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 March 31, 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 May 6, 1994
------------------------------ --------------------------
Common stock, $.0625 par value 1,878,993 Shares
Page 1
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1994
CONTENTS
--------
Page No.
PART I. ITEM 1. Financial Information --------
- - --------------------------------------
Consolidated Condensed Balance Sheets
March 31, 1994, March 31, 1993, and December 31, 1993 3
Consolidated Condensed Statements of Income
Three Months Ended March 31, 1994 and 1993 4
Consolidated Condensed Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 1994 and 1993 5
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 1994 and 1993 6
Notes to Consolidated Condensed Financial Statements 7
PART I. ITEM 2.
- - ----------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II. Other Information 19
- - ---------------------------
Signatures 20
- - ----------
-2-
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, March 31, December 31,
ASSETS 1994 1993 1993
- - ------
<S> <C> <C> <C>
Cash and due from banks $ 14,614,253 $ 12,929,184 $ 14,978,427
Federal funds sold 906,713 11,920,000 6,671,701
Securities available for sale, at market value at
March 31, 1994; cost $33,461,122 at March 31, 1994;
at lower of cost or market at March 31, 1993 and
December 31, 1993; market value $46,884,775 and
$44,420,747 at March 31, 1993 and December 31,
1993, respectively 39,379,482 38,050,428 36,236,543
Mortgage loans held for sale 79,532 1,036,205 3,709,499
Investment securities, at cost; market value
$51,743,604, $37,918,239 and $53,333,595 at
March 31, 1994 and 1993, and December 31,
1993, respectively 52,228,024 36,916,123 52,497,832
Loans 363,676,148 331,594,728 352,510,695
Less reserve for possible loan losses 8,830,051 8,111,371 8,657,263
----------- ----------- -----------
Net loans 354,846,097 323,483,357 343,853,432
Premises and equipment, net 14,360,066 15,004,575 14,354,731
Accrued interest receivable 3,008,680 2,982,976 2,870,911
Other real estate owned, net 8,321,257 12,477,057 7,831,146
Other assets 2,319,200 3,718,046 4,324,602
----------- ----------- -----------
Total assets $ 490,063,304 $ 458,517,951 $ 487,328,824
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Deposits:
Demand $ 43,044,884 $ 36,329,188 $ 43,924,560
Savings 193,042,414 188,257,851 200,846,347
Time 178,243,954 173,376,892 178,603,713
----------- ----------- -----------
Total deposits 414,331,252 397,963,931 423,374,620
Dividends payable 468,497 408,515 411,473
Securities sold under agreement to repurchase 3,745,000 -- --
Federal Home Loan Bank advances 23,551,500 20,000,000 20,500,000
Accrued expenses and other liabilities 5,221,485 4,251,166 4,579,806
----------- ----------- -----------
Total liabilities 447,317,734 422,623,612 448,865,899
----------- ----------- -----------
Shareholders' Equity:
Common stock of $.0625 par value; authorized
3,000,000 shares; issued 1,920,000 shares 120,000 120,000 120,000
Paid-in capital 2,852,642 2,778,274 2,822,908
Retained earnings 37,054,202 34,137,090 36,418,073
Unrealized gain on securities available
for sale 3,551,018 -- --
Treasury stock, at cost; 46,031 shares at
March 31, 1994, 63,113 shares at March 31,
1993 and 49,670 shares at December 31, 1993 (832,292) (1,141,025) (898,056)
----------- ----------- -----------
Total shareholders' equity 42,745,570 35,894,339 38,462,925
----------- ----------- -----------
Total liabilities and shareholders' equity $ 490,063,304 $ 458,517,951 $ 487,328,824
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
- 3 -
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Interest income:
Interest and fees on loans $7,246,159 $7,377,871
Income from investment securities and
securities available for sale:
Interest 1,125,067 970,945
Dividends 194,079 203,786
Interest on federal funds sold 50,614 59,175
--------- ---------
Total interest income 8,615,919 8,611,777
--------- ---------
Interest expense:
Savings deposits 1,070,141 1,279,003
Time deposits 1,917,840 2,105,547
