reported for the same 1998 period. Diluted earnings per share for the nine months ended September 30, 1999, on an operating basis, amounted to $.78, up from $.70 per share earned in the nine months ended September 30, 1998. The Corporation's rates of return on average assets and average equity for the nine months ended September 30, 1999, on an operating basis, were 1.10% and 14.58%, respectively. Comparable amounts for the 1998 period were 1.13% and 14.02%. For the third quarter of 1999, net interest income (the difference between interest earned on loans and investments and interest paid on deposits and other borrowings) amounted to $9.1 million, an increase of 10.4% from the $8.3 million reported for the third quarter of 1998. Net interest income for the nine months ended September 30, 1999 rose 10.1% over the corresponding 1998 period. This increase was primarily attributable to growth in interest-earning assets as well as lower cost of funds. (See additional discussion under the caption "Net Interest Income".) The Corporation's provision for loan losses was $450 thousand and $473 thousand in the third quarter of 1999 and 1998, respectively. The provision for loan losses amounted to $1.4 million for the nine months ended September 30, 1999 and 1998. Other noninterest income (noninterest income excluding net gains (losses) on sales of securities and net gain on sale of credit card portfolio) amounted to $3.8 million for the third quarter of 1999, up 12.5% from the corresponding 1998 quarter. The increase was primarily due to increases in other income and revenues for trust services. Included in other income was $238 thousand of earnings on bank-owned life insurance (BOLI) which was purchased during the second quarter of 1999. Further discussion of BOLI is provided under the caption "Financial Condition and Liquidity". Other noninterest income amounted to $10.8 million for the nine months ended September 30, 1999, up 14.2% from the corresponding 1998 period. For the three months ended September 30, 1999 net securities losses totaled $4 thousand, compared to gains of $232 thousand for the quarter ended September 30, 1998. Net gains on sales of securities for the nine months ended September 30, 1999 and 1998 amounted to $380 thousand and $624 thousand, respectively. For the quarter ended September 30, 1999, total operating noninterest expense (total noninterest expense excluding one-time acquisition-related expenses of $1.6 million) amounted to $8.1 million, an increase of 6.1% from the comparable 1998 amount. Total operating noninterest expense for the nine months ended September 30, 1999 amounted to $23.9 million, an increase of 9.4% over the comparable 1998 amount. The increases were primarily attributable to higher salaries and benefits expense and increases in equipment costs. Equipment costs for the nine months ended September 30, 1999 rose 16.0% over the prior year period due primarily to depreciation expense associated with 1998 investments in technology. Included in other noninterest expense for the nine months ended September 30, 1999 and 1998 were contributions of appreciated equity securities to the Corporation's charitable foundation amounting to $270 thousand and $323 thousand, respectively. These transactions resulted in realized securities gains of $262 thousand and $313 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 nine months ended September 30, 1999 amounted to $27.4 million, up 10.2% over the same 1998 period due to the growth in interest-earning assets and lower cost of funds. The net interest margins (FTE net interest income as a percentage of average interest-earning assets) for the nine months ended September 30, 1999 and 1998 were 3.73% and 3.87%, respectively. For the nine months ended September 30, 1999, average interest-earning assets amounted to $981.9 million, an increase of $122.8 million or 14.3% over the comparable 1998 amount. The growth in average interest-earning assets was primarily due to growth in the securities portfolio. Total average securities rose $95.8 million or 26.0% over the comparable prior year period, mainly due to purchases of debt securities. The FTE rate of return on securities was 6.20% for the nine months ended September 30, 1999, down from 6.45% for the same 1998 period. The decrease in yields reflects lower marginal rates on investment purchases. The FTE rate of return on average interest-earning assets was 7.48% for the nine months ended September 30, 1999, down from 7.91% for the same 1998 period due to reductions in yields on loans and securities. The yield on average total loans amounted to 8.63% for the nine months ended September 30, 1999, down from 9.00% in the comparable 1998 period due to changes in the prime rate as well as lower yields on new loan originations. Average total loans for the nine months ended September 30, 1999 rose $27.0 million or 5.5% over the prior year and amounted to $517.7 million. Average commercial loans rose 3.4% to $216.4 million. The yield on commercial loans amounted to 9.39%, down from the prior year yield of 9.62%. Average consumer and residential real estate loans rose 7.5% and 7.0% over the prior year, respectively. As a result of prime rate decreases during the fourth quarter of 1998, the yields on consumer and residential real estate loans declined 55 basis points and 42 basis points to 8.62% and 7.85%, respectively The Corporation's total cost of funds on interest-bearing liabilities amounted to 4.27% for the nine months ended September 30, 1999, down