UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1994
----------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ________________ to _____________
Commission file Number 0-13091
-----------------------------------------------
WASHINGTON TRUST BANCORP, INC.
- - ---------------------------------------------------------------------
RHODE ISLAND 05-0404671
- - ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 BROAD STREET, WESTERLY, RHODE ISLAND 02891
- - ---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 348-1200
---------------
N/A
- - ---------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange
ACT of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the close of the latest practical date.
Class Outstanding at August 5, 1994
------------------------------ --------------------------
Common stock, $.0625 par value 1,878,992 Shares
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1994
CONTENTS
--------
Page No.
PART I. ITEM 1. Financial Information --------
- - --------------------------------------
Consolidated Balance Sheets
June 30, 1994, June 30, 1993, and December 31, 1993 3
Consolidated Statements of Income
Three Months and Six Months Ended June 30, 1994 and 1993 4
Consolidated Statements of Changes in Shareholders' Equity
Six Months Ended June 30, 1994 and 1993 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
PART I. ITEM 2.
- - ----------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. Other Information 19
- - ---------------------------
Signatures 21
- - ----------
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30, December 31,
ASSETS 1994 1993 1993
- - ------ ---------- ---------- ----------
<S> <C> <C> <C>
Cash and due from banks $ 14,949,045 $ 17,931,327 $ 14,978,427
Federal funds sold 2,281,972 11,245,000 6,671,701
Securities available for sale, at market value at
June 30, 1994; cost $32,371,871 at June 30, 1994;
at lower of cost or market at June 30, 1993 and
December 31, 1993; market value $46,875,601 and
$44,420,747 at June 30, 1993 and December 31,
1993, respectively 37,817,390 38,024,838 36,236,543
Mortgage loans held for sale 171,981 1,565,497 3,709,499
Investment securities, at cost; market value
$49,959,924, $39,380,635 and $53,333,595 at
June 30, 1994 and 1993, and December 31,
1993, respectively 50,832,069 38,267,096 52,497,832
Loans 372,926,264 341,039,253 352,510,695
Less reserve for possible loan losses 8,747,684 8,468,075 8,657,263
----------- ----------- -----------
Net loans 364,178,580 332,571,178 343,853,432
Premises and equipment, net 14,522,454 14,836,285 14,354,731
Accrued interest receivable 3,118,176 3,047,606 2,870,911
Other real estate owned, net 7,202,977 11,361,544 7,831,146
Other assets 2,632,241 3,918,054 4,324,602
----------- ----------- -----------
Total assets $ 497,706,885 $ 472,768,425 $ 487,328,824
=========== =========== ===========
LIABILITIES
Demand deposits $ 50,444,990 $ 39,926,756 $ 43,924,560
Savings deposits 191,884,182 197,004,317 200,846,347
Time deposits 181,395,410 174,856,057 178,603,713
----------- ----------- -----------
Total deposits 423,724,582 411,787,130 423,374,620
Dividends payable 469,748 409,617 411,473
Federal Home Loan Bank advances 26,042,026 20,000,000 20,500,000
Accrued expenses and other liabilities 3,796,724 3,963,035 4,579,806
----------- ----------- -----------
Total liabilities 454,033,080 436,159,782 448,865,899
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock of $.0625 par value; authorized
10,000,000 shares in 1994 and 3,000,000 shares
in 1993; issued 1,920,000 shares 120,000 120,000 120,000
Paid-in capital 2,899,991 2,782,826 2,822,908
Retained earnings 38,128,320 34,756,342 36,418,073
Unrealized gain on securities available for sale 3,267,312 -- --
Treasury stock, at cost; 41,008 shares at
June 30, 1994, 58,105 shares at June 30, 1993
and 49,670 shares at December 31, 1993 (741,818) (1,050,525) (898,056)
----------- ----------- -----------
Total shareholders' equity 43,673,805 36,608,643 38,462,925
----------- ----------- -----------
Total liabilities and shareholders' equity $ 497,706,885 $ 472,768,425 $ 487,328,824
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $7,549,389 $7,279,792 14,795,548 14,657,663
Investment securities and securities available for sale:
Interest 1,137,075 970,489 2,262,142 1,941,434
Dividends 176,753 211,445 370,832 415,231
Federal funds sold 42,304 64,335 92,918 123,510
--------- --------- ---------- ----------
Total interest income 8,905,521 8,526,061 17,521,440 17,137,838
--------- --------- ---------- ----------
Interest expense:
Savings deposits 1,050,681 1,324,680 2,120,822 2,603,683
Time deposits 1,887,310 1,986,064 3,805,150 4,091,611
Other 391,369 289,275 710,651 527,545
--------- --------- ---------- ----------
Total interest expense 3,329,360 3,600,019 6,636,623 7,222,839
--------- --------- ---------- ----------
Net interest income 5,576,161 4,926,042 10,884,817 9,914,999
Provision for loan losses 300,000 600,000 600,000 1,400,000
--------- --------- ---------- ----------
Net interest income after provision for loan losses 5,276,161 4,326,042 10,284,817 8,514,999
--------- --------- ---------- ----------
Noninterest income:
Trust income 800,043 758,794 1,601,563 1,472,677
Service charges on deposit accounts 412,278 369,831 795,635 697,841
Merchant processing fees 94,673 77,359 152,241 130,487
Gains on sales of securities available for sale -- 147,599 681,558 147,599
Gains (losses) on loan sales 11,909 72,918 (31,817) 263,171
Other income 177,636 156,242 362,686 345,853
--------- --------- ---------- ----------
Total noninterest income 1,496,539 1,582,743 3,561,866 3,057,628
--------- --------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 2,398,778 2,165,042 4,857,999 4,140,763
Net occupancy 295,758 347,320 603,743 614,006
Equipment 310,861 308,556 602,897 621,695
Deposit taxes and assessments 299,567 317,662 597,923 634,494