Other 319,282 238,270
--------- ---------
Total interest expense 3,307,263 3,622,820
--------- ---------
Net interest income 5,308,656 4,988,957
Provision for loan losses 300,000 800,000
--------- ---------
Net interest income after provision for loan losses 5,008,656 4,188,957
--------- ---------
Noninterest income:
Trust income 801,520 713,883
Service charges on deposit accounts 383,357 328,010
Merchant processing fees 57,568 53,128
Gains on sales of securities available for sale 681,558 --
Gains (losses) on loan sales (43,726) 190,253
Other income 185,050 189,611
--------- ---------
Total noninterest income 2,065,327 1,474,885
--------- ---------
Noninterest expense:
Salaries and employee benefits 2,459,221 1,975,721
Net occupancy 307,985 266,686
Equipment 292,036 313,139
Deposit taxes and assessments 298,356 316,832
Foreclosed property costs 142,211 384,646
Office supplies 181,040 129,540
Advertising and promotion 142,070 50,633
Credit and collection 169,401 79,549
Charitable contributions 699,897 3,744
Other 751,139 693,692
--------- ---------
Total noninterest expense 5,443,356 4,214,182
--------- ---------
Income before income taxes and
cumulative effect of accounting change 1,630,627 1,449,660
Applicable income taxes 526,000 485,800
--------- ---------
Income before cumulative effect of accounting change 1,104,627 963,860
Cumulative effect of change in accounting for income taxes -- 305,000
--------- ---------
Net income $1,104,627 $1,268,860
========= =========
Weighted average shares outstanding - fully diluted 1,906,027 1,861,029
Earnings per share - fully diluted:
Income before cumulative effect of accounting change $ .58 $ .52
Cumulative effect of change in accounting for income taxes -- .16
----- -----
Net income $ .58 $ .68
===== =====
Cash dividends declared per share $ .25 $ .22
</TABLE>
See accompanying notes to consolidated condensed financial statements.
- 4 -
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1994 AND 1993
<TABLE>
<CAPTION>
Unrealized
gain on
securities Total
Common Paid-in Retained available Treasury Shareholde
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) $ 34,949,7
Net income, three months
ended March 31, 1993 1,268,860 1,268,8
Cash dividends declared (408,516) (408,5
Issuance of common stock
from treasury (5,931) 90,131 84,2
------- --------- ---------- ---------- ----------- --------
Balances, March 31, 1993 $ 120,000 $ 2,778,274 $ 34,137,090 $ -- $ (1,141,025) $ 35,894,3
======= ========= ========== ========== =========== ========
Balances, December 31, 1993 $ 120,000 $ 2,822,908 $ 36,418,073 $ -- $ (898,056) $ 38,462,9
Net income, three months
ended March 31, 1994 1,104,627 1,104,6
Cash dividends declared (468,497) (468,4
Issuance of common stock
from treasury 29,733 65,764 95,4
Adoption of SFAS #115 4,910,522 4,910,5
Change in unrealized gain on
securities available for sale (1,359,504) (1,359,5
------- --------- ---------- ---------- ----------- --------
Balances, March 31, 1994 $ 120,000 $ 2,852,641 $ 37,054,203 $ 3,551,018 $ (832,292) $ 42,745,5
======= ========= ========== ========== =========== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,104,627 1,268,860
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 300,000 800,000
Provision for valuation of other real
estate owned 51,125 246,011
Depreciation of premises and equipment 330,182 342,833
Amortization of net deferred loan fees and costs (159,258) (173,116)
Cumulative effect of change in accounting principle -- (305,000)
Gains on sales of securities available for sale (681,558) --
Losses (gains) on sales of other real estate owned 6,731 (51,901)
Losses (gains) on loan sales 43,726 (190,253)
Proceeds from sales of loans 9,201,632 9,186,129
Loans originated for sale (5,615,391) (1,392,508)
Increase in accrued interest receivable (137,769) (121,479)
Increase in other assets (361,942) (225,443)
Increase in accrued expenses and other liabilities 641,679 532,468
Other, net 56,320 (8,958)
---------- ----------
Net cash provided by operating activities 4,780,104 9,907,643
---------- ----------
Cash flows from investing activities:
Securities available for sale:
Purchases -- (1,300,000)
Proceeds from sales of equity securities 3,449,897 1,000,000
Investment securities:
Purchases (1,161,852) (3,348,682)
Maturities and principal repayments 1,416,634 3,268,719
Investment in Federal Home Loan Bank stock (8,000) (30,800)
Loan originations in excess of principal
collected on loans (11,777,697) (6,138,810)
Proceeds from sales and other reductions
of other real estate owned 69,713 954,002
Purchases of premises and equipment (335,117) (298,220)
---------- ----------
Net cash used in investing activities (8,346,422) (5,893,791)
---------- ----------
Cash flows from financing activities:
Net decrease in deposits (9,043,368) (6,696,074)
Net increase in securities sold under
agreement to repurchase 3,745,000 --
Proceeds from Federal Home Loan Bank advances 3,051,500 6,000,000
Proceeds from issuance of commmon stock 95,497 28,458
Cash dividends paid (411,473) (314,701)
---------- ----------
Net cash used in financing activities (2,562,844) (982,317)
---------- ----------
Net increase (decrease)in cash and cash equivalents (6,129,162) 3,031,535
Cash and cash equivalents at beginning of period 21,650,128 21,817,649
---------- ----------
Cash and cash equivalents at end of period $ 15,520,966 24,849,184
========== ==========
Noncash Investing Activities:
Transfers from loans to other real estate owned $ 734,290 139,470
Loans charged off 190,380 152,756
Loans made to facilitate the sale of OREO 90,000 611,100
Supplemental Disclosures:
Interest payments $ 1,789,504 1,982,327
Income taxes payments 481,009 65,278
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-6-
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 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 condensed financial
statements contain all adjustments (consisting only of normally recurring
accruals) necessary to present fairly the Corporation's financial position as of
March 31, 1994 and 1993 and the results of operations and cash flows for the
interim periods presented.
The consolidated condensed 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 condensed 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
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 condensed statement of income
for the three months ended March 31, 1993.
The Corporation's deferred tax asset amounted to $1,022,655 at March 31, 1994,
$3,305,000 at December 31, 1993, and $2,570,000 at March 31, 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
March 31, 1994 Cost Gains Losses Value
-------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $25,105,567 550,944 158,516 $25,497,995
Corporate debt securities 1,000,000 -- -- 1,000,000
Corporate stocks 5,374,755 5,609,121 83,189 10,900,687
Federal Home Loan Bank stock 1,980,800 -- -- 1,980,800
----------- ---------- --------- ----------
$33,461,122 6,160,065 241,705 $39,379,482
=========== ========== ========= ===========
<CAPTION>
Amortized Unrealized Unrealized Market
March 31, 1993 Cost Gains Losses Value
-------------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $23,151,160 1,145,015 -- $24,296,175
Corporate debt securities 1,000,000 -- 7,500 992,500
Corporate stocks 11,926,468 7,769,201 72,369 19,623,300
Federal Home Loan Bank stock 1,972,800 -- -- 1,972,800
----------- ---------- --------- ----------
$38,050,428 8,914,216 79,869 $46,884,775
=========== ========== ========= ===========
</TABLE>
Included in corporate stocks at March 31, 1994 and 1993 were $2.0 million and
$8.5 million, respectively, 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 $3,026,560 and $2,995,680
were pledged to secure public deposits and for other purposes at March 31, 1994
and 1993, respectively. U.S. Treasury obligations with a carrying value of
$3,660,790 were pledged as collateral against securities sold under agreements
to repurchase at March 31, 1994.
As of March 31, 1994, the contractual maturities of debt securities available
for sale are presented in the following table. Debt securities designated as
available for sale may be sold prior to their contractual maturity.