from 4.64% for the comparable 1998 period. This decrease was due primarily to reduced rates paid on both borrowed funds and deposits. Average FHLB advances for the nine months ended September 30, 1999 amounted to $301.5 million, up 35.8% from the $222.1 million average balance for the same 1998 period. The average rate paid on FHLB advances for the nine months ended September 30, 1999 was 5.38%, a decrease of 49 basis points from the prior year rate. Average time deposits increased $7.3 million to $318.2 million with a decrease of 53 basis points in the rate paid. Average savings deposits for the nine months ended September 30, 1999 increased 13.3% from the comparable 1998 amount to $226.7 million. The rate paid on these deposits was 1.77% for the first nine months of 1999, down from 1.88% for the same 1998 period. For the nine months ended September 30, 1999, average demand deposits, an interest-free funding source, were up by $13.2 million, or 15.8%, from the same prior year period. 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. Loans held for sale, 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. Customer overdrafts are excluded from amounts presented for loans. Average balances for securities are presented at cost, with any unrealized gains and losses of securities available for sale included in noninterest-earning assets.
Nine months ended September 30, 1999 1998 - -------------------------------------------- ------------------------------------ ---------------------------------- Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Rate Balance Interest Rate - ---------------------------------------- ------------- ----------- ----------- -------------- ----------- ---------- Assets: Residential real estate loans $211,818 $12,438 7.85% $198,045 $12,257 8.27% Commercial and other loans 216,440 15,197 9.39% 209,419 15,074 9.62% Consumer loans 89,449 5,769 8.62% 83,234 5,707 9.17% - -------------------------------------------------------------------------------------------------------------------- Total loans 517,707 33,404 8.63% 490,698 33,038 9.00% Federal funds sold and other short-term investments 11,745 417 4.74% 12,917 551 5.70% Taxable debt securities 395,219 17,935 6.07% 304,612 14,390 6.32% Nontaxable debt securities 27,127 1,357 6.69% 21,310 1,037 6.51% Corporate stocks and FHLB stock 30,107 1,808 8.03% 29,531 1,805 8.17% - -------------------------------------------------------------------------------------------------------------------- Total securities 464,198 21,517 6.20% 368,370 17,783 6.45% - -------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 981,905 54,921 7.48% 859,068 50,821 7.91% - -------------------------------------------------------------------------------------------------------------------- Non interest-earning assets 62,157 58,576 - -------------------------------------------------------------------------------------------------------------------- Total assets $1,044,062 $917,644 - -------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity: Savings deposits $226,686 $3,003 1.77% $200,092 $2,819 1.88% Time deposits 318,225 11,819 4.97% 310,918 12,780 5.50% FHLB advances 301,545 12,130 5.38% 222,126 9,744 5.87% Other 15,793 593 5.02% 15,109 642 5.68% - -------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 862,249 27,545 4.27% 748,245 25,985 4.64% Demand deposits 96,303 83,142 Non interest-bearing liabilities 6,772 12,053 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 965,324 843,440 Total shareholders' equity 78,738 74,204 - -------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $1,044,062 $917,644 - -------------------------------------------------------------------------------------------------------------------- Net interest income $27,376 $24,836 - -------------------------------------------------------------------------------------------------------------------- Net interest spread 3.21% 3.27% - -------------------------------------------------------------------------------------------------------------------- Net interest margin 3.73% 3.87% - -------------------------------------------------------------------------------------------------------------------- Interest income amounts presented in the table above include the following adjustments for taxable equivalency: (Dollars in thousands) Nine months ended September 30, 1999 1998 - -------------------------------------------------------------------------------- Commercial and other loans $98 $99 Nontaxable debt securities 458 351 Corporate stocks 269 268
Financial Condition and Liquidity Total assets amounted to $1.082 billion at September 30, 1999, an increase of $87.3 million, or 8.8%, from the December 31, 1998 amount of $994.3 million. Average assets totaled $1,044 million for the nine months ended September 30, 1999, up by 13.8% over the comparable 1998 period. Nonperforming assets (nonaccrual loans and property acquired through foreclosure) amounted to $6.1 million, or .56% of total assets, at September 30, 1999 compared to $6.1 million, or .61% of total assets, at December 31, 1998. The allowance for loan losses amounted to $12.2 million, or 202% of total nonaccrual loans at September 30, 1999, compared to $11.0 million or 188% at December 31, 1998. Securities Available for Sale - The carrying value of securities available for sale at September 30, 1999 amounted to $348.4 million, an increase of 8.9% over the December 31, 1998 amount of $319.8 million. This increase was attributable to purchases of debt securities. The