UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
------------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to _____________________
Commission file Number 0-13091
---------------------------------------------------------
WASHINGTON TRUST BANCORP, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
RHODE ISLAND 05-0404671
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 BROAD STREET, WESTERLY, RHODE ISLAND 02891
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 348-1200
--------------------
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
NONE NONE
- ---------------------- -----------------------
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $.0625 PAR VALUE
- -------------------------------------------------------------------------------
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $80,652,096 at March 18, 1996 which includes $7,687,792 held
by The Washington Trust Company under trust agreements and other instruments.
The number of shares of common stock of the registrant outstanding as of
March 18, 1996 was 2,880,432.
Page 1 of 92
Exhibit Index page 23
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's 1995 Annual Report to Shareholders. (Parts I,
II and IV)
2. Portions of the Registrant's Proxy Statement dated March 18, 1996 for the
1996 Annual Meeting of Shareholders. (Part III).
===============================================================================
FORM 10-K
WASHINGTON TRUST BANCORP, INC.
For the Year Ended December 31, 1995
TABLE OF CONTENTS
-----------------
Description Page Number
--------------- -----------
Part I
- ------
Item 1 - Business 3
Item 2 - Properties 16
Item 3 - Legal Proceedings 17
Item 4 - Submission of Matters to a Vote of Security Holders 17
Executive Officers of the Registrant 18
Part II
- -------
Item 5 - Market for the Registrant's Common Stock
and Related Stockholder Matters 20
Item 6 - Selected Financial Data 21
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8 - Financial Statements and Supplementary Data 21
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
Part III
- --------
Item 10 - Directors and Executive Officers of the Registrant 22
Item 11 - Executive Compensation 22
Item 12 - Security Ownership of Certain Beneficial Owners and
Management 22
Item 13 - Certain Relationships and Related Transactions 22
Part IV
- -------
Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K 23
Signatures 24
- ----------
-2-
PART I
------
ITEM 1. BUSINESS
- ----------------
Washington Trust Bancorp, Inc.
- ------------------------------
Washington Trust Bancorp, Inc. (the "Corporation") is a publicly-owned,
registered bank holding company, organized in 1984 under the laws of the state
of Rhode Island, whose subsidiaries are permitted to engage in banking and other
financial services and businesses. The Corporation conducts its business
through its wholly-owned subsidiary, The Washington Trust Company (the "Bank"),
a Rhode Island chartered commercial bank. The deposits of the Bank are insured
by the Federal Deposit Insurance Corporation ("FDIC"), subject to regulatory
limits.
The Corporation was formed in 1984 under a plan of reorganization in which
outstanding common shares of The Washington Trust Company were exchanged for
common shares of Washington Trust Bancorp, Inc. At December 31, 1995 the
Corporation had total consolidated assets of $548 million, deposits of $468
million and equity capital of $53 million.
The Washington Trust Company
- ----------------------------
The Washington Trust Company was originally chartered in 1800 as the Washington
Bank and is the oldest banking institution headquartered in its market area.
Its current corporate charter dates to 1902. See "Market Area and Competition"
below for further information.
A broad range of financial services are provided by the Bank, including:
- - Residential mortgages - Commercial and consumer demand deposits
- - Commercial loans - Savings, NOW and money market deposits
- - Construction loans - Certificates of deposit
- - Consumer installment loans - Retirement accounts
- - Home equity lines of credit - Cash management services
- - VISA and Mastercard accounts - Safe deposit boxes
- - Merchant credit card services - Trust and investment services
Automated teller machines (ATM's) are located at each of the Bank's six banking
offices. The Bank is a member of the NYCE, Plus and Cashstream ATM networks.
Data processing for most of the Bank's deposit and loan accounts and other
applications is conducted internally using owned equipment. Application
software is primarily obtained through purchase or licensing agreements.
The Bank's Trust and Investment Department provides fiduciary services as
trustee under wills and trust agreements; as executor or administrator of
estates; as a provider of agency and custodial investment services to
individuals and institutions; and as a trustee for employee benefit plans. The
market value of total trust assets amounted to $467 million as of December 31,
1995.
-3-
The Bank's primary source of income is net interest income, the difference
between interest earned on interest-earning assets and interest paid on
interest-bearing deposits and other borrowed funds. Sources of noninterest
income include fees for management of customer investment portfolios, trusts and
estates, service charges on deposit accounts, merchant processing fees and other
banking-related fees. Noninterest expenses include the provision for loan
losses, salaries and employee benefits, occupancy, equipment, office supplies
deposit taxes and assessments, foreclosed property costs and other
administrative expenses.
The following is a summary of the relative amounts of income producing functions
as a percentage of gross operating income during the past five years:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest and fees on:
Residential real estate loans 29% 31% 33% 37% 37%
Commercial and other loans 33 32 30 31 33
Installment and consumer loans 10 9 8 9 10
---- ---- ---- ---- ----
Total loan income 72 72 71 77 80
Interest and dividends on securities 13 13 13 9 7
Trust income 7 7 7 6 5
Other noninterest income 8 8 9 8 8
---- ---- ---- ---- ----
Gross operating income 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
The percentage of gross income derived from interest and fees on loans was 72%
in 1995, down from a five-year high of 80% in 1991, primarily as a result of the
lower interest rate environment that existed in 1993, 1994 and 1995.
Market Area and Competition
- ---------------------------
The Bank's market area includes Washington County and a portion of Kent County
in southern Rhode Island as well as a portion of New London County in
southeastern Connecticut. The Bank's six banking offices are located in the
following Rhode Island communities:
- Westerly (2) - Charlestown - New Shoreham (Block Island)
- Richmond - Narragansett
The Bank's offices in Charlestown and on Block Island are the only bank
facilities in those communities. The Block Island office was acquired from
another Rhode Island bank in 1984. The Charlestown office was opened in 1988
and the Narragansett office was opened in 1989. Plans to construct a new branch
facility in North Kingstown, Rhode Island are currently in process.
The Bank faces strong competition from branches of major Rhode Island and
regional commercial banks, local branches of certain Connecticut banks, as well
as various credit unions, savings institutions and, to some extent, finance
-4-
companies. The principal methods of competition are through interest rates,
financing terms and other customer conveniences. The Washington Trust Company
had 36% of total deposits reported by financial institutions for banking offices
within its market area as of June 30, 1994. The two closest competitors held
16% each, and the third closest competitor held 6% of total deposits in the
market area. The Corporation believes that being the largest commercial banking
institution headquartered within the market area provides a competitive
advantage over other financial institutions. The Bank has a marketing
department which is responsible for the review of existing products and services
and the development of new products and services.
Employees
- ---------
As of December 31, 1995 the Corporation employed approximately 233 full-time and
55 part-time employees. Management believes that its employee relations are
good.
Supervision and Regulation
- --------------------------
General - The business in which the Corporation and the Bank are engaged is
subject to extensive supervision, regulation, and examination by various bank
regulatory authorities and other agencies of federal and state government. The
supervisory and regulatory activities of these authorities are often intended
primarily for the protection of customers or are aimed at carrying out broad
public policy goals that may not be directly related to the financial services
provided by the Corporation and the Bank, nor intended for the protection of the
Corporation's shareholders. Proposals to change regulations and laws which
affect the banking industry are frequently raised at the federal and state
level. The potential impact on the Corporation of any future revisions to the
supervisory or regulatory structure cannot be determined.
The Corporation and the Bank are required by various authorities to file
extensive periodic reports of financial and other information and such other
reports as the regulatory and supervisory authorities may require. The
Corporation is also subject to the reporting and other requirements of the
Securities Exchange Act of 1934.
The Corporation is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). As a bank holding company, the
activities of the Corporation are regulated by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). The BHC Act requires that
the Corporation obtain prior approval of the Federal Reserve Board to acquire
control over a bank or certain nonbank entities and restricts the activities of
the Corporation to those closely related to banking. Federal law also regulates
transactions between the Corporation and the Bank, including loans or extensions
of credit.
The Bank is subject to the supervision of, and examination by, the FDIC and the
State of Rhode Island. The Washington Trust Company is also subject to various
Rhode Island business and banking regulations.
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) - FDICIA
was enacted in December 1991 and has resulted in extensive changes to the
federal banking laws. Among other things, FDICIA requires the federal banking
-5-
regulators to take prompt corrective action with respect to depository
institutions that do not meet minimum capital requirements.
FDICIA established five capital tiers, ranging from "well-capitalized" to
"critically undercapitalized." A depository institution is well-capitalized if
it significantly exceeds the minimum level required by regulation for each
relevant capital measure. Under FDICIA, an institution that is not well-
capitalized is generally prohibited from accepting brokered deposits and
offering interest rates on deposits higher than the prevailing rate in its
market. In addition, "pass through" deposit insurance coverage may not be
available for certain employee benefit accounts. At December 31, 1995, the
Bank's capital ratios placed it in the well-capitalized category.
Another primary purpose of FDICIA was to recapitalize the Bank Insurance Fund
(BIF). The FDIC adopted a risk-related premium system for the assessment period
beginning January 1, 1993. Under this new system, each institution's assessment
rate is based on its capital ratios in combination with a supervisory evaluation
of the risk the institution poses to the BIF. Banks deemed to be well-
capitalized and who pose the lowest risk to the BIF will pay the lowest
assessment rates, while undercapitalized banks, who present the highest risk,
will pay the highest rates.
FDICIA contained other significant provisions that require the federal banking
regulators to establish standards for safety and soundness for depository
institutions and their holding companies in three areas: (i) operational and
managerial; (ii) asset quality, earnings and stock valuation; and (iii)
management compensation. The legislation also required that risk-based capital
requirements contain provisions for interest rate risk, credit risk and risks of
nontraditional activities. FDICIA also imposed expanded accounting and audit
reporting requirements for depository institutions. In addition, FDICIA imposed
numerous restrictions on state-chartered banks, including those which generally
limit investments and activities to those permitted to national banks, and
contains several consumer banking law provisions.
The provisions of FDICIA are being phased in over several years. While final
rules have been issued on most provisions, others have yet to be issued.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 - On
September 30, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 was signed into law. Effective September 30, 1995, adequately
capitalized bank holding companies are permitted to acquire banks in any state
subject to certain concentration limits and other conditions. Also, on a
phased-in basis over three years from the date of its enactment, other
limitations on interstate bank mergers, consolidations and branching will be
eased, subject to a state's ability to "opt in" or "opt out" of certain
provisions of the law by passage of state law. In 1995, Rhode Island passed
legislation to "opt in" to interstate merger and branching provisions that
effectively eliminated state law barriers.
Dividend Restrictions - The Corporation's revenues consist of cash dividends
paid to it by the Bank. Such payments are restricted pursuant to various state
and federal regulatory limitations. Reference is made to Note 16 to the
Corporation's Consolidated Financial Statements included in its 1995 Annual
Report to Shareholders incorporated herein by reference for additional
discussion of the Corporation's ability to pay dividends.
-6-
Capital Guidelines - Regulatory guidelines have been established that require
bank holding companies and banks to maintain minimum ratios of capital to risk-
adjusted assets. Banks are required to have minimum core capital (Tier 1) of 4%
and total risk-adjusted capital (Tier 1 and Tier 2) of 8%. For the Corporation,
Tier 1 capital is essentially equal to shareholders' equity excluding the net
unrealized gain on securities available for sale. Tier 2 capital consists of a
portion of the allowance for loan losses (limited to 1.25% of total risk-
weighted assets). As of December 31, 1995, net risk-weighted assets amounted to
$344.9 million, the Tier 1 capital ratio was 14.08% and the total risk-based
capital ratio was approximately 15.34%.
The Tier 1 leverage ratio is defined as Tier 1 capital (as defined under the
risk-based capital guidelines) divided by average assets (net of intangible
assets and excluding the effects of accounting for securities available for sale
under SFAS No. 115). The minimum leverage ratio is 3% for banking organizations
that do not anticipate significant growth and that have well-diversified risk
(including no undue interest rate risk), excellent asset quality, high
liquidity and strong earnings. Other banking organizations are expected to have
ratios of at least 4 - 5%, depending on their particular condition and growth
plans. Higher capital ratios could be required if warranted by the particular
circumstances or risk profile of a given banking organization. The
Corporation's Tier 1 leverage ratio was 8.99% as of December 31, 1995. The
Federal Reserve has not advised the Corporation of any specific minimum Tier 1
leverage capital ratio applicable to it.
GUIDE 3 STATISTICAL DISCLOSURES
- -------------------------------
The following tables contain additional consolidated statistical data about the
Corporation and its subsidiary.
I. Distribution of Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential
-------------------------------------------------------------
A. Average balance sheets are presented on page 21 of the Corporation's 1995
Annual Report to Shareholders under the caption "Average Balances/Net
Interest Margin (Fully Taxable Equivalent Basis)", and are incorporated
herein by reference. Nonaccrual loans are included in average loan
balances. Average balances are based upon daily averages.
B. An analysis of net interest earnings, including interest earned and paid,
average yields and costs, and net yield on interest-earning assets is
presented on page 21 of the Corporation's 1995 Annual Report to
Shareholders under the caption "Average Balances/Net Interest Margin (Fully
Taxable Equivalent Basis)", and is incorporated herein by reference.