<TABLE>
<CAPTION>
Amortized Market
Securities Available for Sale Cost Value
- - ----------------------------- ---------- ---------
<S> <C> <C>
Due in 1 year or less $ 3,018,415 $ 3,024,390
After 1 but within 5 years 22,597,577 22,747,980
After 5 but within 10 years -- --
After 10 years 489,575 725,625
---------- ----------
Total $26,105,567 $26,497,995
========== ==========
</TABLE>
Proceeds from sales of corporate stocks available for sale amounted to
$3,449,897 and $1,000,000 for the quarters ended March 31, 1994 and 1993,
respectively. Gross gains of $681,558 and $0 were realized on these sales in
the three months ended March 31, 1994 and 1993, respectively. 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 market values of investment securities are summarized
as follows:
<TABLE>
<CAPTION>
Carrying Unrealized Unrealized Market
March 31, 1994 Value Gains Losses Value
-------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations
and obligations of U.S.
government agencies $19,419,051 11,816 353,593 $19,077,274
Mortgage-backed securities 24,094,454 64,665 140,413 24,018,706
States and political subdivisions 8,714,519 42,231 109,126 8,647,624
----------- ---------- --------- -----------
$52,228,024 118,712 603,132 $51,743,604
=========== ========== ========= ===========
<CAPTION>
Carrying Unrealized Unrealized Market
March 31, 1993 Value Gains Losses Value
-------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations
and obligations of U.S.
government agencies $ 6,998,296 106,405 -- $ 7,104,701
Mortgage-backed securities 23,969,380 797,537 17,098 24,749,819
States and political subdivisions 5,948,447 115,911 639 6,063,719
----------- ---------- --------- -----------
$36,916,123 1,019,853 17,737 $37,918,239
=========== ========== ========= ===========
</TABLE>
Investment securities with a carrying value of $999,683 and $999,938 were
pledged to secure public deposits and for other purposes at March 31, 1994 and
1993, respectively.
As of March 31, 1994, the contractual maturities of debt securities held for
investment are presented in the following table. Mortgage-backed securities are
included based on their weighted average maturities, adjusted for anticipated
future prepayments.
<TABLE>
<CAPTION>
Amortized Market
Investment Securities Cost Value
- - --------------------- ---------- ---------
<S> <C> <C>
Due in 1 year or less $ 8,781,537 $ 8,783,164
After 1 but within 5 years 30,935,060 30,534,550
After 5 but within 10 years 5,998,842 5,901,883
After 10 years 6,512,585 6,524,007
---------- ----------
Total $52,228,024 $51,743,604
========== ==========
</TABLE>
There were no sales or transfers of investment securities during the quarter
ended March 31, 1994.
(6) LOAN PORTFOLIO
- - ------------------
<TABLE>
<CAPTION>
March 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
Residential real estate:
Mortgages $158,585,323 $146,268,618
Homeowner construction 5,512,610 5,421,446
----------- -----------
Total residential real estate 164,097,933 151,690,064
----------- -----------
Commercial and other:
Mortgages 51,420,307 39,799,562
Construction and development 9,239,102 10,876,571
Other 102,815,093 97,238,256
----------- -----------
Total commercial 163,474,502 147,914,389
----------- -----------
Installment 36,103,713 31,990,275
----------- -----------
$363,676,148 $331,594,728
=========== ===========
</TABLE>
(7) RESERVE FOR POSSIBLE LOAN LOSSES
- - ------------------------------------
The following is an analysis of the reserve for possible loan losses:
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1994 1993
--------- ---------
<S> <C> <C>
Balance at beginning of period $8,657,263 $7,342,276
Provision charged to expense 300,000 800,000
Recoveries 63,167 121,851
Loans charged off (190,379) (152,756)
--------- ---------
Balance at end of period $8,830,051 $8,111,371
========= =========
</TABLE>
(8) FEDERAL HOME LOAN BANK ADVANCES
- - -----------------------------------
Advances from the Federal Home Loan Bank as of March 31, 1994 were as follows:
<TABLE>
<S> <C>
3.76%, due June 7, 1994 $ 1,500,000
3.75%, due August 1, 1994 1,500,000
4.08%, due September 30, 1994 1,000,000
4.15%, due February 22, 1995 1,000,000
5.10%, due July 10, 1995 2,000,000
5.77%, due December 31, 1995 1,000,000
6.13%, due June 17, 1996 1,500,000
5.23%, due August 22, 1996 1,000,000
4.96%, due December 31, 1996 1,000,000
6.87%, due January 27, 1997 5,000,000
6.06%, due July 10, 1997 2,000,000
5.78%, due February 23, 1998 1,000,000
5.36%, due December 10, 1998 1,500,000
6.02%, due February 22, 1999 1,000,000
6.31%, due February 18, 2014 1,551,500
----------
$23,551,500
==========
</TABLE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quarterly Results of Operations
- - -------------------------------
Net income for the three months ended March 31, 1994 amounted to $1,104,627,
14.6% higher than the $963,860 net income before accounting change recorded in
the first quarter of 1993. Earnings per share for the quarter ended March 31,
1994 amounted to $.58, up 11.5% from $.52 per share on net income before
accounting change for the quarter ended March 31, 1993.