net unrealized gain on securities available for sale amounted to $5.3 million, down 56.7% from the December 31, 1998 balance of $12.2 million. This decrease was attributable to the effect of increases in Treasury rates that occurred in the first nine months of 1999. Securities Held to Maturity - The carrying value of securities held to maturity amounted to $109.9 million at September 30, 1999, up from $95.6 million at December 31, 1998. This increase was due to purchases of mortgage-backed securities and obligations of U.S. government-sponsored agencies. The net unrealized loss on securities held to maturity amounted to approximately $2.2 million at September 30, 1999, down from an unrealized gain of $901 thousand at December 31, 1998. The decline was primarily due to the effects of increases in Treasury rates that occurred in the first nine months of 1999. Loans - Total loans amounted to $534.7 million at September 30, 1999. During the first nine months of 1999, total loans increased $37.7 million, or 7.6% (10.1% on an annualized basis). Growth in the loan portfolio was led by increases in the commercial loan portfolio. Commercial loans increased $25.0 million or 12.3% to $228.3 million at September 30, 1999. Total residential real estate loans amounted to $217.4 million, an increase of $11.2 million or 5.4% from the December 31, 1998 balance of $206.2. During the third quarter of 1999, the Corporation sold its $4.6 million portfolio of credit card loans at a gain, net of expenses and related income taxes, of $285 thousand. The Corporation will continue to provide merchant credit card processing services Other assets - Other assets totaled $25.5 million at September 30, 1999, up $19.5 million from $6.0 million at December 31, 1998. The increase was primarily due to the purchase of bank-owned life insurance (BOLI) during the second quarter of 1999. The Corporation purchased $18.0 million of BOLI as a financing tool for employee benefits. The Corporation expects to benefit from the BOLI contracts as a result of the tax-free growth in cash surrender value and death benefits which are expected to be generated over time. The purchase of the life insurance policy results in an interest sensitive asset on the Corporation's consolidated balance sheet that provides monthly tax-free income to the Corporation. The largest risk to the BOLI program is credit risk of the insurance carriers. To mitigate this risk, annual financial condition reviews are completed on all carriers. BOLI is included in other assets on the Corporation's consolidated balance sheets at its cash surrender value. Increases in BOLI's cash surrender value are reported as other income in the Corporation's consolidated statements of income. Deposits - Total deposits amounted to $662.3 million at September 30, 1999, up by 5.5% (7.3% on an annualized basis) from the December 31, 1998 amount of $627.8 million. Demand deposits increased by $13.9 million due to normal seasonal deposit inflow. Savings deposits increased $13.4 million offsetting a decrease of $9.9 million in retail certificates of deposit. Time deposits totaled $318.4 million at September 30, 1999, compared to $311.2 million at December 31, 1998. The increase of $7.2 million in time deposits was attributable to the addition of $9.9 million in brokered certificates of deposit. Borrowings - The Corporation utilizes advances from the Federal Home Loan Bank as well as other short-term borrowings as part of its overall funding strategy. The additional FHLB advances and short-term borrowings were used to meet short-term liquidity needs, to fund loan growth and to purchase securities. FHLB advances amounted to $326.5 million at September 30, 1999, up by $62.4 million from the December 31, 1998 amount. In addition, short-term borrowings outstanding at September 30, 1999 amounted to $5.4 million. For the nine months ended September 30, 1999, net cash provided by operations amounted to $15.6 million, the majority of which was generated by net income. Net cash used in investing activities amounted to $107.6 million and was primarily used to purchase securities. Net cash provided by financing activities of $85.1 million was generated mainly by a net increase in FHLB advances of $62.4 million, and by an increase in deposits of $34.5 million. (See Consolidated Statements of Cash Flows for additional information.) Expansion In April of 1999, the Corporation announced its intention to open a trust and investment management office in Providence, Rhode Island. The Corporation has leased a facility for this office and expects to open this office in the year 2000. Nonperforming Assets Nonperforming assets are summarized in the following table: September 30, December 31, (Dollars in thousands) 1999 1998 - -------------------------------------------------------------------------------- Nonaccrual loans 90 days or more past due $1,973 $2,654 Nonaccrual loans less than 90 days past due 4,046 3,192 - -------------------------------------------------------------------------------- Total nonaccrual loans 6,019 5,846 Other real estate owned 68 243 - -------------------------------------------------------------------------------- Total nonperforming assets $6,087 $6,089 - -------------------------------------------------------------------------------- Nonaccrual loans as a percentage of total loans 1.13% 1.17% Nonperforming assets as a percentage of total assets .56% .61% Allowance for loan losses to nonaccrual loans 202.34% 187.58% Not included in the analysis of