Interest income is reported on the fully taxable-equivalent basis. Tax
exempt income is converted to a fully taxable equivalent basis by assuming
a 34% marginal 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. Interest on nonaccrual loans is included
in the analysis of net interest earnings to the extent that such interest
income has been recognized in the Consolidated Statements of Income. See
Guide 3 Item III.C.1.
-7-
C. An analysis of rate/volume changes in interest income and interest expense
is presented on page 22 of the Corporation's 1995 Annual Report to
Shareholders under the caption "Volume/Rate Analysis - Interest Income and
Expense (Fully Taxable Equivalent Basis)", and is incorporated herein by
reference. The net change attributable to both volume and rate has been
allocated proportionately.
II. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE
-------------------------------------------------------------
A. The carrying amounts of securities held to maturity as of the dates
indicated are presented in the following table:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
-------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury obligations and
obligations of U.S. government-
sponsored agencies $ -- $20,413,017 $19,419,860
Mortgage-backed securities 13,947,011 21,696,508 25,401,432
States and political subdivisions 14,925,980 10,387,091 7,676,540
---------- ---------- ----------
$28,872,991 $52,496,616 $52,497,832
========== ========== ===========
</TABLE>
The carrying amounts of securities available for sale as of the dates
indicated are summarized in the table below. Effective January 1, 1994, the
Corporation adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115). 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. Therefore, the carrying value of securities available for
sale at December 31, 1995 and 1994 presented below is equal to market value.
Prior to the adoption of SFAS No. 115, securities available for sale were
carried at the lower of aggregate cost, adjusted for amortization of premium
or accretion of discount in the case of debt securities, or market value.
During the fourth quarter of 1995, the Corporation transferred a pool of
debt securities with a book value of $37.1 million, consisting primarily of
U.S. Treasury and government agency obligations and mortgage-backed
securities, from the held-to-maturity category to the available-for-sale
category. The transfer was made in response to a special report issued by
the Financial Accounting Standards Board which allowed enterprises a one-
time opportunity to reassess the appropriateness of their securities
classifications under SFAS No. 115.
-8-
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
-------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury obligations and
obligations of U.S. government-
sponsored agencies $37,877,528 $24,533,220 $25,120,650
Mortgage-backed securities 30,026,897 -- --
Corporate debt securities -- -- 1,000,000
Corporate stocks 17,647,910 9,076,095 8,143,093
---------- ---------- ----------
$85,552,335 $33,609,315 $34,263,743
========== ========== ===========
</TABLE>
B. Maturities of debt securities as of December 31, 1995 are presented in the
following tables. Mortgage-backed securities are included based on their
weighted average maturities, adjusted for anticipated future prepayments.
Yields on tax exempt obligations were not computed on a tax equivalent
basis.
<TABLE>
<CAPTION>
Mortgage- States and
backed Political Total Debt
Securities Held to Maturity Securities Subdivisions Securities
--------------------------- ---------- ------------ ----------
<S> <C> <C> <C>
Due in 1 year or less: Amount $ 1,244,432 $ 3,488,507 $ 4,732,939
Yield 7.45% 4.20% 5.06%
After 1 but within 5 years: Amount 3,588,817 8,718,416 12,307,233
Yield 7.39 4.24 5.16
After 5 but within 10 years: Amount 3,414,764 2,419,743 5,834,507
Yield 7.40 4.38 6.15
After 10 years: Amount 5,698,998 299,314 5,998,312
Yield 7.67 5.03 7.54
---------- ---------- ----------
Totals: Amount $13,947,011 $14,925,980 $28,872,991
Yield 7.51% 4.27% 5.84%
========== ========== ==========
</TABLE>
-9-
<TABLE>
<CAPTION>
Weighted
Amortized Fair average
Securities Available for Sale Cost Value yield
----------------------------- ---------- --------- --------
<S> <C> <C> <C>
U.S. Treasury obligations and
obligations of U.S. government-
sponsored agencies due:
In 1 year or less $ 9,513,569 $ 9,595,620 6.78%
After 1 but within 5 years 27,342,389 27,519,409 5.97
After 10 years 490,738 762,499 13.02
---------- ---------- ------
Total 37,346,696 37,877,528 6.27
---------- ---------- ------
Mortgage-backed securities due:
In 1 year or less 3,512,499 3,508,734 7.50
After 1 but within 5 years 9,619,183 9,612,547 7.50
After 5 but within 10 years 9,199,652 9,106,160 6.91
After 10 years 7,693,274 7,799,456 7.35
---------- ---------- ------
Total 30,024,608 30,026,897 7.28
---------- ---------- ------
Total debt securities due:
In 1 year or less 13,026,068 13,104,354 6.98
After 1 but within 5 years 36,961,572 37,131,956 6.37
After 5 but within 10 years 9,199,652 9,106,160 6.91
After 10 years 8,184,012 8,561,955 7.69
---------- ---------- ------
Total debt securities $67,371,304 $67,904,425 6.72%
========== ========== ======
</TABLE>
C. Not applicable.
-10-
III. LOAN PORTFOLIO
--------------
A. The following table sets forth the composition of the Corporation's loan
portfolio for each of the past five years. Amounts for years prior to 1995
have been restated to reflect the adoption of SFAS #114.
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate:
Mortgages $167,510,929 $170,366,731 $153,506,179 $142,322,653 $168,505,925
Homeowner construction 3,071,177 6,933,793 6,120,171 5,124,603 4,482,367
----------- ----------- ----------- ----------- -----------
Total residential real estate 170,582,106 177,300,524 159,626,350 147,447,256 172,988,292
----------- ----------- ----------- ----------- -----------
Commercial:
Mortgages 58,837,483 56,014,628 49,194,243 41,952,619 40,962,685
Construction and development 5,968,404 12,089,966 10,719,271 11,923,274 18,644,654
Other 96,830,889 103,334,837 103,721,694 100,013,004 97,988,349
----------- ----------- ----------- ----------- -----------
Total commercial 161,636,776 171,439,431 163,635,208 153,888,897 157,595,688
----------- ----------- ----------- ----------- -----------
Installment 54,240,010 45,186,245 34,100,374 32,645,643 36,720,803
----------- ----------- ----------- ----------- -----------
$386,458,892 $393,926,200 $357,361,932 $333,981,796 $367,304,783
=========== =========== =========== =========== ===========
</TABLE>
B. An analysis of the maturity and interest rate sensitivity of Real Estate
Construction and Other Commercial loans as of December 31, 1995 follows:
Maturity analysis:
<TABLE>
<CAPTION>
One Year One to five After five
or Less Years Years Total
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Construction and development (*) $ 4,185,017 1,713,275 3,141,289 $ 9,039,581
Commercial - other 36,439,799 41,351,186 19,039,904 96,830,889
---------- ---------- ---------- -----------
$40,624,816 43,064,461 22,181,193 $105,870,470
========== ========== ========== ===========
<FN>
(*) Includes homeowner construction and commercial construction and development.
Maturities of homeowner construction loans are included based on their contractual
conventional mortgage repayment terms following the completion of construction.
</TABLE>
Sensitivity to changes in interest rates for all such loans due after one
year is as follows:
<TABLE>
<CAPTION>
Floating or
Predetermined Adjustable
Rates Rates Totals
------------- ---------- ----------
<S> <C> <C> <C>
Principal due after one year $ 8,259,200 $56,986,453 $65,245,654
========== ========== ==========
</TABLE>
-11-
C. Risk Elements
Reference is made to the caption "Asset Quality" included in Management's
Analysis of Financial Statements on pages 26-28 of the Corporation's 1995
Annual Report to Shareholders incorporated herein by reference. Included
therein is a discussion of the Corporation's credit review and collection
practices. Also included therein is information concerning nonperforming
assets at December 31, 1995 and the Corporation's ongoing efforts to reduce
the level of nonperforming assets.
1. Nonaccrual, Past Due and Restructured Loans.
(a). Nonaccrual loans as of the dates indicated were as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8,573,656 $10,911,999 $16,221,963 $21,306,840 $24,149,690
========= ========== ========== ========== ==========
</TABLE>
For the years 1992 through 1995, loans, with the exception of credit card
loans and certain well-secured residential mortgage loans, were placed on
nonaccrual status and interest recognition was suspended when such loans
were 90 days or more overdue with respect to principal and/or interest.
Loans were also placed on nonaccrual status when, in the opinion of
management, full collection of principal and interest was doubtful.
Interest previously accrued, but not collected on such loans was reversed
against current period income. Cash receipts on nonaccrual loans were
recorded as interest income, or as a reduction of principal if full
collection of the loan was doubtful or if impairment of the collateral was
identified. Loans were removed from nonaccrual status when they had been
current as to principal and interest for a period of time, the borrower had
demonstrated an ability to comply with repayment terms, and when, in
management's opinion, the loans were considered to be fully collectible.
In years prior to 1992, commercial loans were placed on nonaccrual status
and interest recognition was suspended when they were 90 days or more
overdue. Residential mortgages and consumer loans were placed on
nonaccrual status when, in management's judgment, the probability of
collection was deemed insufficient to warrant further income recognition.
For the year ended December 31, 1995, the gross interest income that would
have been recognized if loans on nonaccrual status had been current in
accordance with their original terms was approximately $598,000. Interest
recognized on these loans amounted to approximately $458,000.
There were no significant commitments to lend additional funds to borrowers
whose loans were on nonaccrual status at December 31, 1995.
-12-
(b). Loans contractually past due 90 days or more and still accruing for
the dates indicated were as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$256,276 $24,124 $22,455 $42,648 $6,064,648
======= ====== ====== ====== =========
</TABLE>
(c). Restructured accruing loans for the dates indicated were as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ --- $364,824 $ --- $1,476,000 $1,522,282
======= ======== ========= ========= =========
</TABLE>
Restructured accruing loans include those for which concessions, such as
reduction of interest rates other than normal market rate adjustments or
deferral of principal or interest payments, have been granted due to a
borrower's financial condition. Interest on restructured loans is accrued
at the reduced rate. Loans restructured during 1995 amounted to
approximately $1,632,000, all of which are included in nonaccrual loans
reported in Section III.C.1.(a) above.
2. Potential Problem Loans.
Potential problem loans consist of certain accruing commercial loans that
were less than 90 days past due at December 31, 1995, but were identified
by management of the Bank as potential problem loans. Such loans are
characterized by weaknesses in the financial condition of borrowers or
collateral deficiencies. Based on historical experience, the credit
quality of some of these loans may improve as a result of collection
efforts, while the credit quality of other loans may deteriorate,
resulting in some amount of losses. These loans are not included in the
analysis of nonaccrual, past due and restructured loans in III.C.1 above.
At December 31, 1995, potential problem loans amounted to approximately
$7.1 million. The Corporation's loan policy provides guidelines for the
review of such loans in order to facilitate collection.
Depending on future events, the potential problem loans referred to above,
and others not currently identified, could be classified as nonperforming
in the future.
3. Foreign Outstandings. None
4. Loan Concentrations. The Corporation has no concentration of loans which
exceed 10% of its total loans except as disclosed by types of loan in
Section III.A.
D. Other Interest-Bearing Assets: None
-13-
IV. SUMMARY OF LOAN LOSS EXPERIENCE
-------------------------------
A. The allowance for loan losses is available for future credit losses inherent
in the loan portfolio. The level of the allowance is based on management's
ongoing review of the growth and composition of the loan portfolio, net
charge-off experience, current and expected economic conditions, and other
pertinent factors. Loans (or portions thereof) deemed to be uncollectible
are charged against the allowance and recoveries of amounts previously
charged off are added to the allowance. Loss provisions charged to earnings
are added to the allowance to bring it to the desired level. Loss experience
on loans is presented in the following table for the years indicated.
Amounts for years prior to 1995 have been restated to reflect the adoption of
SFAS #114.
Analysis of the Allowance for Loan Losses
-----------------------------------------
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $9,327,942 $9,089,775 $7,872,351 $6,474,272 $8,487,196
Charge-offs (domestic):
Residential:
Mortgages 301,182 158,526 203,472 260,848 331,130
Homeowner construction -- -- -- -- --
Commercial:
Mortgages 795,858 405,624 927,720 24,154 2,097,532
Construction and development 526,224 9,250 -- 114,315 1,312,452
Other 1,451,066 512,020 374,424 2,522,916 2,928,730
Installment 341,737 250,840 378,575 494,756 771,705
--------- --------- --------- --------- ---------
Total charge-offs 3,416,067 1,336,260 1,884,191 3,416,989 7,441,549
--------- --------- --------- --------- ---------
Recoveries (domestic):
Residential:
Mortgages 114,083 21,329 2,278 -- 272
Homeowner construction -- -- -- -- --
Commercial:
Mortgages 13,384 21,830 84,351 200 --
Construction and development -- 10,948 20,756 29,424 100,997
Other 217,078 188,722 174,976 192,844 23,981
Installment 128,096 74,686 44,847 62,524 103,375
--------- --------- --------- --------- ---------
Total recoveries 472,641 317,515 327,208 284,992 228,625
--------- --------- --------- --------- ---------
Net charge-offs 2,943,426 1,018,745 1,556,983 3,131,997 7,212,924
Additions charged to earnings 1,400,000 1,256,912 2,774,407 4,530,076 5,200,000
--------- --------- --------- --------- ---------
Balance at end of period $7,784,516 $9,327,942 $9,089,775 $7,872,351 $6,474,272
========= ========= ========= ========= =========
Net charge-offs to average loans .75% .27% .45% .87% 1.93%
======== ========= ========= ========= =========
</TABLE>
-14-
B. The following table presents the allocation of the allowance for loan losses.
Amounts for years prior to 1995 have been restated to reflect the adoption of
SFAS #114.