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
three months ended March 31, 1993, including the effect of this accounting
change, amounted to $1,268,860, or $.68 per share.
The provision for loan losses amounted to $300,000 for the three months ended
March 31, 1994, down from $800,000 in the first quarter of 1993.
Gains on sales of securities available for sale amounted to $681,558 for the
first quarter of 1994. These 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.
Financial Condition and Liquidity
- - ---------------------------------
Total assets rose 6.9% and amounted to $490.1 million at March 31, 1994.
Average assets amounted to $491.3 million at March 31, 1994 up 8.6% from the
March 31, 1993 amount of $452.4 million.
Securities Available for Sale - As discussed in Note 2 to the Consolidated
Condensed 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 three months ended March 31,
1994, a decrease in the unrealized gains on these securities of $2.3 million was
recorded resulting from the rise in interest rates that occurred late in the
first quarter, as well as the realization of $686,558 in securities gains. The
resultant reduction in shareholders' equity amounted to $1,359,504. (See
Consolidated Condensed Statements of Changes in Shareholders' Equity on page 5
for a more detailed analysis.)
Investment Securities - The carrying value of investment securities amounted to
$52.2 million at March 31, 1994, up 41.5% from $36.9 million in the prior year.
The market value of investment securities amounted to $51.7 million and included
gross unrealized losses of approximately $603,000 attributable to increases in
interest rates in the first quarter.
Loans - Residential mortgage loan demand was strong throughout 1993 and
continued through the first quarter of 1994 as a result of low interest rates.
Residential mortgages rose 8.4% from the prior year and amounted to $158.6
million at March 31, 1994 or 43.6% of total loans. Adjustable rate mortgages
(ARMs) continue to increase as a percent of total mortgages, as borrowers opt to
take advantage of the attractive rates that this product offers. ARMs accounted
for 38.0% of total residential mortgages outstanding at March 31, 1994 compared
to 25.9% of total residential mortgages in the prior year.
Demand for commercial loans continued to strengthen in the first quarter 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 $163.5 million
at March 31, 1994, up $15.6 million or 10.5% from the year-earlier balance.
Commercial mortgages accounted for the largest portion of this increase,
increasing 29.2% over the prior year. Other commercial loans (primarily loans
secured by real estate) rose 5.7% over the prior year and amounted to $102.8
million at March 31, 1994.
Deposits and Other Borrowings - Total deposits amounted to $414.3 million at
March 31, 1994, up 4.1% from $398.0 million at March 31, 1993. Time deposits at
March 31, 1994 amounted to $178.2 million, compared to $173.4 million at March
31, 1993. Savings deposits rose from the March 31, 1993 level of $188.3 million
to $193.0 million at March 31, 1994. Savings deposits, the largest category of
deposits, comprised 46.6% of total deposits at March 31, 1994.
The Corporation utilizes Federal Home Loan Bank (FHLB) advances as a funding
source. FHLB advances amounted to $23.6 million at March 31, 1994, with
maturities generally less than five years. Additionally, short-term borrowings
included securities sold under agreement to repurchase of $3.7 million at March
31, 1994. There were no short-term borrowings outstanding at March 31, 1993.