nonperforming assets at September 30, 1999 and December 31, 1998 above are approximately $14 thousand and $235 thousand, respectively, of loans greater than 90 days past due and still accruing. These loans consist primarily of residential mortgages that 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, 1999, the recorded investment in impaired loans was $4.2 million, which had a related allowance amounting to $1.2 million. The balance of impaired loans that did not require an allowance at September 30, 1999 was $7 thousand. During the nine months ended September 30, 1999, the average recorded investment in impaired loans was $3.4 million. Also during this period, interest income recognized on impaired loans amounted to approximately $232 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) 1999 1998 - -------------------------------------------------------------------------------- Residential mortgages $1,154 $1,437 Commercial: Mortgages 764 1,714 Other (1) 3,419 2,141 Consumer 682 554 - -------------------------------------------------------------------------------- Total nonaccrual loans $6,019 $5,846 - -------------------------------------------------------------------------------- (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 $78.2 million, or 7.2% of total assets at September 30, 1999. This compares to $77.6 million, or 7.8% at December 31, 1998. The reduction in this ratio is due primarily to growth in the loan portfolio and purchases of investment securities. Total equity increased by approximately $642 thousand from December 31, 1998. The increase in equity resulting from earnings retention was reduced by a $4.6 million decline in net unrealized gains on securities. (See the Consolidated Statements of Changes in Shareholders' Equity for additional information.) At September 30, 1999, the Corporation's Tier 1 capital ratio was 12.34% and the total risk-adjusted capital ratio was 14.17%. These ratios were both above the ratios required to be categorized as well-capitalized. Dividends payable at September 30, 1999 amounted to approximately $1.2 million, representing $.11 per share payable on October 15, 1999, an increase of 10.0% over the $.10 per share declared in the fourth quarter of 1998. Dividends declared per share represent historical per share dividends declared by the Corporation and have not been restated as a result of the acquisition of Pier Bank. 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. Book value per share as of September 30, 1999 and December 31, 1998 amounted to $7.18 and $7.21, respectively. Acquisition of Pier Bank On August 25, 1999, following receipt of all required regulatory and shareholder approvals, the Corporation completed the acquisition of Pier Bank, a Rhode Island-chartered community bank headquartered in South Kingstown, Rhode Island. Pursuant to the Agreement and Plan of Merger, dated February 22, 1999, the acquisition was effected by means of the merger of Pier Bank with and into The Washington Trust Company, the wholly-owned subsidiary of the Corporation. Under the terms of the agreement, the Corporation exchanged .468 shares of its common stock for each share of common stock held by a Pier Bank shareholder, with cash in lieu of fractional share interests. The conversion of customer deposit and loan accounts took place on September 24, 1999. The acquisition of Pier Bank was a tax-free reorganization accounted for as a pooling of interests. Accordingly, the financial information for all periods presented has been restated to present the combined financial condition and results of operations as if the combination had been in effect for all periods presented. Expenses directly attributable to the merger amounted to $1.3 million, net of tax, and were charged to earnings at the date of combination. Year 2000 The statements in the following section include "Year 2000 readiness disclosure" within the meaning of the Year 2000 Information and Readiness Disclosure Act. The following "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. 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 the year 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 validation and testing of all IT and non-IT systems were completed by June 30, 1999. 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. 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. Total costs incurred through September 30, 1999 amounted to approximately $400 thousand. These costs consisted primarily of system testing and modification, internal staffing and consulting, and were primarily recorded in noninterest expenses. The remaining project costs will be incurred throughout 1999. 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 were expanded to include specific procedures for potential Year 2000 issues, and contingency plans to protect against Year 2000-related interruptions. These plans include backup procedures and identification of alternative suppliers. Business resumption contingency planning was completed 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. Recent Accounting Developments In June 1998, the Financial Accounting Standards Board (FASB) 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. 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. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 and is not to be applied retroactively to financial statements of prior periods. 