Foreclosed property costs, net (13,379) 115,273 128,832 499,919
Office supplies 149,320 133,538 330,360 263,078
Advertising and promotion 120,102 89,706 262,172 140,339
Credit and collection 121,397 150,626 290,798 230,175
Charitable contributions -- -- 699,897 3,744
Other 813,435 733,994 1,564,574 1,427,686
--------- --------- ---------- ----------
Total noninterest expense 4,495,839 4,361,717 9,939,195 8,575,899
--------- --------- ---------- ----------
Income before income taxes and
cumulative effect of accounting change 2,276,861 1,547,068 3,907,488 2,996,728
Applicable income taxes 733,000 518,200 1,259,000 1,004,000
--------- --------- ---------- ----------
Income before cumulative effect of accounting change 1,543,861 1,028,868 2,648,488 1,992,728
Cumulative effect of change in accounting for income taxes -- -- -- 305,000
--------- --------- ---------- ----------
Net income $1,543,861 $1,028,868 2,648,488 2,297,728
========= ========= ========== ==========
Weighted average shares outstanding - fully diluted 1,939,251 1,871,379 1,936,795 1,868,848
Earnings per share - fully diluted:
Income before cumulative effect of accounting change $ .80 $ .55 $1.37 $1.07
Cumulative effect of change in accounting for income taxes -- -- -- .16
----- ----- ----- -----
Net income $ .80 $ .55 $1.37 $1.23
===== ===== ===== =====
Cash dividends declared per share $ .25 $ .22 $ .50 $ .44
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
<TABLE>
<CAPTION>
Unrealized
gain on
securities Total
Common Paid-in Retained available Treasury Shareholders'
Stock Capital Earnings for sale Stock Equity
------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992 $ 120,000 $ 2,784,205 $ 33,276,746 $ -- $ (1,231,156) $ 34,949,795
Net income, six months
ended June 30, 1993 2,297,728 2,297,728
Cash dividends declared (818,132) (818,132)
Issuance of common stock
from treasury (1,379) 180,631 179,252
------- --------- ---------- ---------- ----------- ----------
Balances, June 30, 1993 $ 120,000 $ 2,782,826 $ 34,756,342 $ -- $ (1,050,525) $ 36,608,643
======= ========= ========== ========== =========== ==========
Balances, December 31, 1993 $ 120,000 $ 2,822,908 $ 36,418,073 $ -- $ (898,056) $ 38,462,925
Net income, six months
ended June 30, 1994 2,648,488 2,648,488
Cash dividends declared (938,241) (938,241)
Issuance of common stock
from treasury 77,083 156,238 233,321
Adoption of SFAS #115 4,910,522 4,910,522
Change in unrealized gain on
securities available for sale (1,643,210) (1,643,210)
------- --------- ---------- ---------- ----------- ----------
Balances, June 30, 1994 $ 120,000 $ 2,899,991 $ 38,128,320 $ 3,267,312 $ (741,818) $ 43,673,805
======= ========= ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,648,488 2,297,728
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 600,000 1,400,000
Provision for valuation of other real
estate owned 247,160 538,004
Depreciation of premises and equipment 670,804 684,375
Amortization of net deferred loan fees and costs (375,092) (269,273)
Cumulative effect of change in accounting principle -- (305,000)
Gains on sales of securities available for sale (681,558) (147,599)
Gains on sales of other real estate owned (293,177) (317,467)
Losses (gains) on loan sales 31,817 (263,171)
Proceeds from sales of loans 10,763,471 12,930,048
Loans originated for sale (7,257,770) (5,592,801)
Increase in accrued interest receivable (247,265) (186,109)
Increase in other assets (485,846) (425,451)
Increase (decrease) in accrued expenses and
other liabilities (783,082) 244,337
Other, net 102,650 (2,100)
---------- ----------
Net cash provided by operating activities 4,940,600 10,585,521
---------- ----------
Cash flows from investing activities:
Securities available for sale:
Purchases -- (1,300,000)
Proceeds from sales of equity securities 5,449,897 1,158,847
Investment securities:
Purchases (1,454,486) (5,421,117)
Maturities and principal repayments 3,106,866 3,775,390
Investment in Federal Home Loan Bank stock (934,000) (30,800)
Loan originations in excess of principal
collected on loans (20,949,551) (14,738,114)
Proceeds from sales and other reductions
of other real estate owned 1,014,347 1,273,003
Purchases of premises and equipment (838,127) (471,472)
---------- ----------
Net cash used in investing activities (14,605,054) (15,754,263)
---------- ----------
Cash flows from financing activities:
Net increase in deposits 349,962 7,127,125
Proceeds from Federal Home Loan Bank advances 11,051,500 6,000,000
Payments of Federal Home Loan Bank advances (5,509,474) --
Proceeds from issuance of commmon stock 233,321 59,397
Cash dividends paid (879,966) (659,102)
---------- ----------
Net cash provided by financing activities 5,245,343 12,527,420
---------- ----------
Net increase (decrease) in cash and cash equivalents (4,419,111) 7,358,678
Cash and cash equivalents at beginning of period 21,650,128 21,817,649
---------- ----------
Cash and cash equivalents at end of period $ 17,231,017 29,176,327
========== ==========
Noncash Investing Activities:
Transfers from loans to other real estate owned $ 1,488,543 782,361
Loans charged off 631,364 428,799
Loans made to facilitate the sale of OREO 1,089,048 1,429,200
Supplemental Disclosures:
Interest payments $ 5,900,026 4,193,607
Income taxes payments 1,802,787 1,391,278
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994 AND 1993
(1) BASIS OF PRESENTATION
- - --------------------------
The accounting and reporting policies of Washington Trust Bancorp, Inc. (the
Corporation) are in accordance with generally accepted accounting principles and
conform to general practices within the banking industry. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normally recurring accruals) necessary to
present fairly the Corporation's financial position as of June 30, 1994 and 1993
and the results of operations and cash flows for the interim periods presented.