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential:
Mortgages $1,066,281 1,134,916 1,136,341 1,132,855 1,225,000
% of these loans to all loans 43.4% 43.2% 43.0% 42.6% 45.9%
Homeowner construction 19,412 44,047 33,661 35,222 --
% of these loans to all loans .8% 1.8% 1.7% 1.5% 1.2%
Commercial:
Mortgages 1,640,176 1,364,993 1,246,070 1,253,447 1,305,509
% of these loans to all loans 15.2% 14.2% 13.8% 12.6% 11.1%
Construction and development 133,754 275,681 150,110 247,535 494,694
% of these loans to all loans 1.5% 3.1% 3.0% 3.6% 5.1%
Other 2,245,789 2,870,242 2,890,785 2,899,120 2,453,753
% of these loans to all loans 25.1% 26.2% 29.0% 29.9% 26.7%
Installment 911,069 862,323 561,177 694,390 726,000
% of these loans to all loans 14.0% 11.5% 9.5% 9.8% 10.0%
Unallocated 1,768,035 2,775,740 3,071,631 1,609,782 269,316
--------- --------- --------- --------- ---------
$7,784,516 9,327,942 9,089,775 7,872,351 6,474,272
100.0% 100.0% 100.0% 100.0% 100.0%
========= ========= ========= ========= =========
</TABLE>
V. DEPOSITS
--------
A. Average deposit balances outstanding and the average rates paid thereon
are presented in the following table:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- -------------------- --------------------
Average Average Average Average Average Average
Amount Rate Paid Amount Rate Paid Amount Rate Paid
----------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 55,189,000 -- 49,369,000 -- 40,097,000 --
Savings deposits:
Regular 92,739,000 2.69% 98,851,000 2.70% 79,567,000 2.83%
NOW accounts 55,831,000 1.39% 57,834,000 1.36% 58,930,000 1.84%
Money market accounts 30,096,000 2.23% 40,101,000 2.17% 59,473,000 2.74%
----------- ----------- -----------
Total savings 178,666,000 2.21% 196,786,000 2.20% 197,970,000 2.51%
Time deposits 224,169,000 5.25% 183,950,000 4.30% 176,148,000 4.60%
----------- ----------- -----------
Total deposits $458,024,000 430,105,000 414,215,000
=========== =========== ===========
</TABLE>
-15-
B. Not Applicable
C. Not Applicable
D. The maturity schedule of time deposits in amounts of $100,000 or more at
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Over 3 Over 6
3 months through through Over 12
or less 6 months 12 months months Total
---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Time remaining
until maturity: $15,257,004 2,873,657 7,174,196 3,644,067 28,948,924
========== ========= ========= ========= ==========
</TABLE>
E. Not applicable
VI. RETURN ON EQUITY AND ASSETS
---------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.44% 1.25% 1.01%
Return on average shareholders' equity 15.47% 14.11% 12.92%
Dividend payout ratio 33.97% 33.02% 34.30%
Average equity to average total assets 9.31% 8.84% 7.81%
</TABLE>
VII. SHORT-TERM BORROWINGS
---------------------
The average balance of short-term borrowings during the reported periods
was less than 30% of shareholders' equity at the end of each reported
period.
ITEM 2. PROPERTIES
- ------------------
As of December 31, 1995 the Corporation was operating six facilities including
its main office located in Westerly, Rhode Island and five branch banking
facilities located in Westerly, Charlestown, Narragansett, Richmond and Block
Island, Rhode Island. All sites are owned, except for the Block Island branch
facility, which is leased. The main office premises, containing the corporate
offices and a banking facility, consists of a five story building and an
adjacent two story building. The buildings, which are connected, contain
approximately 50,000 square feet of space, 42,000 square feet of which is
occupied by the Corporation. The remaining space is leased to merchant and
professional tenants under short-term lease arrangements and could be used for
expansion of the Corporation's offices. The main office location also contains
a three level retail parking garage with 80,000 square feet of space.
The Corporation has made a substantial investment in its branch office
facilities. The Charlestown banking office opened in 1988 in a newly
constructed facility. The Narragansett banking office began operations in June
-16-
1989 in a building which had been acquired in 1988 and was completely renovated.
A major renovation and expansion of the Richmond banking office was completed in
January of 1990. The Richmond site also contains a separate building operated
as a restaurant by a restaurant chain under a long-term lease.
In 1996, the Corporation plans to expand its existing Trust and Investment
department facility and construct a new branch office in North Kingstown,
Rhode Island. The total cost of these projects is expected to be approximately
$4 million. These facilities expansion plans, along with existing structures,
are adequate to meet the Corporation's facilities needs in the forseeable
future.
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
Neither the Corporation nor its subsidiary is a party to any material pending
legal proceedings, other than routine litigation incidental to their business
activities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1995.
-17-
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The following is a list of all executive officers of the Corporation and the
Bank with their titles, ages, and length of service with the Corporation.
Years of
Officers of the Corporation Age service (1)
- --------------------------- --- ----------
Joseph J. Kirby Chief Executive Officer 64 33
John C. Warren President and Chief Operating 50 0
Officer
Joseph H. Potter Executive Vice President 62 37
David V. Devault, CPA Vice President and
Chief Financial Officer 41 9
Louis J. Luzzi Vice President and Treasurer 54 35
Harvey C. Perry, II Vice President and Secretary 45 21
(1) Includes years of service with the Bank.
Joseph H. Potter and Louis J. Luzzi are first cousins.
Joseph J. Kirby joined the Bank in 1963 as an Investment Officer. He was
elected Vice President and Investment Officer in 1965 and Executive Vice
President in 1972. He was elected President in 1982 and was named Chief
Executive Officer in February, 1996.
John C. Warren joined the Bank and the Corporation in 1996 as President and
Chief Operating Officer. He served as President and Chief Executive Officer of
Sterling Bancshares Corporation from 1990 to 1994 and as Chairman from 1993 to
1994.
Joseph H. Potter joined the Bank in 1958 and was elected Secretary in 1967. He
was elected Vice President and Secretary in 1973 and Executive Vice President in
1982.
David V. Devault joined the Bank in 1986 as Controller. He was elected Vice
President and Chief Financial Officer of the Corporation and the Bank in 1987.
He was elected Senior Vice President and Chief Financial Officer of the Bank in
1990. Prior to joining the Bank he was a Senior Manager with the firm of KPMG
Peat Marwick LLP.
Louis J. Luzzi joined the Bank in 1960 and was elected Assistant Vice President
in 1969. He was elected Vice President in 1979 and Vice President and Treasurer
in 1983.
Harvey C. Perry, II joined the Bank in 1974 and was elected Assistant Trust
Officer in 1977, Trust Officer in 1981 and Secretary and Trust Officer in 1982.
He was elected Vice President and Secretary of the Corporation and the Bank in
1984, and Senior Vice President and Secretary of the Bank in 1990.
-18-
Years
Officers of the Bank Age of service
- -------------------- --- ----------
Vernon F. Bliven Senior Vice President - 46 23
Human Resources
Robert G. Cocks, Jr. Senior Vice President - Lending 51 3
Louis W. Gingerella, Jr. Senior Vice President - 43 5
Credit Administration
B. Michael Rauh, Jr. Senior Vice President - 36 4
Retail Banking
Vernon F. Bliven joined the Bank in 1972 and was elected Assistant Vice
President in 1980, Vice President in 1986 and Senior Vice President - Human
Resources in 1993.
Robert G. Cocks, Jr. joined the Bank in 1992 as Senior Vice President - Lending.
Prior to joining the Bank he served as Executive Vice President at Bay Bank
South from 1987 to 1991. From 1991 to 1992 he worked as an independent
consultant.
Louis W. Gingerella, Jr. joined the Bank in 1990 as Vice President - Credit
Administration. He was elected Senior Vice President - Credit Administration in
1992. Prior to joining the Bank he held the position of Senior Vice President
with Bank of New England since 1988.
B. Michael Rauh, Jr. joined the Bank in 1991 as Vice President - Marketing and
was promoted in 1993 to Senior Vice President - Retail Banking. Prior to
joining the Bank he was Executive Vice President with the advertising agency of
Chaffee & Partners since 1989.
-19-
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
- -------------------------------------------------------------
The Corporation's common stock has traded on the NASDAQ Small-Cap Market since
June 19, 1992. Previously, the Corporation's common stock had been listed on
the NASDAQ Over-The-Counter Market system since June 1987.
The quarterly common stock price ranges and dividends paid per share for the
years ended December 31, 1995 and 1994 are presented in the following table.
The stock prices are based on the high and low sales prices during the
respective quarter. Stock price and dividend amounts for the first and second
quarters of 1994 have been restated to reflect a 3-for-2 stock split paid in the
form of a stock dividend on August 31, 1994.
<TABLE>
<CAPTION>
1995 Quarters 1 2 3 4
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock prices:
high 22.50 27.50 28.00 30.00
low 19.00 20.50 26.00 26.00
Cash dividend declared .22 .22 .24 .24
<CAPTION>
1994 Quarters 1 2 3 4
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock prices:
high 19.17 22.50 24.00 24.00
low 16.67 17.67 21.33 19.75
Cash dividend declared .16 .17 .20 .20
</TABLE>
The Corporation will continue to review future common stock dividends based on
profitability, financial resources and economic conditions. The Corporation has
recorded consecutive quarterly dividends for over one hundred years. On
March 21, 1996, the Corporation's Board of Directors declared a cash dividend of
$.26 per share, an increase of 8.3% over the previous dividend amount. The
dividend is payable April 15, 1996 to shareholders of record as of April 1,
1996.
The Corporation's primary source of funds for dividends paid to shareholders is
the receipt of dividends from the Bank. A discussion of the restrictions on the
advance of funds or payment of dividends to the Corporation is included in Note
16 to the Consolidated Financial Statements included in the 1995 Annual Report
to Shareholders which is incorporated herein by reference.
At December 31, 1995 there were 1,257 holders of record of the Corporation's
common stock.
-20-
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
Selected consolidated financial data for the five years ended December 31, 1995
appears under the caption "Five Year Summary of Selected Consolidated Financial
Data" on page 18 of the Corporation's 1995 Annual Report to Shareholders which
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- -------------------------------------------------------------------------------
The information required by this Item appears under the caption "Management's
Analysis of Financial Statements" on pages 19-32 of the Corporation's 1995
Annual Report to Shareholders which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The financial statements and supplementary data are contained in the
Corporation's 1995 Annual Report to Shareholders, filed as Exhibit 13, on the
pages indicated in the following table, and are incorporated herein by
reference.
Page of 1995
Annual Report
-------------
Consolidated Balance Sheets 33
Consolidated Statements of Income 34
Consolidated Statements of Changes in Shareholders' Equity 35
Consolidated Statements of Cash Flows 36
Notes to Consolidated Financial Statements 37
Parent Company Financial Statements 53
Independent Auditors' Report 55
Summary of Unaudited Quarterly Financial Information 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ----------------------------------------------------------
None.
-21-
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
Required information regarding directors is presented under the caption
"Nominee and Director Information" in the Corporation's Proxy Statement dated
March 18, 1996 prepared for the 1996 Annual Meeting of Shareholders and
incorporated herein by reference.
Required information regarding executive officer of the Corporation is included
in Part I under the caption "Executive Officers of the Registrant".
Information required with respect to compliance with Section 16(a) of the
Exchange Act appears under the caption "Compliance with Section 16(a) of the
Exchange Act" in the Corporation's Proxy Statement dated March 18, 1996 prepared
for the 1996 Annual Meeting of Shareholders which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The information required by this Item appears under the caption "Compensation of
Directors and Executive Officers - Executive Compensation" in the Corporation's
Proxy Statement dated March 18, 1996 prepared for the 1996 Annual Meeting of
Shareholders which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
- -------------------------------------------------
The information required by this Item appears under the caption "Nominee and
Director Information" in the Corporation's Proxy Statement dated March 18, 1996
prepared for the 1996 Annual Meeting of Shareholders which is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required by this Item is incorporated herein by reference to
the caption "Indebtedness and Other Transactions" of the Corporation's Proxy
Statement dated March 18, 1996 prepared for the 1996 Annual Meeting of
Shareholders.
-22-
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) 1. The financial statements of Washington Trust Bancorp, Inc. required in
response to this Item are listed in response to Item 8 of this Report and
are incorporated herein by reference.