Asset Quality
- - -------------
Nonperforming assets are summarized in the following table:
<TABLE>
<CAPTION>
(Dollars in thousands) 03/31/94 03/31/93 12/31/93
-------- -------- --------
<S> <C> <C> <C>
Nonaccrual loans 90 days or more past due $ 4,769 $ 7,500 $ 4,687
Nonaccrual loans less than 90 days past due 4,980 7,592 6,684
Accruing loans 90 days or more past due 49 55 22
-------- -------- --------
Total nonperforming loans 9,798 15,147 11,393
-------- -------- --------
Other real estate owned:
In-substance foreclosures 5,376 8,514 5,055
Properties acquired through foreclosure 4,647 6,291 4,568
Valuation allowance (1,702) (2,328) (1,792)
-------- -------- --------
Total other real estate owned 8,321 12,477 7,831
-------- -------- --------
Total nonperforming assets $18,119 $27,624 $19,224
======== ======== ========
Nonperforming loans as a % of total loans 2.7% 4.6% 3.2%
Nonperforming assets as a % of total assets 3.7% 6.0% 3.9%
Reserve for loan losses to nonperforming loans 90.1% 53.6% 76.0%
</TABLE>
The following is an analysis of nonperforming loans by loan category:
<TABLE>
<CAPTION>
(In thousands) 03/31/94 03/31/93 12/31/93
-------- -------- --------
<S> <C> <C> <C>
Residential real estate:
Mortgages $4,555 $6,680 $4,775
Homeowner construction -- 3 --
Commercial and other:
Mortgages 1,222 1,697 1,319
Construction and development -- 251 --
Other (1) 3,280 5,282 4,677
Installment 741 1,234 622
-------- -------- --------
Total nonperforming loans $9,798 $15,147 $11,393
======== ======== ========
<FN>
(1) Loans to businesses and individuals, a substantial portion of which is fully
or partially collateralized by real estate.
</TABLE>
Nonperforming assets amounted to 3.7% of total assets at March 31, 1994, down
from 6.0% at March 31, 1993 and 3.9% at December 31, 1993. Nonperforming loans
amounted to $9.8 million, down from the prior year amount of $15.1 million due
primarily to increased collection efforts by the Corporation to reduce the level
of nonperforming loans. Approximately 50.8% of nonaccrual loans were less than
90 days past due at March 31, 1994. Nonaccrual loans less than 90 days past due
have declined $1.7 million since December 31, 1993. This decrease is primarily
attributable to the reclassification of approximately $1.3 million in nonaccrual
loans to accruing status during the first quarter 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.
The balance of other real estate owned, including in-substance foreclosures, is
comprised of the following types of properties (in thousands):
<TABLE>
<CAPTION>
03/31/94 03/31/93 12/31/93
-------- -------- --------
<S> <C> <C> <C>
Property acquired through foreclosure:
Commercial real estate $2,279 $ 2,387 $2,354
Residential real estate 459 1,489 382
Construction and development 793 880 716
Land 1,116 1,535 1,116
------ ------- ------
4,647 6,291 4,568
In-substance foreclosures:
Commercial real estate 1,582 2,797 1,671
Residential real estate 1,943 3,892 1,443
Construction and development 829 741 990
Land 698 682 626
Other 324 402 325
------ ------- ------
5,376 8,514 5,055
Valuation allowance (1,702) (2,328) (1,792)
------ ------- ------
Total other real estate owned $8,321 $12,477 $7,831
====== ======= ======
</TABLE>
An analysis of the activity relating to other real estate owned, including in-
substance foreclosures, follows (in thousands):
<TABLE>
<CAPTION>
03/31/94 03/31/93
-------- --------
<S> <C> <C>
Balance at beginning of year $ 9,623 $15,633
Transfers from loans, net 734 139
Sales and other reductions (348) (994)
Other, net 14 27
------- -------
10,023 14,805
Valuation allowance (1,702) (2,328)
------- -------
Balance at end of period $ 8,321 $12,477
======= =======
</TABLE>
During the three months ended March 31, 1994 the Corporation sold property with
a carrying value of approximately $120,000.