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiary, The Washington Trust Company. All significant
intercompany balances and transactions have been eliminated. Certain amounts in
the 1993 consolidated financial statements have been reclassified to conform to
the current reporting format.
(2) INVESTMENT ACCOUNTING POLICY
- - ---------------------------------
Securities Available for Sale
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115 (SFAS #115), "Accounting for Certain Investments in
Debt and Equity Securities". The Statement requires that securities available
for sale be reported at fair value, with any unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity, net of tax, until realized. The effect of adopting SFAS #115 was an
increase in shareholders' equity of $4,910,522 on January 1, 1994.
Securities available for sale are those which the Corporation intends to use as
part of its asset/liability strategy or that may be sold as a result of changes
in market conditions, changes in prepayment risk, rate fluctuations, liquidity
or capital requirements.
Prior to the adoption of SFAS #115, securities available for sale were carried
at the lower of aggregate cost, adjusted for amortization of premium or
accretion of discount, or market value. Net unrealized losses and losses on
individual securities were charged to current period earnings.
Investment Securities
Those debt securities that the Corporation has the ability and intent to hold
until maturity are classified as investment securities. Debt securities held in
the investment portfolio are carried at cost, adjusted for amortization of
premium and accretion of discount.
(3) INCOME TAXES
- - -----------------
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS #109). Under
SFAS #109, income tax expense is determined based on the asset and liability
method, whereby deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
<PAGE>
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
cumulative effect of adoption of SFAS #109 was an increase to income of $305,000
and was reported in the Corporation's consolidated statement of income for the
six months ended June 30, 1993.
The Corporation's deferred tax asset amounted to $1,331,792 at June 30, 1994,
$3,305,000 at December 31, 1993, and $2,725,000 at June 30, 1993. The
Corporation recorded a significant reduction in the net deferred tax asset in
connection with the adoption of SFAS #115 in the first quarter of 1994, as
discussed in Note 1.
Based on the Corporation's current and historical level of pre-tax earnings,
management of the Corporation believes it is more likely than not that all of
the net deferred tax asset will be realized. The Corporation paid Federal
income tax of approximately $2,443,000, $1,986,000 and $847,000 for 1993, 1992,
and 1991, respectively. For Federal tax purposes, any tax losses incurred may
be carried back to actual taxable income in the previous three years. No
carryback is allowed for state taxes. Management believes that a significant
portion of the deferred tax asset will be realized within a five year period.
(4) SECURITIES AVAILABLE FOR SALE
- - ---------------------------------
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
June 30, 1994 Cost Gains Losses Value
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $25,090,316 330,141 (383,222) $25,037,235
Corporate debt securities 1,000,000 10,340 -- 1,010,340
Corporate stocks 3,374,755 5,566,375 (78,115) 8,863,015
Federal Home Loan Bank stock 2,906,800 -- -- 2,906,800
---------- ---------- --------- ----------
$32,371,871 5,906,856 (461,337) $37,817,390
========== ========== ========= ==========
<CAPTION>
Amortized Unrealized Unrealized Market
June 30, 1993 Cost Gains Losses Value
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $23,136,818 1,248,367 -- $24,385,185
Corporate debt securities 1,000,000 -- (2,000) 998,000
Corporate stocks 11,915,220 7,659,761 (55,365) 19,519,616
Federal Home Loan Bank stock 1,972,800 -- -- 1,972,800
---------- ---------- --------- ----------
$38,024,838 8,908,128 (57,365) $46,875,601
========== ========== ========= ==========
</TABLE>
Included in corporate stocks at June 30, 1993 were $8.5 million of auction rate
preferred stocks. These are preferred stock instruments whose dividend rate is
reset by auction every 49 days to a market rate which results in a market value
of par.