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 60 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. In addition, the ALCO reviews 60-month horizon results to assess longer-term risk inherent in the balance sheet, although no 60-month horizon tolerance levels are specified. As of September 30, 1999, 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 -2.4% -6.5% 200 basis point decrease in rates +1.3% -0.2% 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, 1998. 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, 1999, an immediate 200 basis point rise in rates would result in a 4.4% 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 2.2% 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, 1999, including both debt and equity securities, was 4.0%, 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 On January 28, 1997, a suit was filed against the Bank in the Superior Court of Washington County, Rhode Island by Maxson Automatic Machinery Company ("Maxson"), a corporate customer, and Maxson's shareholders for damages which the plaintiffs allegedly incurred as a result of an embezzlement by Maxson's former president and treasurer. The suit alleges that the Bank wrongly permitted this individual, while an officer of Maxson, to divert funds from Maxson's account at the Bank for his personal benefit. The claims against the Bank are based upon theories of breach of fiduciary duty, negligence, breach of contract, unjust enrichment, conversion, failure to act in a commercially reasonable manner, and constructive fraud. The suit as originally filed sought recovery for losses alleged to be directly related to the embezzlement of approximately $3.1 million, as well as consequential damages amounting to approximately $2.6 million. On March 19, 1998, the plaintiffs amended their claims to seek recovery of an additional $2.6 million in losses, plus an unspecified amount of interest thereon, which are alleged to be directly related to the embezzlement. Management believes, based on its review with counsel of the development of this matter to date, that the Bank has asserted meritorious affirmative defenses in this litigation. Additionally, the Bank has filed counterclaims against Maxson and its principal shareholder as well as claims against the former Maxson officer who was allegedly responsible for the embezzlement. The Bank intends to vigorously assert its defenses and affirmative claims. The case is nearing the end of discovery and a trial date has been established for February 2000. Management and legal counsel are unable to estimate or assess the extent of risk of an adverse result. Consequently, no loss provision has been recorded. The Corporation is involved in various other claims and legal proceedings arising out of the ordinary course of business. Management is of the opinion, based on its review with counsel of the development of such matters to date, that the ultimate disposition of such other matters will not materially affect the consolidated financial position or results of operations of the Corporation. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibit index Exhibit No. 10 Changes in Control Agreement (1) 11 Statement re Computation of Per Share Earnings (b) On August 27, 1999, a Form 8-K was filed which reported that the Corporation completed the acquisition of Pier Bank, a Rhode Island-chartered community bank with assets of $59.4 million as of December 31, 1998. (1) Management contract or compensatory plan or arrangement. 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 15, 1999 By: John C. Warren ---------------------------------------------- John C. Warren Chairman and Chief Executive Officer (principal executive officer) November 15, 1999 By: David V. Devault ---------------------------------------------- David V. Devault Executive Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer) EX-10 2 Exhibit 10 Change in Control Agreements with Executive Officers WASHINGTON TRUST BANCORP, INC. 23 BROAD STREET WESTERLY, RHODE ISLAND 02891 September 1, 1999 Joseph E. LaPlume 45 Cypress Avenue Narragansett, R.I. 02882 Dear Mr. LaPlume: Washington Trust Bancorp, Inc. (the "Corporation") considers it essential to the best interests of its shareholders to foster the continued employment of key management personnel employed by its wholly-owned subsidiary, The Washington Trust Company (the "Bank"). In this connection, the Board of Directors of the Corporation (the "Board") recognizes that the possibility of a change in control exists and that such possibility, and the uncertainty and question which it necessarily raises among management, may result in the departure or distraction of management personnel to the detriment of the Corporation and its shareholders in this period when their undivided attention and commitment to the best interests of the Corporation and its shareholders are particularly important. Accordingly, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Corporation and the Bank's management. 1. Defined Terms. Certain laws, rules and regulations referenced in this agreement are attached hereto as Appendices and are hereby incorporated herein by reference. 