The following is an analysis of the OREO valuation allowance (in thousands):
<TABLE>
<CAPTION>
For the three months ended March 31, 1994 1993
- - ------------------------------------ ------ ------
<S> <C> <C>
Balance at beginning of period $1,792 $2,178
Provision charged to expense 51 246
Sales and other reductions (68) (55)
Selling expenses incurred -- (37)
Other, net (73) (4)
------ ------
Balance at end of period $1,702 $2,328
====== ======
</TABLE>
Capital Resources
- - -----------------
Total equity capital amounted to $42.7 million or 8.7% of total assets at March
31, 1994. This compares to $35.9 million or 7.8% at March 31, 1993 and $38.5 or
7.9% at December 31, 1993. This increase is largely attributable to unrealized
gains on securities available for sale of $3.6 million. (See discussion on page
12 under the caption "Financial Condition and Liquidity" for further details.)
The Corporation's total risk-adjusted capital ratio amounted to 13.20% at March
31, 1994. Banks are required to maintain a minimum capital to risk-adjusted
asset ratio of 8%. The Corporation's leverage ratio amounted to 8.01% at March
31, 1994, well above the regulatory requirement of 3%.
Dividends payable at March 31, 1994 amounted to $468,497, representing $.25 per
share payable on April 15, 1994; an increase of 13.6% over the $.22 per share
paid in the first quarter of 1993.
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.
Net Interest Income
- - -------------------
(The accompanying schedule on page 17 should be read in conjunction with this
discussion.)
Fully taxable equivalent (FTE) net interest income for the three months ended
March 31, 1994 amounted to $5.4 million, up 6.0% over the corresponding 1993
period. The FTE interest rate spread (the average rate of return on interest-
earning assets less the average cost of interest-bearing funds) amounted to
4.30% for the first three months in 1994 compared to 4.64% for the first quarter
of 1993. The net interest margin (net interest income as a percentage of
average interest-earning assets) amounted to 4.72% and 4.95% for the three
months ended March 31, 1994 and 1993, respectively. The decline in the rates
earned on residential mortgages and taxable securities contributed to the
decline in these ratios.
The FTE rate of return on interest-earning assets was 7.60% for the quarter
ended March 31, 1994, down from 8.45% in the corresponding 1993 period. The FTE
rate of return on total loans was 8.13% and 8.87% for the three months ended
March 31, 1994 and 1993, respectively.
Demand for residential mortgage refinancings has been steady despite the recent
rise in interest rates. Additionally, the demand for adjustable rate mortgages
(ARMs) has risen in the past year. Average ARMs comprised 35.6% of total
average residential mortgages, compared to 23.8% 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
6.52% for the quarter ended March 31, 1994 compared to 8.76% for fixed rate
mortgages. The yield on the residential mortgage portfolio was 7.97% for the
quarter ended March 31, 1993, down from 9.24% in the prior year.
Average taxable securities for the quarter ended March 31, 1994 rose 28.0% over
the prior year. This increase is attributable to the amount of dutch auction
preferred stocks included in average corporate stocks, the additional purchases
of U.S. Treasury securities, as well as an average mark to market increase on
securities available for sale of $7.8 million. This increase was funded
primarily by deposit growth. The yield on taxable securities amounted to 5.92%
for the quarter ended March 31, 1994, compared to 6.94% for the comparable 1993
period. (See Note 3 to the Consolidated Condensed Financial Statements for
further detail of investment securities and securities available for sale.)
The overall cost of funds on interest-bearing liabilities amounted to 3.30% for
the first quarter of 1994, versus 3.81% in the first quarter of 1993. The rates
paid on the two largest categories of deposits, time deposits and savings
deposits, declined 54 basis points from the prior year.
Average interest-bearing liabilities amounted to $400.5 million for the quarter
ended March 31, 1994, up from the March 31, 1993 average of $380.3 million.
Average time deposits and average savings deposits accounted for 45.1% and
49.1%, respectively of total interest-bearing liabilities at March 31, 1994.
Average Federal Home Loan Bank advances amounted to $22.1 million at March 31,
1994, up from $15.7 million at March 31, 1993. The additional advances were
used in part to fund loan demand. The rates of interest paid on advances from
the Federal Home Loan Bank were 5.58% and 5.98% for the first quarter of 1994
and 1993, respectively.