U.S. Treasury obligations with a carrying value of $2,997,510 and $2,996,176
<PAGE>
were pledged to secure public deposits and for other purposes at June 30, 1994
and 1993, respectively.
Proceeds from sales of corporate stocks available for sale amounted to
$5,449,897 and $1,158,847 for the six months ended June 30, 1994 and 1993,
respectively. Gross gains of $681,558 and $147,599 were realized on these
sales. No losses were realized on these sales. Realized gains from sales of
corporate stocks were determined using the average cost method.
(5) INVESTMENT SECURITIES
- - --------------------------
The amortized cost and estimated market values of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Market
June 30, 1994 Value Gains Losses Value
-------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations
and obligations of U.S.
government agencies $21,413,371 4,508 (483,289) $20,934,590
Mortgage-backed securities 21,076,887 14,700 (359,934) 20,731,653
States and political subdivisions 8,341,811 79,124 (127,254) 8,293,681
----------- ---------- --------- -----------
$50,832,069 98,332 (970,477) $49,959,924
=========== ========== ========= ===========
<CAPTION>
Carrying Unrealized Unrealized Market
June 30, 1993 Value Gains Losses Value
-------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations
and obligations of U.S.
government agencies $ 7,999,078 64,672 -- $ 8,063,750
Mortgage-backed securities 23,716,675 981,605 (14,627) 24,683,653
States and political subdivisions 6,551,343 97,210 (15,321) 6,633,232
----------- ---------- --------- -----------
$38,267,096 1,143,487 (29,948) $39,380,635
=========== ========== ========= ===========
</TABLE>
Investment securities with a carrying value of $999,732 and $999,962 were
pledged to secure public deposits and for other purposes at June 30, 1994 and
1993, respectively.
There were no sales or transfers of investment securities during the six months
ended June 30, 1994 and 1993.
<PAGE>
(6) LOAN PORTFOLIO
- - ------------------
<TABLE>
<CAPTION>
June 30,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Residential real estate:
Mortgages $165,712,637 149,677,135
Homeowner construction 6,298,735 5,713,857
----------- -----------
Total residential real estate 172,011,372 155,390,992
----------- -----------
Commercial and other:
Mortgages 49,799,199 41,197,967
Construction and development 10,933,008 10,954,039
Other 101,411,633 101,328,165
----------- -----------
Total commercial 162,143,840 153,480,171
----------- -----------
Installment 38,771,052 32,168,090
----------- -----------
$372,926,264 341,039,253
=========== ===========
</TABLE>
(7) RESERVE FOR POSSIBLE LOAN LOSSES
- - ------------------------------------
The following is an analysis of the reserve for possible loan losses:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- ----------------------
1994 1993 1994 1993
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period $8,830,051 $8,111,371 $8,657,263 $7,342,276
Provision charged to expense 300,000 600,000 600,000 1,400,000
Recoveries 58,618 32,747 121,785 154,598
Loans charged off (440,985) (276,043) (631,364) (428,799)
--------- --------- --------- ---------
Balance at end of period $8,747,684 $8,468,075 $8,747,684 $8,468,075
========= ========= ========= =========
</TABLE>
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- - ---------------------
Net income for the three months ended June 30, 1994 amounted to $1,543,861, a
50.1% increase over the $1,028,868 recorded in the second quarter of 1993.
Earnings per share for the quarter ended June 30, 1994 amounted to $.80, up
45.5% from $.55 per share in the second quarter of 1993. Net income for the six
months ended June 30, 1994 amounted to $2,648,488, 32.9% higher than the
$1,992,728 net income before accounting change recorded in the first six months
of 1993. Earnings per share for the six months ended June 30, 1994 amounted to
$1.37 compared to $1.07 per share on net income before accounting change for the
comparable 1993 period.
In the first quarter of 1993, the Corporation changed its method of accounting
for income taxes. The cumulative effect of this change in accounting principle
resulted in a one time benefit of $305,000 or $.16 per share. Earnings for the
six months ended June 30, 1993, including the effect of this accounting change,
amounted to $2,297,728, or $1.23 per share.
Gains on sales of securities available for sale for the quarters ended June 30,
1994 and 1993 were $0 and $147,599, respectively. The corresponding amounts for
the six months ended June 30, 1994 and 1993 were $681,558 and $147,599. The
1994 gains were taken in connection with a nonrecurring contribution expense of
approximately $700,000 recorded in the first quarter of 1994 for the
establishment of a charitable trust.
The provision for loan losses for the second quarter of 1994 amounted to
$300,000, down from $600,000 for the second quarter of 1993. For the six months
ended June 30, 1994 and 1993, the provision for loan losses was $600,000 and
$1.4 million, respectively.
Financial Condition and Liquidity
- - ---------------------------------
Total assets amounted to $497.7 million at June 30, 1994, up 5.3% from the
June 30, 1993 balance of $472.8 million. Average assets rose 7.7% to $493.6
million for the six months ended June 30, 1994, up from $457.6 million for the
comparable 1993 period.
Securities Available for Sale - As discussed in Note 2 to the Consolidated
Financial Statements, the Corporation adopted SFAS #115 as of January 1, 1994.