2. Financial Statement Schedules. All schedules normally required by
Article 9 of Regulation S-K and all other schedules to the consolidated
financial statements of the Corporation have been omitted because the
required information is either not required, not applicable, or is
included in the consolidated financial statements or notes thereto.
(b) No reports on Form 8-K have been filed during the fourth quarter of the
year ended December 31, 1995.
(c) Exhibit Index.
Exhibit Number
--------------
3.(i) Restated articles of incorporation ****
3.(ii) By-laws of the Corporation **
* 10.1 Supplemental Pension Benefit and Profit Sharing Plan ****
* 10.2 Outside Director's Retainer Continuation Plan ****
* 10.3 Plan for Deferral of Director's Fees ****
* 10.4 Amended and Restated 1988 Stock Option Plan ****
* 10.5 Short Term Incentive Plan ***
11 Computation of Earnings per share
13 1995 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
* Management contract or compensatory plan or arrangement.
** Incorporated herein by reference to Exhibit 3 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, previously filed
with the Commission.
*** Incorporated herein by reference to Exhibit 10 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, previously filed
with the Commission.
**** Incorporated herein by reference to Exhibits 3(i), 10.1, 10.2, 10.3 and
10.4 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, previously filed with the Commission.
(d) Financial Statement Schedules.
None.
-23-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
March 21, 1996 Joseph J. Kirby
Date ________________ By ______________________________________
Joseph J. Kirby, Chairman, Chief
Executive Officer and Director
March 21, 1996 David V. Devault
Date ________________ By ______________________________________
David V. Devault, Vice President,
Chief Financial Officer and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 21, 1996 Gary P. Bennett
Date ________________ ______________________________________
Gary P. Bennett, Director
March 21, 1996 Steven J. Crandall
Date ________________ ______________________________________
Steven J. Crandall, Director
March 21, 1996 Richard A. Grills
Date ________________ ______________________________________
Richard A. Grills, Director
March 21, 1996 Larry J. Hirsch
Date ________________ ______________________________________
Larry J. Hirsch, Director
March 21, 1996 Katherine W. Hoxsie
Date ________________ ______________________________________
Katherine W. Hoxsie, Director
March 21, 1996 Mary E. Kennard
Date ________________ ______________________________________
Mary E. Kennard, Director
March 21, 1996 James W. McCormick, Jr.
Date ________________ ______________________________________
James W. McCormick, Jr., Director
March 21, 1996 Brendan P. O'Donnell
Date ________________ ______________________________________
Brendan P. O'Donnell, Director
March 21, 1996 Victor J. Orsinger
Date ________________ ______________________________________
Victor J. Orsinger, II, Director
March 21, 1996 Joseph H. Potter
Date ________________ ______________________________________
Joseph H. Potter, Executive Vice
President and Director
March 21, 1996 Anthony J. Rose, Jr.
Date ________________ ______________________________________
Anthony J. Rose, Jr., Director
March 21, 1996 James P. Sullivan
Date ________________ ______________________________________
James P. Sullivan, Director
March 21, 1996 Neil H. Thorp
Date ________________ ______________________________________
Neil H. Thorp, Director
March 21, 1996 John C. Warren
Date ________________ ______________________________________
John C. Warren, President, Chief
Operating Officer and Director
-25-
Exhibit 11
Washington Trust Bancorp, Inc.
Computation of Primary and Fully Diluted Earnings Per Share
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary:
Weighted average shares 2,832,969 2,816,494 2,794,778
Common stock equivalents 77,232 55,866 17,068
--------- --------- ---------
Primary weighted average shares 2,910,201 2,872,360 2,811,846
========= ========= =========
Fully diluted:
Weighted average shares 2,832,969 2,816,494 2,794,778
Common stock equivalents 105,681 56,281 30,981
--------- --------- ---------
Fully diluted weighted average shares 2,938,650 2,872,775 2,825,759
========= ========= =========
Income before cumulative effect of
accounting change $7,687,967 $6,264,640 $4,476,531
Cumulative effect of change in
accounting for income taxes -- -- 305,000
--------- --------- ---------
Net income $7,687,967 $6,264,640 $4,781,531
========= ========= =========
Primary earnings per share:
Income before cumulative effect of
accounting change $ 2.64 $ 2.18 $ 1.59
Cumulative effect of change in
accounting for income taxes -- -- .11
------ ------ ------
Net income $ 2.64 $ 2.18 $ 1.70
====== ====== ======
Fully diluted earnings per share:
Income before cumulative effect of
accounting change $ 2.62 $ 2.18 $ 1.58
Cumulative effect of change in
accounting for income taxes -- -- .11
------ ------ ------
Net income $ 2.62 $ 2.18 $ 1.69
====== ====== ======
</TABLE>
EXHIBIT 13
Washington Trust Bancorp, Inc.
1995 Annual Report to Shareholders
(Portions Incorporated by Reference)
Five Year Summary of Selected Consolidated Financial Data
Washington Trust Bancorp, Inc. and Subsidiary
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Condition: (1)
Cash and cash equivalents $28,650,646 $18,404,910 $21,650,128 $21,817,649 $16,683,667
Securities available for sale 85,552,335 33,609,315 34,263,743 33,743,289 -
Securities held to maturity 28,872,991 52,496,616 52,497,832 39,106,642 35,615,089
Net loans 378,674,376 384,598,258 348,272,157 326,109,445 360,830,511
Other real estate owned, net 1,705,147 2,007,212 3,412,421 5,242,054 5,355,506
Other 24,203,809 24,563,652 27,232,543 31,679,861 22,571,521
- ----------------------------------------------------------------------------------------------------------------------
Total assets $547,659,304 $515,679,963 $487,328,824 $457,698,940 $441,056,294
======================================================================================================================
Deposits $467,854,012 $440,731,142 $423,374,620 $404,660,005 $399,717,920
Federal Home Loan Bank advances 20,951,266 23,522,343 20,500,000 14,000,000 5,000,000
Other liabilities 5,917,528 5,643,494 4,991,279 4,089,140 3,298,951
Shareholders' equity 52,936,498 45,782,984 38,462,925 34,949,795 33,039,423
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $547,659,304 $515,679,963 $487,328,824 $457,698,940 $441,056,294
======================================================================================================================
Operating Results:
Interest income $42,286,180 $36,661,688 $34,927,863 $35,868,747 $41,028,507
Interest expense 17,015,264 13,588,582 14,178,779 16,800,218 23,556,762
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 25,270,916 23,073,106 20,749,084 19,068,529 17,471,745
Provision for loan losses 1,400,000 1,256,912 2,774,407 4,530,076 5,200,000
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 23,870,916 21,816,194 17,974,677 14,538,453 12,271,745
Noninterest income 6,707,020 6,237,576 6,083,500 5,577,685 4,685,934
Gains on sales of securities 495,817 684,590 345,674 196,606 1,495,453
- ----------------------------------------------------------------------------------------------------------------------
Net interest and noninterest income 31,073,753 28,738,360 24,403,851 20,312,744 18,453,132
Noninterest expense 19,354,786 19,447,720 17,672,320 15,558,388 14,881,100
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes and
cumulative effect of accounting 11,718,967 9,290,640 6,731,531 4,754,356 3,572,032
Applicable income taxes 4,031,000 3,026,000 2,255,000 1,604,000 1,095,000
- ----------------------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change 7,687,967 6,264,640 4,476,531 3,150,356 2,477,032
Cumulative effect of change in accounting
for income taxes - - 305,000 - -
- ----------------------------------------------------------------------------------------------------------------------
Net income $7,687,967 $6,264,640 $4,781,531 $3,150,356 $2,477,032
======================================================================================================================
Per share information: (2)
Earnings per share (3) $2.62 $2.18 $1.69 $1.14 $ .90
Cash dividends declared $ .92 $ .73 $ .59 $ .53 $ .53
Book value (1) $18.56 $16.22 $13.71 $12.58 $11.99
Market value (closing bid price) (1) $29.00 $20.00 $16.50 $11.67 $7.83
Ratios:
Return on average assets 1.44% 1.25% 1.01% .70% .56%
Return on average
shareholders' equity 15.47% 14.11% 12.92% 9.15% 7.58%
Dividend payout ratio 33.97% 33.02% 34.30% 46.85% 58.97%
Total equity to total assets 9.67% 8.88% 7.89% 7.64% 7.49%
Net charge-offs to average loans .75% .27% .45% .87% 1.93%
<FN>
(1) At December 31
(2) Adjusted to reflect the 3-for-2 stock split paid in the form of a stock dividend on August 31, 1994
(3) Fully diluted, including $.11 per share accounting change in 1993
</TABLE>
Management's Analysis of Financial Statements
Washington Trust Bancorp, Inc. and Subsidiary
Financial Overview
Washington Trust Bancorp, Inc. and subsidiary ("Washington Trust" or "the
Corporation") recorded net income of $7.7 million for 1995, an increase of $1.4
million, or 23%, over the $6.3 million of net income recorded in 1994. Fully
diluted earnings per share amounted to $2.62 for 1995, up from $2.18 per share
earned on net income in 1994.
The record earnings in 1995 reflected increases in both net interest income and
noninterest income. Washington Trust's rates of return on average assets and
average equity ("ROA" and "ROE") for 1995 were 1.44% and 15.47%, respectively.
ROA and ROE for the year ended December 31, 1994 amounted to 1.25% and 14.11%,
respectively.
Total assets rose by 6.2% during 1995 to $547.7 million at year end, up from
$515.7 million at the end of the prior year. Average assets amounted to $533.9
million in 1995, up by 6.3% from the 1994 amount of $502.3 million. The growth
in total assets was primarily attributable to increases in total securities and
federal funds sold, which were partially offset by a reduction in net loans.
The funds used to expand the securities portfolio and which provided increased
liquidity levels were derived primarily from an increase in total deposits.
Total deposits amounted to $467.9 million at the end of 1995, up by $27.1
million from the end of 1994.
Net interest income rose in 1995 as the increase in rates earned on loans and
investments outpaced the increase in rates paid on deposits. The Corporation's
net interest margin was 5.24% in 1995, up from 5.03% in 1994. This increase in
net interest margin, together with the growth of average interest-earning
assets, resulted in an increase in net interest income of $2.2 million, or 9.5%
in 1995.
The provision for loan losses amounted to $1.4 million and $1.3 million for 1995
and 1994, respectively. The 1995 provision restored the allowance for loan
losses to an amount deemed adequate by management after net charge-offs of $2.9
million were recorded during 1995. Net charge-offs during 1994 were
approximately $1.0 million.
Noninterest income, excluding securities gains and losses on loan sales,
amounted to $6.8 million for 1995, up by 9.4% over the 1994 amount. This
increase is primarily attributable to a higher amount of service charges on
deposit accounts generated by fee increases and expanded transaction volume.
Total noninterest expense amounted to $19.4 million in 1995, down slightly from
the 1994 amount. Declines in deposit taxes and assessments and office supplies
were partially offset by increases in salaries and employee benefits and
foreclosed property costs.
In the paper version of the Annual Report to Shareholders there appears here
two graphs showing return on average assets and return on average equity
for the five most recent years. Following are tabular presentations of the
graphic material:
Return on Average Assets:
Percent 0.56% 0.70% 1.01% 1.25% 1.44%
Year 1991 1992 1993 1994 1995
Return on Average Equity:
Percent 7.58% 9.15% 12.92% 14.11% 15.47%
Year 1991 1992 1993 1994 1995
Net Interest Income
Net interest income is the primary source of Washington Trust's operating
income. Net interest income is the amount by which interest and fees from
interest-earning assets exceeds the interest cost of deposits and other borrowed
funds. The level of net interest income is affected by the volume of average
interest-earning assets and interest-bearing liabilities, market interest rates
and other factors. The following discussion presents net interest income on a
fully taxable equivalent (FTE) basis by adjusting income and yields on tax-
exempt loans and investments to be comparable to taxable loans and investments.
In the paper version of the Annual Report to Shareholders there appears here
a graph showing net interest margin for the five most recent years.
Following is a tabular presentation of the graphic material:
Net Interest Margin:
Percent 4.37% 4.70% 4.82% 5.03% 5.24%
Year 1991 1992 1993 1994 1995
In 1995, FTE net interest income rose by $2.6 million, or 10.8%, over 1994
levels. The interest rate spread widened by 6 basis points to 4.64% in 1995,
while the net interest margin (FTE net interest income as a percentage of
average interest-earning assets) increased from 5.03% in 1994 to 5.24% in 1995.
Both yields on interest-earning assets and rates paid on interest-bearing
liabilities rose during 1995. Increases in non-interest bearing sources of
funds (primarily demand deposits and shareholders' equity) were primarily
responsible for the increase in the net interest margin.
FTE interest income totalled $43.1 million in 1995, up $6.0 million over the
1994 amount. The FTE yield on interest-earning assets was 8.65% in 1995, up
from 7.94% in 1994. Average interest-earning assets increased by $30.3 million,
or 6.5%, in 1995.