<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 Condensed Statements of Income), are included in amounts presented for loans.
<CAPTION>
Three months ended March 31, 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 $162,455 3,236 7.97% $151,723 3,503 9.24%
Commercial and other 160,576 3,194 7.96% 147,291 3,067 8.33%
Installment loans 34,366 837 9.74% 31,956 832 10.41%
---------------------------------------------------------------------------------------------------------
Total loans 357,397 7,267 8.13% 350,056 7,759 8.87%
Federal funds sold 7,116 51 2.85% 8,671 59 2.72%
Taxable securities 87,453 1,295 5.92% 68,340 1,185 6.94%
Nontaxable securities 7,973 124 6.21% 5,888 98 6.62%
---------------------------------------------------------------------------------------------------------
Total interest-earning assets 459,939 8,736 7.60% 413,869 8,745 8.45%
Non interest-earning assets 31,376 38,550
---------------------------------------------------------------------------------------------------------
Total assets $491,315 $452,419
=========================================================================================================
Interest-bearing liabilities:
Savings deposits $196,662 1,070 2.18% $188,197 1,279 2.72%
Time deposits 180,684 1,918 4.25% 176,016 2,106 4.79%
Other 23,188 319 5.51% 16,086 238 5.92%
---------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 400,534 3,307 3.30% 380,299 3,623 3.81%
Non interest-bearing liabilities 38,242 36,255
---------------------------------------------------------------------------------------------------------
Total liabilities 421,424 416,554
Total shareholders' equity 43,759 35,865
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $491,315 $452,419
=========================================================================================================
Net interest income / interest rate spread $5,429 4.30% $5,122 4.64%
=========================================================================================================
Net interest margin 4.72% 4.95%
=========================================================================================================
<FN>
Interest income amounts presented in the table above include the following adjustments for taxable equivalency
(in thousands):
March 31, 1994 March 31, 1993
------------------ ------------------
Commercial and other loans $ 20 $ 25
Nontaxable debt securities 44 35
Corporate stocks 56 73
</TABLE>
Noninterest Income and Expense
- - ------------------------------
Total noninterest income for the three months ended March 31, 1994 amounted to
$2,065,327, and included gains on sales of securities available for sale of
$681,558. These securities gains were taken in connection with a nonrecurring
contribution expense. Noninterest income excluding securities gains and gains
(losses) on loan sales rose 11.1% over the prior year.
Total noninterest expense for the quarter ended March 31, 1994 amounted to
$5,443,356, up 29.2% over the 1993 period. Included in the first quarter 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 24.5% over the prior year quarter.
The increase is attributable to normal salary adjustments and increased staffing
levels, and to a lesser extent the adoption of SFAS #112, "Employers' Accounting
for Postemployment Benefits", in the first quarter of 1994. The effect of the
adoption was not material to the Corporation's financial position or results of
operations.
Foreclosed property costs were reduced by 63.0% and amounted to $142,211 for the
three months ended March 31, 1994. This decrease is primarily attributable to
fewer number of properties owned.
<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
- - ------ ---------------------------------------------------
None
Item 5. Other Information
- - ------ -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- - ------ --------------------------------
(b) The following report on Form 8-K was filed during the quarter
ended March 31, 1994:
On March 15, 1994 a Form 8-K was filed which reported that the
Federal Deposit Insurance Corporation (FDIC) agreed to release the
subsidiary bank from a January 1993 board of directors resolution
regarding the payment of dividends and other matters.
The January 1993 resolution stated that the subsidiary bank would
not pay any dividend to the Registrant unless it provided advance
notification to its federal and state regulators and received no
reasonable objection. The board resolution also required the
subsidiary bank to continue to maintain plans and procedures for
the maintenance of asset quality, risk control and capital
adequacy.
<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)
May 16, 1994 By: Joseph J. Kirby
--------------------------------
Joseph J. Kirby
President (principal executive officer)
May 16, 1994 By: Joseph H. Potter
--------------------------------
Joseph H. Potter
Executive Vice President
May 16, 1994 By: David V. Devault
--------------------------------
David V. Devault
Vice President and Chief Financial Officer
(principal financial officer)