The effect of the adoption of SFAS #115 was an increase in the carrying value of
the securities and a corresponding increase (net of tax) in shareholders' equity
of $4,910,522. During the six months ended June 30, 1994, the unrealized gains
on these securities declined by $2.7 million primarily as a result of the rise
in interest rates since January 1, 1994 as well as gains realized on sales of
corporate stocks amounting to $686,558 for the six months ended June 30, 1994.
The resultant reduction in shareholders' equity amounted to $1,643,210.
The market value of corporate stocks available for sale amounted to $8.9 million
at June 30, 1994, $10.6 million lower than the year-earlier amount. This
decrease was primarily due to the decline in the balance of auction rate
preferred stocks which the Corporation elected not to renew for liquidity
<PAGE>
purposes.
Investment Securities - The carrying value of investment securities amounted to
$50.8 million at June 30, 1994, up from $38.3 million in the prior year. The
market value of investment securities amounted to $50.0 million, representing a
net unrealized loss of approximately $872,000 attributable to increases in
interest rates in 1994.
Loans - Total loans amounted to $372.9 million at June 30, 1994, an increase of
$31.9 million, or 9.3%, from the prior year amount of $341.0 million. All
categories of loans exhibited an increase over the 1993 amount except for
commercial construction loans which decreased only nominally.
Residential mortgage loan demand was strong throughout 1993 and continued
through the first quarter of 1994, but appears to be leveling off with the
rise in rates that has occurred in 1994. Residential mortgages amounted to
$165.7 million at June 30, 1994, up from $149.7 at June 30, 1993. Adjustable
rate mortgages (ARMs) continue to increase as a percent of total residential
mortgages, as borrowers opt to take advantage of the attractive rates that this
product offers. ARMs accounted for 40.0% of total residential mortgages
outstanding at June 30, 1994 up from 28.2% of total residential mortgages at
June 30, 1993.
Demand for commercial loans continued to strengthen in the first half of 1994, a
trend which began in the second half of 1993 after a sustained period of weak
commercial loan demand. Total commercial loans amounted to $162.1 million at
June 30, 1994, up 5.6% from the year-earlier balance of $153.5 million, due
primarily to an increase of $8.6 million in commercial mortgages.
Deposits and Other Borrowings - Customer deposits and other purchased
liabilities are the primary sources of liquidity for the Corporation. Total
deposits amounted to $423.7 million at June 30, 1994, up 2.9% from the $411.8
million reported at June 30, 1993. Time and demand deposits increased by $6.5
million and $10.5 million, respectively, while savings deposits decreased by
$5.1 million from the June 30, 1993 amount. (See additional discussion of
deposit composition under the caption "Net Interest Income".)
The Corporation utilizes advances from the Federal Home Loan Bank of Boston
(FHLBB) as a funding source. FHLBB advances amounted to $26.0 million at June
30, 1994, with maturities generally less than five years. FHLBB advances
were $20.0 million at June 30, 1993.
<PAGE>
Asset Quality
- - -------------
Nonperforming assets are summarized in the following table:
<TABLE>
<CAPTION>
(Dollars in thousands) 06/30/94 06/30/93 12/31/93
-------- -------- --------
<S> <C> <C> <C>
Nonaccrual loans 90 days or more past due $ 3,804 $ 7,236 $ 4,687
Nonaccrual loans less than 90 days past due 4,918 8,162 6,684
Accruing loans 90 days or more past due 18 90 22
-------- -------- --------
Total nonperforming loans 8,740 15,488 11,393
-------- -------- --------
Other real estate owned:
In-substance foreclosures 5,192 8,409 5,055
Properties acquired through foreclosure 3,638 5,219 4,568
Valuation allowance (1,627) (2,266) (1,792)
-------- -------- --------
Total other real estate owned 7,203 11,362 7,831
-------- -------- --------
Total nonperforming assets $15,943 $26,850 $19,224
======== ======== ========
Nonperforming loans as a % of total loans 2.3% 4.3% 3.2%
Nonperforming assets as a % of total assets 3.2% 5.7% 3.9%
Reserve for loan losses to nonperforming loans 100.1% 54.7% 76.0%
</TABLE>
The following is an analysis of nonperforming loans by loan category:
<TABLE>
<CAPTION>
(In thousands) 06/30/94 06/30/93 12/31/93
-------- -------- --------
<S> <C> <C> <C>
Residential real estate mortgages $ 4,819 $ 6,377 $ 4,775
Commercial and other:
Mortgages 731 1,544 1,319
Construction and development -- 115 --
Other (1) 2,530 6,162 4,677
Installment 660 1,290 622
-------- -------- --------
Total nonperforming loans $ 8,740 $15,488 $11,393
======== ======== ========
<FN>
(1) Loans to businesses and individuals, a substantial portion of which are fully
or partially collateralized by real estate.