Despite a decline in the balance of loans held in the Corporation's portfolio
during 1995, the average balance of loans held during 1995 rose by 4.4% over
prior year levels. Overall loan demand was slow in 1995, particularly in the
commercial loan portfolio. Average installment loans, however, rose 27.1%
during 1995 as a result of strong marketing efforts.
The FTE rate of return on total loans was 9.12% in 1995, up from 8.30% in 1994.
The effect of the prime rate increases that occurred in 1994 and the early part
of 1995 was reflected in higher yields on commercial loans, most of which
reprice based on the prime rate. Rates earned on the residential mortgage
portfolio also increased, mainly as the result of upward repricing of adjustable
rate mortgages. Growth in the installment loan portfolio, which carries the
highest aggregate loan yield, also contributed to increase the earning asset
yield.
Because of relatively soft loan demand, excess liquidity was directed to various
categories of securities. (See Consolidated Statements of Cash Flows for
additional information.) Average federal funds sold and securities purchased
under agreements to resell rose by $8.2 million over 1994 levels. Additionally,
investments in nontaxable debt securities and corporate stocks rose by $5.5
million, or 32.8%, in 1995.
Interest expense rose by $3.4 million, or 25.2%, in 1995. Growth in the time
deposit category, as well as a change in deposit mix during the year,
contributed to the increase in interest expense. Average interest-bearing
liabilities increased by $19.4 million during 1995 due primarily to the growth
of time deposits.
Rates paid on time deposits rose by 95 basis points in 1995, while rates paid on
savings deposits were virtually unchanged from 1994. This caused a shift of
depositor funds out of savings accounts into higher cost time deposits. Average
savings deposits declined by 9.2% from 1994 while average time deposits rose by
21.9%. Average demand deposit balances, an interest-free source of funds, rose
by 11.8% in 1995.
Included in other interest-bearing liabilities are term advances from the
Federal Home Loan Bank averaging $20.6 million in 1995, down from an average of
$22.3 million in 1994. The average rate paid on these advances was 6.19% and
5.74% in 1995 and 1994, respectively. These advances were used for general
corporate funding purposes.
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.
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Residential real estate loans $175,248 14,589 8.32% $170,619 13,473 7.90% $158,068 13,721 8.68%
Commercial and other loans (1) 168,060 16,286 9.69 166,670 13,963 8.38 158,606 12,584 7.93
Installment loans 48,922 4,916 10.05 38,492 3,768 9.79 32,296 3,355 10.39
- -----------------------------------------------------------------------------------------------------------------------------
Total loans 392,230 35,791 9.12 375,781 31,204 8.30 348,970 29,660 8.50
Federal funds sold and
securities purchased under
agreements to resell 14,770 855 5.79 6,531 256 3.92 11,385 322 2.82
Taxable debt securities 69,168 4,540 6.56 69,041 4,181 6.06 61,093 3,860 6.32
Nontaxable debt securities (1) 11,148 743 6.67 8,812 562 6.38 6,631 439 6.62
Corporate stocks (1) 11,046 1,201 10.87 7,905 949 12.00 14,347 1,222 8.51
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 498,362 43,130 8.65% 468,070 37,152 7.94% 442,426 35,503 8.02%
- -----------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 13,866 14,032 14,023
Allowance for loan losses (8,740) (9,249) (8,963)
Premises and equipment, net 14,784 14,524 14,836
Other 15,641 14,904 11,346
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $533,913 $502,281 $473,668
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings deposits $178,666 3,946 2.21% $196,786 4,335 2.20% $197,970 4,964 2.51%
Time deposits 224,169 11,770 5.25 183,950 7,917 4.30 176,148 8,112 4.60
Federal Home Loan Bank advances 20,603 1,274 6.19 22,268 1,279 5.74 18,597 1,092 5.87
Other 420 25 5.91 1,439 58 4.04 295 11 3.66
- -----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 423,858 17,015 4.01% 404,443 13,589 3.36% 393,010 14,179 3.61%
- -----------------------------------------------------------------------------------------------------------------------------
Demand deposits 55,189 49,369 40,097
Other liabilities 5,172 4,081 3,555
Shareholders' equity 49,694 44,388 37,006
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $533,913 $502,281 $473,668
=============================================================================================================================
Net interest income $26,115 $23,563 $21,324
=============================================================================================================================
Interest rate spread 4.64% 4.58% 4.41%
Net interest margin 5.24% 5.03% 4.82%
<FN>
<F1>
(1) Interest amounts are presented on a fully taxable equivalent basis (see page 22 for additional information).
<F2>
Interest income amounts presented in the table on page 21 include the following
adjustments for taxable equivalency for the years indicated (in thousands):
Years ended December 31, 1995 1994 1993
- ---------------------------------------------------------------
Commercial and other loans $ 87 $ 88 $ 95
Nontaxable debt securities 480 200 156
Corporate stocks 277 203 324
</TABLE>
<TABLE>
<CAPTION>
Volume/Rate Analysis - Interest Income and Expense (Fully Taxable Equivalent Basis)
1995/1994 1994/1993 1993/1992
- --------------------------------------------------------------------------------------------------------------------------
Net Net Net
(In thousands) Volume Rate Change Volume Rate Change Volume Rate Change
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on:
Interest-earning assets:
Residential real estate loans $ 372 744 1,116 $1,043 (1,291) (248) $ (545) (1,205) (1,750)
Commercial and other loans 118 2,205 2,323 657 722 1,379 121 (521) (400)
Installment loans 1,046 102 1,148 615 (202) 413 (138) (243) (381)
Federal funds sold and
securities purchased under
agreements to resell 434 165 599 (165) 99 (66) 64 (34) 30
Taxable debt securities 28 331 359 493 (172) 321 1,441 (70) 1,371
Nontaxable debt securities 155 26 181 139 (16) 123 89 (63) 26
Corporate stocks 348 (96) 252 (666) 393 (273) 311 (80) 231
- --------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 2,501 3,477 5,978 2,116 (467) 1,649 1,343 (2,216) (873)
- --------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings deposits (400) 11 (389) (29) (600) (629) 469 (1,318) (849)
Time deposits 1,921 1,932 3,853 350 (545) (195) (395) (1,770) (2,165)
Federal Home Loan Bank advances (99) 95 (4) 211 (25) 186 407 (6) 401
Other (56) 22 (34) 49 (1) 48 (4) (4) (8)
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,366 2,060 3,426 581 (1,171) (590) 477 (3,098) (2,621)
- --------------------------------------------------------------------------------------------------------------------------
Net interest income $1,135 1,417 2,552 $1,535 704 2,239 $ 866 882 1,748
==========================================================================================================================
</TABLE>
Noninterest Income
Noninterest income is an important source of revenue for the Corporation. For
the year ended December 31, 1995, noninterest income, excluding securities sales
and loan sales, accounted for 13.9% of gross income. The Corporation generates
recurring noninterest income by charging for banking related services such as
management of customer investment portfolios, trusts and estates, assessing fees
for servicing deposit accounts, servicing residential mortgages sold in the
secondary market, and processing merchant bankcard activity.
Income from trust-related services continues to be the largest component of
noninterest income. Trust income represented 45% of total noninterest income
and amounted to $3.3 million in 1995, essentially unchanged from the 1994
amount.
Service charges on deposit accounts rose 21.1% to $2.0 million in 1995. The
increase reflects growth in the Corporation's total deposit base, as well as
changes in the fee structures of various deposit products during the year.
Fees, service charges and other income increased by approximately $163,000, or
41.4%, in 1995, including $69,000 in nonrecurring items. Higher income from
safe deposit rents, letters of credit and wire transfer transactions also
contributed to this increase.
Net gains on securities available for sale totalled $495,817 in 1995, down from
$684,590 reported in 1994. The 1994 securities gains were taken in connection
with a nonrecurring contribution expense of approximately $700,000 for the
establishment of a charitable trust. (See Notes 3 and 13 to the consolidated
financial statements for additional information regarding this transaction.)
Losses on loan sales totalled $135,851 for the year ended December 31, 1995,
compared to $15,998 reported in 1994. The 1995 amount includes a loss of
approximately $200,000 resulting from the sale of a pool of loans with a book
value of $3.3 million, most of which were nonperforming. The 1995 net loss was
partially offset by gains on sales of fixed rate residential mortgages.
<TABLE>
<CAPTION>
% Change
---------------------------
(Dollars in thousands) 1995 1994 1993 1995 vs 1994 1994 vs 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust income $3,255 $3,284 $2,952 (0.9)% 11.2%
Service charges on deposit accounts 1,951 1,611 1,446 21.1 11.4
Merchant processing fees 730 622 522 17.4 19.2
Gains on sales of securities 496 685 346 (27.6) 98.0
Gains (losses) on loan sales (136) (16) 485 (750.0) (103.3)
Fees, service charges and other 557 394 391 41.4 .8
Mortgage servicing fees 350 342 287 2.3 19.2
- -------------------------------------------------------------------------------------------
Total noninterest income $7,203 $6,922 $6,429 4.1% 7.7%
===========================================================================================
</TABLE>
Noninterest Expense
Total noninterest expense amounted to $19.4 million for the year ended December
31, 1995, down slightly from the prior year amount.
Deposit taxes and assessments amounted to $769,583 in 1995, down 39.8% from $1.3
million in 1994. During the third quarter of 1995, the FDIC reduced rates paid
by banks for deposit insurance premiums. This reduction, retroactive to June 1,
1995, reduced the Corporation's 1995 expense by approximately $480,000. FDIC
assessments are scheduled to be further reduced to a nominal amount in 1996.
Also included in this expense category is a state tax on deposits which amounted
to $257,000 in 1995.
Foreclosed property costs resulted in a net loss of $364,000 in 1995, compared
to a net gain of $16,000 in 1994. The 1994 net gain was primarily due to gains
realized upon the sale of foreclosed properties. The net loss recorded in 1995
resulted primarily from increases to the valuation allowance and expenses
associated with ownership of foreclosed properties.
Charitable contributions amounted to $120,000 in 1995, down from $699,896 in
1994. The 1994 amount represents a nonrecurring expense associated with the
donation of equity securities for the establishment of a charitable trust.
This transaction had little effect on net income in 1994 as the expense was
substantially offset by a related gain on the disposition of the donated
securities. (See Notes 3 and 13 to the consolidated financial statements for
additional information relating to this transaction.)
The Corporation's efficiency ratio is defined as the ratio of noninterest
expense, excluding nonrecurring expenses, as a percentage of fully taxable
equivalent net interest income and noninterest income excluding securities
transactions, loan sales and nonrecurring items. In 1995, the efficiency ratio
amounted to 58.8%, down from the comparable 1994 amount of 63.2%.
<TABLE>
<CAPTION>
% Change
--------------------------
(Dollars in thousands) 1995 1994 1993 1995 vs 1994 1994 vs 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries $ 8,518 $ 8,343 $ 7,597 2.1% 9.8%
Employee benefits 1,705 1,587 1,089 7.4 45.7
Depreciation - occupancy 540 539 540 .2 (0.2)
Other occupancy costs 682 667 648 2.2 2.9
Depreciation - equipment 791 774 906 2.2 (14.6)
Other equipment costs 501 414 424 21.0 (2.4)
Deposit taxes and assessments 770 1,279 1,217 (39.8) 5.1
Foreclosed property costs, net 364 (16) 627 -- (102.6)
Office supplies 462 606 517 (23.8) 17.2
Advertising and promotion 538 505 476 6.5 6.1
Credit and collection 438 513 582 (14.6) (11.9)
Postage 405 363 331 11.6 9.7
Charitable contributions 120 700 7 (82.3) 1,000.0
Other 3,521 3,174 2,711 10.9 17.1
- ------------------------------------------------------------------------------------------
Total noninterest expense $19,355 $19,448 $17,672 (0.5)% 10.0%
==========================================================================================
</TABLE>
Income Taxes
Income tax expense amounted to $4.0 million and $3.0 million in 1995 and 1994,
respectively. The Corporation's effective tax rate was 34.4% in 1995, up from
the 1994 rate of 32.6%. These rates differed from the federal rate of 34.0% due
to the benefits of tax-exempt income and the dividends received deduction as
well as the expense resulting from state income taxes.
The Corporation had a net deferred tax liability amounting to $19,302 at
December 31, 1995, compared to a net deferred tax asset of $1,797,340 at
December 31, 1994. This conversion from a net deferred tax asset to a net
deferred tax liability is attributable to the deferred tax effect of accounting
for securities available for sale at their market value as required by Statement
of Financial Accounting Standards ("SFAS") No. 115. The deferred tax liability
relating to securities available for sale was $2.9 million and $1.9 million at
December 31, 1995 and 1994, respectively. The increase in the market value of
securities available for sale resulted from a general improvement in market
conditions in 1995. A significant portion of the Corporation's gross deferred
tax assets is expected to be realized for tax purposes within a five year
period.
Financial Condition
Securities Available for Sale
Securities designated at the time of purchase as available for sale may be sold
in response to changes in market conditions, prepayment risk, rate fluctuations,
liquidity, or capital requirements. Securities available for sale are 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.
During the fourth quarter of 1995, the Corporation transferred a pool of debt
securities with a book value of $37.1 million, consisting primarily of U.S.