2. Change in Control. For purposes of this Agreement, the term "Change in Control" shall mean: a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock"); provided, however, that any acquisition by the Corporation or its subsidiaries, or any employee benefit plan (or related trust) of the Corporation or its subsidiaries of 20% or more of Outstanding Corporation Common Stock shall not constitute a Change in Control; and provided, further, that any acquisition by a corporation with respect to which, following such acquisition, more than 50% of the then outstanding shares of common stock of such corporation, is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Common Stock immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the Outstanding Corporation Common Stock, shall not constitute a Change in Control; or b) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or c) Consummation by the Corporation of (i) a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Common Stock immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 40% of the then outstanding shares of common stock of the corporation resulting from such a reorganization, merger or consolidation; (ii) a reorganization, merger or consolidation, in each case, (A) with respect to which all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Corporation Common Stock immediately prior to such reorganization, merger or consolidation, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 40% but less than 50% of the then outstanding shares of common stock of the corporation resulting from such a reorganization, merger or consolidation, (B) at least a majority of the directors then constituting the Incumbent Board do not approve the transaction and do not designate the transaction as not constituting a Change in Control, and (C) following the transaction members of the then Incumbent Board do not continue to comprise at least a majority of the Board; or (iii) the sale or other disposition of all or substantially all of the assets of the Corporation, excluding a sale or other disposition of assets to a subsidiary of the Corporation; or d) Consummation by the Bank of (i) a reorganization, merger or consolidation, in each case, with respect to which, following such reorganization, merger or consolidation, the Corporation does not beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock of the corporation or bank resulting from such a reorganization, merger or consolidation or (ii) the sale or other disposition of all or substantially all of the assets of the Bank, excluding a sale or other disposition of assets to the Corporation or a subsidiary of the Corporation. 3. Continuing Employment. You agree that you shall remain in the employ of the Corporation and the Bank for a term of one (1) year following any Change in Control of the Company, unless there is an Event of Termination, as defined below, or you die or become unable to perform your duties by reason of disability. 4. Event of Termination. For purposes of this Agreement, the term "Event of Termination" shall mean: a) The involuntary termination of your employment with the Corporation and/or the Bank, other than for cause. The term "for cause" shall mean on account of (i) conviction of a crime involving moral turpitude, (ii) willful and inexcusable failure to perform the duties of your position with the Corporation and/or the Bank, and (iii) conduct that is clearly and patently detrimental to the best interests of the Corporation and/or the Bank. In any proceeding, judicial or otherwise, the Corporation and/or the Bank shall have the burden proving by clear and convincing evidence that a termination of your employment following a change in control was for cause. Termination of employment due to your death or disability shall not be deemed a termination for cause; b) A reduction in your salary, title, benefits, staff, perquisites, or duties unless you agree in writing, but only if such event occurs within one (1) year after a Change in Control. 5. Entitlements Upon an Event of Termination a) Unless otherwise provided herein, within 30 days after an Event of Termination, the Bank shall pay you an amount equal your "base amount" as of the date of the Event of Termination; provided, however, that if the Event of Termination occurs during the Term of the Employment Agreement which you entered into with the Bank on August 24, 1999 (the "Employment Agreement"), the Bank shall pay you an amount that is equal to the "Termination Benefits" defined in Section 6(d) of the Employment Agreement, if greater. b) Your entitlements under this Agreement and under any other plans or agreements of the Corporation and/or the Bank that constitute "parachute payments" shall never exceed that amount that is 2.99 times your "base amount." For purposes of this Agreement, the term "parachute payment" shall have the meaning ascribed to it by Section 280G(b)(2)(A) of the Internal Revenue Code of 1986, as amended and in effect on the date hereof (the "Code"), including the flush language, but without regard to clause (ii) thereof, and the term "base amount" shall have the meaning ascribed to it by Section 280G(b)(3) of the Code; c) In the event that your entitlements to parachute payments under this or any other agreement or plan of the Corporation and/or the Bank exceed 2.99 times your base amount, you agree that your total benefits shall be reduced to 2.99 times your base amount in such manner as you shall designate to the Bank in writing. In default of such designation, such benefits shall be reduced in proportion to their relative present values as determined by the Bank's certified public accountants using the discount rate prescribed by Section 280G(d)(4) of the Code; d) The Bank shall pay all legal fees and expenses that you incur seeking to obtain or enforce any right or benefit provided by this Agreement; e) You shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation you may earn as a result of employment by another employer or by reason of retirement benefits after the date of this Agreement or otherwise. 