</TABLE>
Nonperforming assets amounted to 3.2% of total assets at June 30, 1994, down
from 5.7% at June 30, 1993 and 3.9% at December 31, 1993. Nonperforming loans
amounted to $8.7 million at June 30, 1994, down $6.7 million, or 44%, from the
prior year due primarily to increased collection efforts by the Corporation to
reduce the level of nonperforming loans. Approximately 56% of nonaccrual loans
were less than 90 days past due at June 30, 1994. Nonaccrual loans less than 90
days past due have declined $1.8 million since December 31, 1993. This decrease
is attributable to the reclassification of approximately $2.0 million of
nonaccrual loans to accruing status during the first half of 1994. These loans
had been performing in accordance with their contractual terms and were
considered fully collectible. Payments on nonaccrual loans are recorded as a
reduction of principal if full collection of the loan is doubtful, or if
impairment of the collateral is identified.
<PAGE>
The balance of other real estate owned, including in-substance foreclosures, is
comprised of the following types of properties (in thousands):
<TABLE>
<CAPTION>
06/30/94 06/30/93 12/31/93
Property acquired through foreclosure: -------- -------- --------
<S> <C> <C> <C>
Commercial real estate $ 1,775 $ 2,190 $2,354
Residential real estate 200 881 382
Construction and development 664 865 716
Land 999 1,283 1,116
------- ------- ------
3,638 5,219 4,568
In-substance foreclosures:
Commercial real estate 1,628 2,864 1,671
Residential real estate 2,032 3,795 1,443
Construction and development 317 700 990
Land 626 682 626
Other 589 368 325
------- ------- ------
5,192 8,409 5,055
Valuation allowance (1,627) (2,266) (1,792)
------- ------- ------
Total other real estate owned $ 7,203 $11,362 $7,831
======= ======= ======
</TABLE>
An analysis of the activity relating to other real estate owned, including in-
substance foreclosures, follows (in thousands):
<TABLE>
<CAPTION>
06/30/94 06/30/93
-------- --------
<S> <C> <C>
Balance at beginning of year $ 9,623 $15,633
Transfers from loans, net 1,488 782
Sales and other reductions (2,306) (2,832)
Other, net 25 45
------- -------
8,830 13,628
Valuation allowance (1,627) (2,266)
------- -------
Balance at end of period $ 7,203 $11,362
======= =======
</TABLE>
During the six months ended June 30, 1994 the Corporation sold property with a
carrying value of approximately $1,396,000.
The following is an analysis of the OREO valuation allowance (in thousands):
<TABLE>
<CAPTION>
For the six months ended June 30, 1994 1993
- - --------------------------------- ------ ------
<S> <C> <C>
Balance at beginning of period $1,792 $2,178
Provision charged to expense 247 538
Reductions attributable to sales (221) (343)
Selling expenses incurred (34) (64)
Other, net (157) (43)
------ ------
Balance at end of period $1,627 $2,266
====== ======
</TABLE>
<PAGE>
Capital Resources
- - -----------------
Total equity capital amounted to $43.7 million or 8.8% of total assets at June
30, 1994, compared to $36.6 million or 7.7% of total assets at June 30, 1993.
The increase in the equity-to-assets ratio in 1994 is attributable to unrealized
gains (net of income tax) on securities available for sale of $3.3 million at
June 30, 1994 and approximately $1.9 million in undistributed earnings and
capital contributions from the Corporation's dividend reinvestment plan. (See
discussion under the caption "Financial Condition and Liquidity" for further
details.)
The Corporation's total risk-adjusted capital ratio amounted to 13.43% at
June 30, 1994. Banks are required to maintain a minimum capital to risk-
adjusted assets ratio of 8%. The Corporation's leverage ratio amounted to
8.15% at June 30, 1994, well above the regulatory requirement of 3%.
During the second quarter of 1994, the Corporation declared a $.25 per share
dividend, payable July 15, 1994 to shareholders of record as of July 1, 1994.
The source of funds for dividends paid by the Corporation is dividends received
from its subsidiary bank. The subsidiary bank is a regulated enterprise, and as
such its ability to pay dividends to the parent is subject to regulatory review
and restriction.
On July 21, 1994, the Corporation's board of directors voted to approve a
3-for-2 stock split on shares of common stock. The stock split, in the form of
a stock dividend, will be paid on August 31, 1994 to shareholders of record as
of August 1, 1994. The par value of the common stock will remain unchanged at
$.0625 per share. Cash payments will be made in lieu of issuing fractional
shares. The cash payment for fractional shares will be based on the average of
the closing bid and asked prices of the common stock as reported by NASDAQ on
the record date, August 1, 1994, which amounted to $34.50 per share.
Net Interest Income
- - -------------------
(The accompanying schedule on page 16 should be read in conjunction
with this discussion.)
Fully taxable equivalent (FTE) net interest income for the six months ended
June 30, 1994 amounted to $11.1 million, an increase of 9.2% over the $10.2
million earned for the corresponding 1993 period. This increase resulted from
a rise in average interest-earning assets of 10.3% from the prior year, with
average interest-bearing liabilities increasing by only 4.8%. Despite the
increase in FTE net interest income, the FTE interest rate spread decreased
16 basis points, to 4.39% at June 30, 1994. The net interest margin (net
interest income as a percent of average interest-earning assets) amounted to
4.82% at June 30, 1994, down slightly from the prior year amount of 4.87%.