Treasury and government agency obligations and mortgage-backed securities, from
the held-to-maturity category to the available-for-sale category. The market
value of these securities at the date of reclassification was $36.4 million.
The transfer was made in response to a special report issued by the Financial
Accounting Standards Board ("FASB") which allowed enterprises a one-time
opportunity to reassess the appropriateness of their securities classifications
under SFAS No. 115. Included in the securities reclassified were structured
notes with an amortized cost of $13.0 million, which were subsequently sold in
1995 at a loss of $525,403. Securities available for sale amounted to 15.6% of
total assets at year-end 1995, compared to 6.5% at year-end 1994. By
repositioning the available-for-sale portfolio, management seeks to improve the
portfolio's overall yield and to gain greater flexibility in managing the
Corporation's interest rate risk and liquidity needs.
The amortized cost of debt securities available for sale rose by $42.3 million
over the 1994 amount. While $10.2 million of the increase resulted from
transfers from the held-to-maturity portfolio of securities purchased in prior
years, $37.6 million of debt securities, primarily mortgage-backed securities,
were purchased in 1995.
The cost basis of corporate stocks at December 31, 1995 was $7.0 million higher
than the prior year-end amount, due primarily to investments in auction rate
preferred stocks. These are preferred stock instruments whose dividend rate is
reset by auction every 49 days to a market rate, resulting in a market value of
par. At each auction, the holder can elect not to participate in the auction
and therefore liquidate its investment at par (cost). The Corporation utilizes
these instruments for short-term investment purposes. The balance of auction
rate preferred stocks in the portfolio at December 31, 1995 was $7.0 million,
compared to the prior year amount of $500,000.
At December 31, 1995, the net unrealized gains on securities available for sale
amounted to $7.3 million, an increase of $2.6 million over the 1994 year-end
amount. U.S. Treasury obligations accounted for $1.1 million of this increase,
with the balance of $1.5 million relating to corporate stocks. The higher
market value of U.S. Treasury obligations reflects the decline in medium-term
and long-term Treasury rates that occurred during 1995. The higher market value
of equity securities reflects an improvement in general equity market
conditions. (See Note 3 to the consolidated financial statements for detail of
unrealized gains and losses associated with securities available for sale.)
Securities Held to Maturity
Securities designated as held to maturity are part of the Corporation's
portfolio of long-term interest-earning assets. These securities are classified
as long-term because the Corporation has the intent and ability to hold them
until maturity.
Securities held to maturity decreased by $23.6 million, to $28.9 million at
December 31, 1995. As noted above, debt securities totalling $37.1 million were
transferred to the available-for-sale category in 1995. Offsetting this
reduction were purchases of state and municipal bonds amounting to $7.7 million
in 1995.
The market value of the held-to-maturity portfolio has been favorably affected
by the decrease in interest rates that occurred in 1995. At December 31, 1995,
net unrealized gains in the portfolio totalled $559,828, compared to a net
unrealized loss position of $3.1 million at December 31, 1994.
Loans
Total loans amounted to $386.5 million at December 31, 1995, down by $7.5
million, or 1.9%, from the prior year amount of $393.9 million. Strong growth
in installment loans was offset by reduced commercial and residential loan
originations.
Total residential real estate loans decreased 3.8% in 1995. As part of the
Corporation's interest rate risk management strategy, the majority of newly
originated fixed rate residential mortgages are sold to U.S. government-
sponsored agencies. Fixed rate mortgages originated for sale amounted to $16.2
million in 1995, up from $10.4 million in 1994. The Corporation has retained
servicing rights on all residential mortgage loans sold. The balance of
serviced loans at December 31, 1995 and 1994 amounted to $95.1 million and $91.8
million, respectively.
Adjustable rate mortgages ("ARMs") declined slightly in 1995, but increased to
38.6% of total residential real estate loans at the end of the year, compared to
37.5% at the prior year-end. The demand for ARMs, which was strong in 1994, was
down in 1995 as the spread between the initial rate charged on ARMs and that
charged on fixed rate loans narrowed.
Total commercial loans decreased by $9.8 million, or 5.7%, in 1995.
Contributing to this decline was the sale of a pool of loans, including
commercial loans with a book value of $2.9 million, most of which were
nonperforming. Additionally, $2.8 million of commercial loans were charged off
in 1995. The Corporation's commercial loan demand was affected by the
continuation of flat economic conditions within its market area as well as
strong competition from other financial institutions. The Corporation continued
to emphasize maintaining high credit quality standards for new originations.
Installment loans increased by $9.1 million, or 20.0%, in 1995. The strong
growth is primarily attributable to direct and indirect consumer finance loans,
reflecting efforts made to establish and strengthen relationships with dealers
while maintaining the competitiveness of products offered.
A recent expansion of the Corporation's market area into contiguous communities
as well as additions to the loan staff are expected to provide additional
opportunities for growth of the Corporation's loan portfolio, although there can
be no assurance that they will do so.
Deposits
Total deposits at December 31, 1995 were $467.9 million, up $27.1 million, or
6.2%, from the prior year. In response to rising interest rates in 1995,
depositors have reacted by shifting deposits into longer-term accounts.
Accordingly, time deposits rose by $35.8 million during 1995 to $230.5 million
at December 31, 1995. Conversely, savings deposits (regular savings, NOW and
money market accounts) declined by $14.8 million. Demand deposit growth has
steadily increased in the last two years. Total demand deposits rose by 11.4%
during 1995, to $59.5 million at year end.
Federal Home Loan Bank Advances
Washington Trust utilizes advances from the Federal Home Loan Bank of Boston as
part of its overall funding strategy. Advances may be utilized for short-term
liquidity and longer-term financing. Total advances amounted to $21.0 million
at December 31, 1995, down from $23.5 million one year earlier.
Asset Quality
Nonperforming Assets
The following table presents nonperforming assets and related ratios (dollars in
thousands):
<TABLE>
<CAPTION>
December 31, 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans:
Residential real estate $ 2,280 $ 3,681
Commercial and other:
Mortgages 2,798 1,700
Construction and development 280 689
Other 2,779 4,191
Installment 437 651
- -------------------------------------------------------------------------
Total nonaccrual loans 8,574 10,912
Other real estate owned, net 1,705 2,007
- -------------------------------------------------------------------------
Total nonperforming assets $10,279 $12,919
=========================================================================
Nonaccrual loans as a percentage of total loans 2.2% 2.8%
Nonperforming assets as a percentage of total assets 1.9% 2.5%
=========================================================================
</TABLE>
Nonperforming assets include nonaccrual loans and other real estate owned.
Nonperforming assets declined to 1.9% of total assets at December 31, 1995,
compared to 2.5% of total assets at December 31, 1994. Nonaccrual loans as a
percent of total loans fell from 2.8% at the end of 1994 to 2.2% at December 31,
1995. The improvement in these ratios resulted from sales of foreclosed
properties, charge-offs of nonaccrual loans and continued efforts by the
Corporation to reduce the level of nonperforming assets. In addition,
approximately $2.0 million of loans which were on nonaccrual status at December
31, 1994 were sold in 1995.
<TABLE>
<CAPTION>
December 31, 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans 90 days or more past due $ 4,616 $ 6,614
Nonaccrual loans less than 90 days past due 3,958 4,298
- -------------------------------------------------------------------------
Total nonaccrual loans $ 8,574 $10,912
=========================================================================
Accruing loans 90 days or more past due (not included
in nonperforming assets) $ 257 $ 24
=========================================================================
</TABLE>
Loans, with the exception of credit card loans and certain well-secured
residential mortgage loans, are placed on nonaccrual status and interest
recognition is suspended when such loans are 90 days or more past due with
respect to principal and/or interest. Loans are also placed on nonaccrual
status when, in the opinion of management, full collection of principal and
interest is doubtful. Interest previously accrued, but uncollected, is reversed
against current period income. Cash receipts on nonaccrual loans are recognized
as interest income, or recorded as a reduction of principal if full collection
of the loan is doubtful or if impairment of the collateral is identified.
Nonaccrual loans are returned to accrual status when the obligation has
performed in accordance with the contract terms for a reasonable period of time
and the ultimate collectibility of the contractual principal and interest is no
longer doubtful.
Nonaccrual residential real estate loans decreased from $3.7 million at December
31, 1994 to $2.3 million at December 31, 1995. The reasons for this reduction
include the return of loans to accrual status, foreclosures, the sale of loans
and charge-offs, partially offset by approximately $1.4 million in loans
transferred to nonaccrual status in 1995.
Commercial mortgages was the only loan category which experienced an increase in
nonaccrual loans in 1995, rising by $1.1 million, or 64.6% over the prior year.
The increase is due to a small number of larger balance loans being placed on
nonaccrual status. Nonaccrual commercial mortgages accounted for 4.8% and 3.0%
of total commercial mortgages at December 31, 1995 and 1994, respectively.
Other commercial loans consist of loans to businesses and individuals, either
unsecured or secured, with varied repayment terms. A substantial portion of
secured loans in this category are collateralized by real estate. These loans
represented 25.1% of total loans at December 31, 1995. Nonaccrual loans in this
category declined by 33.7% from 1994. Reductions due to sale, repayments and
charge-offs were partially offset by transfers of loans to nonaccrual status
amounting to approximately $3.6 million. Nonaccrual other commercial loans as a
percent of total other commercial loans amounted to 2.9% at December 31, 1995,
down from 4.1% in the prior year.
In the paper version of the Annual Report to Shareholders there appears here
a graph showing nonperforming assets as of the five most recent year-ends.
Following is a tabular presentation of the graphic material:
Nonperforming Assets at December 31:
$ in millions $29.5 $26.5 $19.6 $12.9 $10.3
Year 1991 1992 1993 1994 1995
Restructured Loans
Loans are considered restructured when the lender has granted concessions to a
borrower due to the borrower's financial condition. These concessions include
modifications of the terms of the debt such as reduction of the stated interest
rate other than normal market rate adjustments, extension of maturity dates, or
reduction of principal balance or accrued interest. The decision to restructure
a loan, versus aggressively enforcing the collection of the loan, may benefit
the Corporation by increasing the ultimate probability of collection. Included
in nonaccrual loans at December 31, 1995, are loans amounting to $2.4 million
whose terms have been restructured. There were no commitments to lend
additional funds to borrowers whose loans had been restructured.
Other Real Estate Owned
Other real estate owned ("OREO") is composed of properties acquired through
foreclosure and other legal means, and loans determined to be substantively
repossessed. A loan is considered to be substantively repossessed when the
Corporation has taken possession of the collateral, but has not completed legal
foreclosure proceedings. OREO is carried at the lower of cost or fair value
minus estimated costs to sell. A valuation allowance is maintained for
potential declines in market value, known declines in market value, and
estimated selling costs.
The balance of OREO amounted to $1.7 million at December 31, 1995, down from the
corresponding 1994 amount of $2.0 million. Sales of foreclosed properties were
greater than the rate of foreclosures in 1995. During 1995, sales of foreclosed
properties amounted to $1.5 million. Washington Trust has provided financing to
facilitate the sales of some of these properties. Financing is generally
provided at market rates with credit terms similar to those available to other
borrowers.
Allowance for Loan Losses
Washington Trust assesses the quality of its loans by performing ongoing reviews
of its portfolio to determine potential loss exposure and to assess delinquency
trends. During this review, management gives consideration to such factors as
overall borrower relationship, delinquency trends, credit and collateral
quality, prior loss experience, current and expected economic conditions, and
other pertinent factors. As a result of this process charge-offs and other
potential problem loans are identified and loan loss allowances are established.
The following table reflects the activity in the allowance for loan losses
(dollars in thousands):
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Beginning balance $9,328 $9,090
Net charge-offs:
Residential real estate (187) (138)
Commercial:
Mortgages (782) (384)
Construction and development (526) 2
Other (1,234) (323)
Installment (214) (176)
- ----------------------------------------------------------------------
Net charge-offs (2,943) (1,019)
Provision for loan losses 1,400 1,257
- ----------------------------------------------------------------------
Ending balance $7,785 $9,328
======================================================================
Allowance for loan losses to nonaccrual loans 90.8% 85.5%
Allowance for loan losses to total loans 2.0% 2.4%
======================================================================
</TABLE>
Net charge-offs increased by $1.9 million in 1995. Included in 1995 net charge-
offs is approximately $620,000 in charge-offs associated with the sale of a pool
of loans, most of which were nonperforming. Commercial loan charge-offs also
increased in 1995 for reasons which included the deterioration of certain credit
relationships and management's continuing efforts to address the level of
nonperforming loans.
The provision for loan losses amounted to $1.4 million in 1995, up from $1.3
million in 1994. The provision amount is determined by management to maintain
the allowance at a level which is deemed appropriate.
Interest Rate Sensitivity and Liquidity
The Corporation's Asset/Liability Committee ("ALCO") is responsible for
establishing policy guidelines on acceptable exposure to interest rate risk and
liquidity. The objective of the ALCO is to manage assets and funding sources to
produce results which are consistent with Washington Trust's liquidity, capital
adequacy, growth, risk and profitability goals. The ALCO establishes and
monitors guidelines for proper origination and matching of assets and funding
sources, and determines asset/liability origination and pricing strategies to
meet its goals. The ALCO meets regularly to review the economic environment and
the volume, mix and maturity of assets and liabilities, and implements
appropriate changes in strategy that will manage the Corporation's exposure to
interest rate risk and liquidity risk.