6. Successors; Binding Agreement. a) The Corporation and the Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation and/or the Bank to assume expressly and perform this Agreement. Failure of the Corporation and/or the Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Bank in the same amount and on the same terms as you would be entitled to hereunder following an Event of Termination, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date on which you become entitled to such compensation from the Bank. As used in the agreement, "Corporation" and "Bank" shall mean the Corporation and the Bank, respectively, as hereinbefore defined and any successor to its respective business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. b) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, unless otherwise provided herein, such amount shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. Notice. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified/registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Corporation and/or the Bank shall be directed to the attention of the Board with a copy to the Secretary of the Corporation and/or the Bank, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of a change of address shall be effective only upon receipt. 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach of the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions as the same or at any prior or subsequent time. No agreements or representations, oral, or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Rhode Island. 9. Not Employment Agreement. No provision of this Agreement shall be deemed to provide for a continuing right to employment with the Corporation or the Bank. 10. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12. Arbitration. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its applicable rules and judgment and the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 13. Term of Agreement. This Agreement shall remain in effect so long as you are employed by the Corporation and/or the Bank unless terminated in writing upon 30 days notice by either party; provided, however, following a Change in Control, that the Corporation and the Bank shall have no right to terminate this agreement for one (1) year. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, WASHINGTON TRUST BANCORP, INC. THE WASHINGTON TRUST COMPANY By: John C. Warren ------------------------------------- John C. Warren Chairman and Chief Executive Officer AGREED to this 1st day of September , 1999. Joseph E. LaPlume - ------------------ Joseph E. LaPlume APPENDIX 1 List of Appendices Copies of the following laws, rules and regulations referenced in the agreement to which this Appendix is a part are attached hereto and incorporated therein by reference: Appendix 1A -- Section 13d(3) and Section 14(d)(2) of the Exchange Act Appendix 1B -- Rule 13d-3 promulgated under the Exchange Act Appendix 1C -- Rule 14a-11 of Regulation 14A promulgated under the Exchange Act Appendix 1D -- Section 280G of the Code EX-11 3 EXHIBIT 11 Washington Trust Bancorp, Inc. Computation of Per Share Earnings For the Periods Ended September 30, 1999 and 1998
Three months ended September 30, 1999 1998 - ---------------------------------------------------- ---------------------------------- ------------------------------- (In thousands, except per share amounts) Basic Diluted Basic Diluted ----------------- ---------------- ----------------- ------------- Net income $2,019 $2,019 $2,678 $2,678 Share amounts: Average outstanding 10,886.5 10,886.5 10,700.7 10,700.7 Common stock equivalents - 188.4 - 388.5 - ---------------------------------------------------- ----------------- ---------------- ----------------- ------------- Weighted average outstanding 10,886.5 11,074.9 10,700.7 11,089.2 - ---------------------------------------------------- ----------------- ---------------- ----------------- ------------- Earnings per share $.19 $.18 $.25 $.24 - ---------------------------------------------------- ----------------- ---------------- ----------------- ------------- Nine months ended September 30, 1999 1998 - ---------------------------------------------------- ---------------------------------- ------------------------------- (In thousands, except per share amounts) Basic Diluted Basic Diluted ----------------- ---------------- ----------------- ------------- Net income $7,617 $7,617 $7,792 $7,792 Share amounts Average outstanding 10,852.5 10,852.5 10,699.8 10,699.8 Common stock equivalents - 226.8 - 394.7 - ---------------------------------------------------- ----------------- ---------------- ----------------- ------------- Weighted average outstanding 10,852.5 11,079.3 10,699.8 11,094.5 - ---------------------------------------------------- ----------------- ---------------- ----------------- ------------- Earnings per share $.70 $.69 $.73 $.70 - ---------------------------------------------------- ----------------- ---------------- ----------------- -------------
EX-27 4
9 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF WASHINGTON TRUST BANCORP, INC. AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 SEP-30-1999 19,639 0 7,950 0 348,639 109,920 107,751 534,704 12,179 1,081,684 662,292 5,386 335,790 0 0 0 681 77,535 1,081,684 33,306 20,373 417 54,096 14,823 27,545 26,551 1,390 380 25,521 11,259 11,259 0 0 7,617 .70 .69 3.73 0 0 0 0 10,966 573 396 12,179 0 0 0
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