Lower rates earned on loans, especially those relating to residential mortgages,
contributed to the decline in these ratios.
The FTE yield on total loans amounted to 8.17% for the six months ended June 30,
1994, compared to 8.79% for the comparable 1993 period. Although yields on all
categories of loans have declined, the residential mortgage portfolio has
experienced the most significant decline due to the large volume of refinancings
that occurred during the latter half of 1993. The yield on total residential
mortgages was 7.87% for the first half of 1994, down from 9.00% for the same
1993 period. Demand for fixed rate mortgage refinancings has slowed in 1994.
<PAGE>
<TABLE>
Average Balances/Net Interest Margin (Fully Taxable Equivalent Basis)
---------------------------------------------------------------------
The following table presents average balance and interest rate information. Tax exempt income is
converted to a fully taxable equivalent basis by assuming a 34% federal income tax rate adjusted for
applicable state income taxes net of the related federal tax benefit. For dividends on corporate
stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency.
Nonaccrual and renegotiated loans, as well as interest earned on these loans (to the extent recognized
in the Consolidated Statements of Income), are included in amounts presented for loans.
<CAPTION>
Six months ended June 30, 1994 1993
---------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Residential real estate $165,530 6,513 7.87% $153,244 6,895 9.00%
Commercial and other 162,039 6,584 8.13% 149,485 6,138 8.21%
Installment loans 35,555 1,739 9.78% 31,849 1,673 10.51%
---------------------------------------------------------------------------------------------------------
Total loans 363,124 14,836 8.17% 334,578 14,706 8.79%
Federal funds sold 5,962 93 3.12% 9,030 123 2.74%
Taxable securities 84,495 2,576 6.10% 68,779 2,372 6.90%
Nontaxable securities 8,141 254 6.23% 6,200 210 6.77%
---------------------------------------------------------------------------------------------------------
Total interest-earning assets 461,722 17,759 7.69% 418,587 17,411 8.32%
Non interest-earning assets 31,851 39,008
---------------------------------------------------------------------------------------------------------
Total assets $493,573 $457,595
=========================================================================================================
Interest-bearing liabilities:
Savings deposits $195,450 2,121 2.17% $190,586 2,608 2.74%
Time deposits 180,015 3,805 4.23% 174,430 4,088 4.69%
Other 26,275 711 5.41% 18,166 527 5.81%
---------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 401,740 6,637 3.30% 383,182 7,223 3.77%
Non interest-bearing liabilities 48,073 38,242
---------------------------------------------------------------------------------------------------------
Total liabilities 449,813 421,424
Total shareholders' equity 43,760 36,171
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $493,573 $457,595
=========================================================================================================
Net interest income / interest rate spread $11,122 4.39% $10,188 4.55%
=========================================================================================================
Net interest margin 4.82% 4.87%
=========================================================================================================
<FN>
Interest income amounts for the six months ended June 30, 1994 and 1993 presented in the table above include
the following adjustments for taxable equivalency (in thousands):
1994 1993
---- ----
Commercial and other loans $ 41 $ 49
Nontaxable debt securities 90 60
Corporate stocks 107 150
</TABLE>
<PAGE>
However, demand for adjustable rate mortgages (ARMs) continues to rise,
especially in response to the recent rise in interest rates. Average ARMs
comprised 35.9% of total average residential mortgages at June 30, 1994,
compared to 24.8% in the prior year. The rate of interest charged on this
product in the initial year is generally lower than that charged on fixed rate
mortgages. The yield on average ARMs amounted to 6.58% for the six months ended
June 30, 1994 compared to 8.59% for fixed rate mortgages. For the corresponding
1993 period, ARMs yielded 6.73% and fixed rate mortgages yielded 9.75%.
Average interest-bearing liabilities amounted to $401.7 million at June 30,
1994, up from the June 30, 1993 average of $383.2 million. The overall cost of
funds on interest-bearing liabilities amounted to 3.30% for the first six months
of 1994, down 47 basis points from 3.77% reported for the first six months of
1993. The rates paid on both savings and time deposits decreased from the prior
year, while their average balances increased. Average Federal Home Loan Bank
(FHLB) advances amounted to $23.7 million at June 30, 1994, up from $17.8
million at June 30, 1993. The additional advances were used in part to fund
loan demand. The average rates of interest paid on FHLB advances were 5.56% and
5.85% for the six months ended June 30, 1994 and 1993, respectively.
For the quarter ended June 30, 1994, the Corporation's FTE interest rate spread
amounted to 4.48%, up slightly from the second quarter of 1993 amount of 4.46%.
The net interest margin increased to 4.91% for the second quarter of 1994, up
from 4.79% for the prior year quarter. The FTE rate of return on interest-
earning assets amounted to 7.79% for the quarter ended June 30, 1994, down 40
basis points from the prior year quarter primarily due to the lower rates earned
on fixed rate residential mortgages. Yields on loans whose interest rate varies
with the prime rate, i.e. commercial loans and certain consumer loans, rose in
the second quarter of 1994, reflecting the recent increases in the prime rate.