The ALCO manages the Corporation's interest rate risk using both income
simulation and gap analysis. Simulation is used as the primary tool for
measuring interest rate risk inherent in the Corporation's on-balance sheet and
off-balance sheet financial instruments at a given point in time by showing the
effect on net interest income over a 24-month period of interest rate shifts of
up to 200 basis points over a 12-month period. These simulations take into
account repricing, maturity and mortgage prepayment characteristics of
individual products which may vary under different interest rate scenarios. The
ALCO reviews simulation results to determine whether the downside exposure of
net interest income to changes in interest rates remains within established
tolerance levels over a 24-month horizon, and to develop appropriate strategies
to manage this exposure. As of December 31, 1995, net interest income
simulation indicated a slight exposure to falling interest rates to a degree
that remains within tolerance levels established by the Corporation. While the
ALCO consistently reviews simulation assumptions to ensure that they reflect
historical experience, it should be noted that income simulation may not always
prove to be an accurate indicator of interest rate risk since the repricing,
maturity and prepayment characteristics of financial instruments may change to a
different degree than estimated.
The Corporation also uses gap analysis to provide a more general overview of the
Corporation's interest rate risk profile. At December 31, 1995, the
Corporation's cumulative one-year gap was a negative $79.2 million, or 15.3% of
earning assets. The table on page 30 details the amounts of interest-earning
assets and interest-bearing liabilities at December 31, 1995 that are expected
to mature or reprice in each of the time periods presented. To the extent
applicable, amounts of assets and liabilities which mature or reprice within a
particular period were determined in accordance with their contractual terms.
Fixed rate mortgages, mortgage-backed securities and installment loans have been
allocated based on expected amortization and prepayment rates using standard
industry assumptions. Savings, NOW and money market deposit accounts, which
have no contractual term and are subject to immediate repricing, are presented
in the under three-month category.
The Corporation supplements its interest rate risk management strategies with
off-balance sheet transactions. Such transactions are intended to hedge
specifically identified risks inherent in the Corporation's balance sheet, and
not to produce speculative profits. The Corporation has written policy
guidelines which designate limits on the notional value of off-balance sheet
transactions and require evaluation of risks associated with these transactions,
including counterparty credit risk.
At December 31, 1995, the Corporation had outstanding interest rate swap
agreements with a notional principal amount of $10 million maturing in May 1996.
These agreements were used to convert a 23-month fixed rate deposit product
originated during 1994 to a variable rate. The effect of the swap agreements on
net interest income for 1995 was not material.
During 1995, the Corporation entered into interest rate floor contracts with a
notional principal amount of $50 million and a five-year term maturing in
February 2000. These contracts are intended to function as a hedge against
reductions in interest income realized from prime-based loans. To purchase
these contracts, the Corporation paid an up-front premium of $916,000, which is
being amortized over the life of the contracts. The Corporation receives
payment for these contracts if certain interest rates fall below specified
levels. The floor contract premium amortization, net of interest earned for
these contracts, reduced interest earned on loans by approximately $88,000 in
1995. (See Note 8 to the consolidated financial statements for additional
information regarding the swap agreements and floor contracts.)
<TABLE>
<CAPTION>
3 months 3 to 6 6 months 1 to 5 over
(In thousands) or less months to 1 year years 5 years
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 108,670 $ 40,956 $ 92,937 $ 49,736 $ 94,616
Debt securities 13,104 6,934 13,584 58,206 22,597
Other assets 13,627 -- -- -- 2,995
- ---------------------------------------------------------------------------------------
Total interest-earning assets 135,401 47,890 106,521 107,942 120,208
- ---------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits (237,586) (45,714) (77,102) (48,060) 78
Interest rate swap agreements 10,000 (10,000) -- -- --
Federal Home Loan Bank advances (4,000) (2,561) (2,000) (10,811) (1,579)
- ---------------------------------------------------------------------------------------
Total interest-bearing liabilities (231,586) (58,275) (79,102) (58,871) (1,501)
- ---------------------------------------------------------------------------------------
Interest sensitivity gap per period $ (96,185) $ (10,385) $ 27,419 $ 49,071 $118,707
=======================================================================================
Cumulative interest sensitivity gap $ (96,185) $(106,570) $(79,151) $(30,080) $ 88,627
=======================================================================================
</TABLE>
Liquidity is the ability of a financial institution to meet maturing liability
obligations and customer loan demand. Washington Trust's primary source of
liquidity is customer deposits. Customer deposits (time, savings and demand
deposits) funded approximately 85.9% of total average assets in 1995. Other
sources of funding include loan repayments and discretionary use of purchased
liabilities (i.e. federal funds purchased, securities sold under agreements to
repurchase and Federal Home Loan Bank term advances). In addition, investment
securities designated as available for sale may be sold in response to short-
term or long-term liquidity needs.
The ALCO establishes and monitors internal liquidity measures to manage
liquidity exposure. Liquidity remained above target levels established by the
ALCO during 1995. Net loans as a percentage of total assets fell to 69.1% at
December 31, 1995, compared to 74.6% at December 31, 1994. Total securities as
a percentage of total assets rose to 20.9% at December 31, 1995, up from 16.7%
at December 31, 1994.
For the year ended December 31, 1995, net cash provided by financing activities
was $22.6 million. Approximately $27.1 million was generated by increases in
deposits, partially offset by a net repayment of Federal Home Loan Bank advances
of $2.6 million and dividends paid of $2.5 million. Net cash used in investing
activities was $21.1 million in 1995, the majority of which was used to purchase
securities. In 1996, the Corporation plans to expand its Trust and Investment
department facility and construct a new branch office. The total cost of these
projects is expected to be approximately $4 million. (See the Consolidated
Statements of Cash Flows for further information about sources and uses of
cash.)
Capital Resources
Shareholders' equity in the Corporation consists primarily of retained earnings,
as well as common stock and related paid-in capital. The ratio of total equity
to total assets amounted to 9.7% at December 31, 1995, compared to 8.9% at
December 31, 1994. Book value rose to $18.56 per share at December 31, 1995, up
from the year-earlier amount of $16.22 per share.
Total shareholders' equity increased by $7.2 million, or 15.6%, during 1995.
Approximately $1.6 million of this increase is attributable to the unrealized
gain on securities available for sale. In addition, approximately $5.1 million
in capital growth resulted from earnings retention. The Corporation increased
cash dividends declared per share by 26% in 1995 in recognition of continued
improvements in earnings and a strong capital position. Cash dividends per
share amounted to $.92 in 1995 versus $.73 in 1994.
Regulatory guidelines require bank holding companies and state chartered banks
to maintain minimum ratios of capital to risk-adjusted assets. These guidelines
were established to more accurately assess the credit risk inherent in the
assets and off-balance sheet activities of financial institutions. Each balance
sheet asset and each off-balance sheet asset is assigned a "risk-weight" in
determining the ratio of capital to risk-adjusted assets.
Banks are required to maintain minimum core capital (Tier 1) of 4% and total
risk-adjusted capital (Tier 1 and Tier 2) of 8%. For Washington Trust, Tier 1
capital is essentially equal to shareholders' equity excluding the unrealized
gain on securities available for sale. Tier 2 capital consists of a portion of
the allowance for loan losses (limited to 1.25% of total risk-weighted assets).
As a supplement to the risk-based capital measure, regulatory guidelines
restrict the extent to which banking organizations can leverage their capital
base. The Tier 1 leverage ratio is defined as Tier 1 capital (as defined under
the risk-based capital guidelines) divided by average assets (net of intangible
assets). The minimum leverage ratio is 3% for banking organizations that do not
anticipate significant growth and that have well-diversified risk (including no
undue interest rate risk), excellent asset quality, high liquidity, and good
earnings. Other banking organizations are expected to have ratios of at least
4-5%, depending on their particular financial condition and growth plans.
Higher capital ratios could be required if warranted by the particular
circumstances or risk profile of a given banking organization. The Federal
Reserve has not advised the Corporation of any specific minimum Tier 1 leverage
capital ratio applicable to it. (See Note 16 to the Corporation's consolidated
financial statements for additional discussion of the Corporation's ability to
pay dividends.)
The following table presents information concerning the Corporation's compliance
with regulatory requirements at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Risk-based capital: (1)
Tier 1 capital (shareholders' equity) $48,555 $42,981
Tier 2 capital (eligible portion of allowance for loan losses) 4,354 4,337
- -------------------------------------------------------------------------------------------
Total risk-based capital $52,909 $47,318
===========================================================================================
Assets: (1)
Net risk-weighted assets $344,883 $342,472
Average quarterly assets $540,175 $508,540
===========================================================================================
Risk-based capital ratios:
Tier 1 (minimum 4.0%) 14.08% 12.55%
Total (Tier 1 plus Tier 2, minimum 8.0%) 15.34% 13.82%
Tier 1 leverage ratio (minimum 3.0%) 8.99% 8.45%
===========================================================================================
<FN>
(1) Amounts exclude the SFAS No. 115 market valuation adjustment associated with securities
available for sale.
</TABLE>
Recent Accounting Developments
Mortgage Servicing Rights
The FASB has issued SFAS No. 122, "Accounting for Mortgage Servicing Rights",
which is effective for fiscal years beginning after December 15, 1995. This
pronouncement requires that the rights to service mortgage loans for others be
recognized as an asset, including rights acquired through both purchases and
originations. Capitalized mortgage servicing rights will be amortized over the
period of estimated net servicing income and will be periodically evaluated for
impairment based on their fair value. The adoption of this pronouncement is not
expected to have a significant effect on the Corporation's financial position or
results of operations.
Stock-Based Compensation
Effective January 1, 1996, the Corporation will adopt SFAS No. 123, "Accounting
for Stock-Based Compensation". The Statement encourages, but does not require,
a fair value based method of accounting for stock-based compensation plans.
SFAS No. 123 allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method prescribed by Accounting Principles
Board ("APB") Opinion No. 25. For those entities electing to use the intrinsic
value based method, SFAS No. 123 requires pro forma disclosures of net income
and earnings per share computed as if the fair value based method had been
applied. The Corporation intends to continue to account for stock-based
compensation costs under APB Opinion No. 25, and will provide the additional
required disclosures relating to 1995 and 1996 stock options in its 1996 Annual
Report.
Comparison of 1994 with 1993
Washington Trust recorded net income of $6.3 million in 1994, a 40% increase
over the $4.5 million of net income excluding an accounting change for income
taxes recorded in 1993. Earnings per share amounted to $2.18 for 1994, up from
$1.58 per share earned on net income excluding the accounting change in 1993.
Increased net interest income and noninterest income, improved levels of
nonperforming assets, and a resultant decrease in the Corporation's provision
for loan losses all had a positive impact on 1994 earnings. Net income in 1993
included a benefit of $305,000, or $.11 per share, recorded as a result of a
change in accounting for income taxes.
Net interest income rose $2.3 million, or 11.2%, in 1994. Despite the overall
increase in interest rates in 1994, both asset yields and rates paid on deposits
and other interest-bearing liabilities were lower in 1994 than 1993. Lower
rates on interest-earning assets were offset by strong growth in average earning
assets as well as a more favorable mix of interest-earning assets. A 23.1%
increase in average demand deposits, an interest-free source of funding,
contributed to the increase in net interest margin, which amounted to 5.08% in
1994 compared to 4.90% in 1993. The interest rate spread widened by 11 basis
points to 4.66% for the year ended December 31, 1994.
Total loans increased $36.6 million, or 10.2%, in 1994 and amounted to $393.9
million at December 31, 1994. Residential mortgages, commercial mortgages and
installment loans all exhibited strong growth in 1994. Adjustable rate mortgage
originations were up, as borrowers opted to take advantage of the initial lower
rates associated with this product, especially as interest rates increased
during the latter part of 1994. In addition, adjustable rate mortgages
increased as a percent of total residential mortgages since the majority of the
fixed rate mortgages originated in 1994 were sold in the secondary market.
Installment loans rose 32.5% during 1994 primarily as a result of a strong
marketing campaign for home equity loans.
Nonperforming assets totalled 2.5% of total assets at December 31, 1994, down
from the 1993 amount of 4.0%. The Corporation's loan loss provision amounted to
$1.3 million in 1994, down from $2.8 million in 1993. Net loan charge-offs
amounted to $1.0 million in 1994, down from $1.6 million in 1993.
Shareholders' equity rose by $7.3 million, or 19.0% in 1994. Approximately $2.8
million of this increase is attributable to the unrealized gain on securities
available for sale resulting from the adoption of SFAS No. 115. The ratio of
capital to assets was 8.9% and 7.9% at December 31, 1994 and 1993, respectively.
Dividends paid per share amounted to $.73 in 1994, up 24% from the prior year.