The Corporation's cost of funds for the quarter ended June 30, 1994 was 3.31%,
down from 3.73% during the 1993 quarter. The rate of interest paid on savings
deposits amounted to 2.16%, down from 2.76% in the prior year quarter. The cost
of time deposits declined by 37 basis points, to 4.21% for the second quarter of
1994. Average advances from the FHLB and the rate paid thereon amounted to
$25.3 million and 5.54% for the quarter ended June 30, 1994. Corresponding
amounts for the 1993 quarter were $20.0 million and 5.74%.
In May 1994, the Corporation entered into interest rate swap agreements with a
total notional principal amount of $10 million. Under the agreements, the
Corporation pays a quarterly-resetting rate on the notional balance while
receiving a fixed rate over the life of the swaps. The swaps were executed in
conjunction with a promotional term deposit program. The purpose of the swaps
is to convert the fixed rate paid on the promotional term deposits to a
quarterly-resetting rate based on 3-month LIBOR. The notional balance of these
agreements is not included in the Corporation's Consolidated Balance Sheets and
the interest differential was not significant.
Noninterest Income and Expense
- - ------------------------------
Total noninterest income for the six months ended June 30, 1994 amounted to
$3,561,866, up 16.5% from the 1993 amount of $3,057,628. Included in
noninterest income for the six months ended June 30, 1994 were gains on sales of
securities available for sale of $681,558. These securities gains were taken in
connection with a nonrecurring contribution expense associated with the
establishment of a charitable trust in the first quarter of 1994. Noninterest
<PAGE>
income excluding securities gains and gains (losses) on loan sales rose 10.0%
over the prior year, with trust income and service charges on deposit accounts
accounting for the majority of this increase.
Total noninterest expense for the six months ended June 30, 1994 amounted to
$9,939,195, up 15.9% over the 1993 period. Included in the 1994 amount is a
one-time charitable contribution expense of approximately $700,000 associated
with the establishment of a charitable trust.
Salaries and employee benefits rose 17.3% over the prior year due to increased
staffing levels and normal salary adjustments, as well as higher profit sharing
and incentive plan costs. Also included in noninterest expense are credit and
collection costs. These consist largely of legal, appraisal and other costs
associated with collecting problem loans and securing collateral thereon. These
costs amounted to $290,798 for the six months ended June 30, 1994, up 26.3% from
the comparable 1993 period.
Foreclosed property costs declined by 74.2% from the prior year and amounted to
$499,919 for the six months ended June 30, 1994. This decrease is primarily
attributable to fewer number of properties owned and a reduction in the amount
of write-downs recorded to adjust the carrying values of the properties to fair
value.
For the three months ended June 30, 1994, noninterest income decreased by 5.4%
from the prior year quarter. This decline was due to securities gains of
$147,599 taken in the second quarter of 1993, while no securities gains were
taken in the same 1994 period.
For the three months ended June 30, 1994, total noninterest expense rose 3.1%.
Salaries and employee benefits amounted to $2,398,778, up 10.8% over the prior
year quarter due to increased staffing levels, normal salary adjustments and
higher profit sharing and incentive plan costs. Foreclosed property costs were
reduced by approximately $129,000 for the second quarter of 1994 due primarily
to realized gains on sales of properties.
<PAGE>
PART II
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
- - ------ -----------------
None
Item 2. Changes in Securities
- - ------ ---------------------
None
Item 3. Defaults upon Senior Securities
- - ------ -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- - ------ ---------------------------------------------------
(a) The Annual Meeting of Shareholders was held May 17, 1994.
(c) Other matters voted upon were as follows:
* A Proposal to elect Steven J. Crandall, Richard A. Grills, James
W. McCormick, Jr., Victor J. Orsinger, II, James P. Sullivan and
Neil H. Thorp as directors of the Corporation for three year
terms expiring at the 1997 Annual Meeting of Shareholders passed
as follows:
Votes Votes
In Favor Against Abstentions
--------- ------- -----------
Steven J. Crandall 1,417,558 0 2,929
Richard A. Grills 1,411,414 0 9,074
James W. McCormick, Jr. 1,411,574 0 8,914
Victor J. Orsinger, II 1,413,674 0 6,814
James P. Sullivan 1,417,926 0 2,562
Neil H. Thorp 1,419,674 0 814
* A Proposal to amend Article FOURTH of the Corporation's Restated
Articles of Incorporation to increase the number of shares of
the Corporation's Common Stock, $.0625 par value, that may be
issued from 3,000,000 to 10,000,000 shares passed by a vote of
1,318,795 shares in favor; 72,566 shares against; with 29,126
abstentions.
* A Proposal to approve the selection of KPMG Peat Marwick as
independent auditors of the Corporation for the year ending
December 31, 1994 was passed by a vote of 1,412,174 shares in
favor; 8,314 shares against; with no abstentions.
<PAGE>
Item 5. Other Information
- - ------ -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- - ------ --------------------------------
None
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON TRUST BANCORP, INC.
------------------------------
(Registrant)
August 12, 1994 By: Joseph J. Kirby
--------------------------------
Joseph J. Kirby
President
August 12, 1994 By: Joseph H. Potter
--------------------------------
Joseph H. Potter
Executive Vice President
August 12, 1994 By: David V. Devault
--------------------------------
David V. Devault
Vice President and Chief Financial