<TABLE>
Consolidated Balance Sheets
Washington Trust Bancorp, Inc. and Subsidiary
<CAPTION>
December 31, 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks (note 2) $ 15,051,777 $ 15,172,421
Federal funds sold 13,598,869 3,232,489
Mortgage loans held for sale 456,152 203,750
Securities available for sale, at fair value; cost
$78,249,075 in 1995 and $28,940,165 in 1994 (note 3) 85,552,335 33,609,315
Securities held to maturity, at cost; fair value $29,432,819
in 1995 and $49,395,262 in 1994 (note 4) 28,872,991 52,496,616
Federal Home Loan Bank stock, at cost 2,995,000 2,906,800
Loans (note 5) 386,458,892 393,926,200
Less allowance for loan losses (note 6) 7,784,516 9,327,942
- --------------------------------------------------------------------------------------------------
Net loans 378,674,376 384,598,258
Premises and equipment, net (note 7) 14,646,157 14,779,903
Accrued interest receivable 3,539,305 3,232,211
Other real estate owned, net (note 9) 1,705,147 2,007,212
Other assets 2,567,195 3,440,988
- --------------------------------------------------------------------------------------------------
Total assets $547,659,304 $515,679,963
==================================================================================================
Liabilities:
Deposits:
Demand $ 59,470,321 $ 53,373,386
Savings 177,891,247 192,653,937
Time (note 10) 230,492,444 194,703,819
- --------------------------------------------------------------------------------------------------
Total deposits 467,854,012 440,731,142
Dividends payable 686,189 564,686
Federal Home Loan Bank advances (note 11) 20,951,266 23,522,343
Accrued expenses and other liabilities 5,231,339 5,078,808
- --------------------------------------------------------------------------------------------------
Total liabilities 494,722,806 469,896,979
- --------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 8 and 15)
Shareholders' Equity: (note 16)
Common stock of $.0625 par value; authorized
10,000,000 shares; issued 2,880,000 shares 180,000 180,000
Paid-in capital 3,010,795 2,869,135
Retained earnings 45,690,676 40,613,979
Unrealized gain on securities available for sale, net of tax 4,381,958 2,801,490
Treasury stock, at cost; 27,130 shares in 1995
and 56,570 shares in 1994 (326,931) (681,620)
- --------------------------------------------------------------------------------------------------
Total shareholders' equity 52,936,498 45,782,984
- --------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $547,659,304 $515,679,963
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Consolidated Statements of Income
Washington Trust Bancorp, Inc. and Subsidiary
<CAPTION>
Years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (note 5) $ 35,703,570 $ 31,116,418 $ 29,565,118
Income from securities:
Interest 4,803,214 4,543,584 4,143,297
Dividends 924,190 745,925 897,869
Interest on federal funds sold and securities
purchased under agreements to resell 855,206 255,761 321,579
- -------------------------------------------------------------------------------------------------------
Total interest income 42,286,180 36,661,688 34,927,863
- -------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 3,946,019 4,334,637 4,964,023
Time deposits 11,770,096 7,917,428 8,111,506
Other 1,299,149 1,336,517 1,103,250
- -------------------------------------------------------------------------------------------------------
Total interest expense 17,015,264 13,588,582 14,178,779
- -------------------------------------------------------------------------------------------------------
Net interest income 25,270,916 23,073,106 20,749,084
Provision for loan losses (note 6) 1,400,000 1,256,912 2,774,407
- -------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 23,870,916 21,816,194 17,974,677
- -------------------------------------------------------------------------------------------------------
Noninterest income:
Trust income 3,255,494 3,284,435 2,952,216
Service charges on deposit accounts 1,950,899 1,610,550 1,446,269
Merchant processing fees 730,449 622,013 521,545
Gains on sales of securities (note 3) 495,817 684,590 345,674
Gains (losses) on loan sales (135,851) (15,998) 484,960
Other income 906,029 736,576 678,510
- -------------------------------------------------------------------------------------------------------
Total noninterest income 7,202,837 6,922,166 6,429,174
- -------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits (note 12) 10,223,160 9,929,943 8,686,310
Net occupancy 1,221,927 1,206,031 1,187,937
Equipment 1,291,663 1,188,352 1,330,052
Deposit taxes and assessments 769,583 1,279,417 1,216,740
Foreclosed property costs, net (note 9) 363,847 (15,937) 626,913
Office supplies 461,501 605,645 516,788
Advertising and promotion 538,413 505,351 476,305
Credit and collection 437,619 512,715 581,831
Other (note 13) 4,047,073 4,236,203 3,049,444
- -------------------------------------------------------------------------------------------------------
Total noninterest expense 19,354,786 19,447,720 17,672,320
- -------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of
accounting change 11,718,967 9,290,640 6,731,531
Applicable income taxes (note 14) 4,031,000 3,026,000 2,255,000
- -------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 7,687,967 6,264,640 4,476,531
Cumulative effect of change in accounting for income taxes -- -- 305,000
- -------------------------------------------------------------------------------------------------------
Net income $ 7,687,967 $ 6,264,640 $ 4,781,531
=======================================================================================================
Weighted average shares outstanding - primary 2,910,201 2,872,360 2,811,846
Weighted average shares outstanding - fully diluted 2,938,650 2,872,775 2,825,759
Earnings per share - primary:
Income before cumulative effect of accounting change $2.64 $2.18 $1.59
Cumulative effect of change in accounting for income taxes -- -- .11
----- ----- -----
Net income $2.64 $2.18 $1.70
===== ===== =====
Earnings per share - fully diluted:
Income before cumulative effect of accounting change $2.62 $2.18 $1.58
Cumulative effect of change in accounting for income taxes -- -- .11
----- ----- -----
Net income $2.62 $2.18 $1.69
===== ===== =====
Cash dividends declared per share $ .92 $ .73 $ .59
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
Washington Trust Bancorp, Inc. and Subsidiary
<CAPTION>
Years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 180,000 $ 120,000 $ 120,000
3-for-2 stock split in the form of a 50% stock dividend - 60,000 -
- --------------------------------------------------------------------------------------------------------
Balance at end of year 180,000 180,000 120,000
- --------------------------------------------------------------------------------------------------------
Paid-in Capital
Balance at beginning of year 2,869,135 2,822,908 2,784,205
Issuance of common stock for dividend reinvestment
and stock option plans 141,660 106,227 38,703
3-for-2 stock split in the form of a 50% stock dividend - (60,000) -
- --------------------------------------------------------------------------------------------------------
Balance at end of year 3,010,795 2,869,135 2,822,908
- --------------------------------------------------------------------------------------------------------
Retained Earnings
Balance at beginning of year 40,613,979 36,418,073 33,276,746
Net income 7,687,967 6,264,640 4,781,531
Cash dividends declared (2,611,270) (2,068,734) (1,640,204)
- --------------------------------------------------------------------------------------------------------
Balance at end of year 45,690,676 40,613,979 36,418,073
- --------------------------------------------------------------------------------------------------------
Unrealized Gain on Securities Available for Sale, Net of Tax
Balance at beginning of year 2,801,490 - -
Adoption of SFAS No. 115 - 4,910,522 -
Change in unrealized gain on securities available
for sale, net of tax 1,580,468 (2,109,032) -
- --------------------------------------------------------------------------------------------------------
Balance at end of year 4,381,958 2,801,490 -
- --------------------------------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year (681,620) (898,056) (1,231,156)
Issuance of common stock for dividend reinvestment
and stock option plans 354,689 216,436 333,100
- --------------------------------------------------------------------------------------------------------
Balance at end of year (326,931) (681,620) (898,056)
- --------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $52,936,498 $45,782,984 $38,462,925
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Consolidated Statements of Cash Flows
Washington Trust Bancorp, Inc. and Subsidiary
<CAPTION>
Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,687,967 $ 6,264,640 $ 4,781,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,400,000 1,256,912 2,774,407
Provision for valuation of other real estate owned 172,041 137,389 768,021
Depreciation of premises and equipment 1,331,474 1,313,158 1,446,367
Amortization of net deferred loan fees and costs (540,535) (819,142) (599,670)
Cumulative effect of change in accounting principle -- -- (305,000)
Deferred income tax expense (benefit) 763,000 (360,000) (881,000)
Gains on sales of securities available for sale (495,817) (684,590) (345,674)
Losses (gains) on sales of other real estate owned 15,095 (465,292) (674,331)
Losses (gains) on loan sales 135,851 15,998 (484,960)
Proceeds from sales of loans 15,967,587 13,867,186 29,396,915
Loans originated for sale (16,219,298) (10,377,435) (23,981,881)
Increase in accrued interest receivable (307,094) (361,300) (9,414)
Decrease (increase) in other assets (923,547) (624,046) 49,001
Increase in accrued expenses and
other liabilities 133,229 499,002 861,108
Other, net (294,672) 174,088 22,998
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,825,281 9,836,568 12,818,418
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Securities available for sale:
Purchases (38,362,395) (4,719,443) (7,624,494)
Proceeds from sales 16,469,090 9,666,129 7,387,344
Maturities 10,164,849 1,000,000 --
Securities held to maturity:
Purchases (22,331,055) (8,399,712) (26,043,737)
Maturities and principal repayments 8,770,271 8,355,132 12,611,066
Investment in Federal Home Loan Bank stock (88,200) (934,000) (30,800)
Loan originations (over) under principal
collected on loans 5,152,024 (36,344,321) (24,554,443)
Proceeds from sales and other reductions
of other real estate owned 310,084 1,263,385 2,037,048
Purchases of premises and equipment (1,222,588) (1,754,963) (755,168)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,137,920) (31,867,793) (36,973,184)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 27,122,870 17,356,522 18,714,615
Proceeds from Federal Home Loan Bank advances 17,564,839 15,051,500 10,000,000
Repayment of Federal Home Loan Bank advances (20,135,916) (12,029,157) (3,500,000)
Proceeds from issuance of commmon stock from treasury 496,349 322,663 371,803
Cash dividends paid (2,489,767) (1,915,521) (1,599,173)
- -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 22,558,375 18,786,007 23,987,245
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 10,245,736 (3,245,218) (167,521)
Cash and cash equivalents at beginning of year 18,404,910 21,650,128 21,817,649
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $28,650,646 $18,404,910 $21,650,128
=======================================================================================================
Noncash Investing Activities:
Net transfers from loans to other real estate owned $ 666,158 $ 1,290,381 $ 3,270,745
Loans charged off 3,416,067 1,336,260 1,884,191
Loans made to facilitate the sale of other real
estate owned 854,750 1,709,931 3,053,750
Transfer of securities from the held-to-maturity
to the available-for-sale category 37,131,457 -- --
Change in unrealized gain on securities available
for sale, net of tax 1,580,468 2,801,490 --
Supplemental Disclosures:
Interest payments $ 7,365,825 $ 7,384,172 $ 8,154,492
Income tax payments 3,018,250 2,942,787 2,844,278
</TABLE>
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
(1) Summary of Significant Accounting Policies
Washington Trust Bancorp, Inc. (the "Corporation") is a publicly-owned,
registered bank holding company, organized under the laws of the State of Rhode
Island. The Corporation is the only Rhode Island based independent, publicly-
owned, community banking organization. The Corporation provides a complete
product line of financial services through its wholly-owned subsidiary, The
Washington Trust Company (the "Bank"), a Rhode Island chartered commercial bank.
The Bank was originally chartered in 1800 and provides a variety of financial
services including commercial lending, residential mortgages, consumer loans,
retail and commercial deposit products and trust services. The deposits of the
Bank are insured by the Federal Deposit Insurance Corporation ("FDIC"), subject
to regulatory limits.
The activities of the Corporation and the Bank are subject to the regulatory
supervision of the Federal Reserve Board and the FDIC, respectively. Both
companies are subject to various Rhode Island business and banking regulations.
Basis of Presentation
The consolidated financial statements include the accounts of the Corporation
and the Bank. All significant intercompany transactions have been eliminated.
Certain prior year amounts have been reclassified to conform to the current year
classification.
The accounting and reporting policies of the Corporation conform to generally
accepted accounting principles and to general practices of the banking industry.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates. A material estimate which is
particularly susceptible to change is the determination of the allowance for
loan losses in satisfaction of loans.
Securities Available for Sale
The Corporation designates securities that it 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 as available for sale. The determination to classify such
securities as available for sale is made at the time of purchase.
Securities available for sale are 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. Any decline in fair value
below the amortized cost basis of an individual security deemed to be other than
temporary is recognized as a realized loss in the accounting period in which the
determination is made. The fair value of the security at the time of the write-
down becomes the new cost basis of the security.
Realized gains or losses from sales of equity securities are determined using
the average cost method, while other realized gains and losses are determined
using the specific identification method.
Securities Held to Maturity
The determination to classify debt securities in the held-to-maturity category
is made at the time of purchase and is based on management's intent and ability
to hold the securities until maturity. Debt securities in the held-to-maturity
portfolio are stated at cost, adjusted for amortization of premium and accretion
of discount (calculated on a method that approximates the interest method).
Loan Accounting Policy
Mortgage Loans Held for Sale Mortgage loans held for sale are carried at the
lower of aggregate cost, net of unamortized deferred loan origination fees and
costs, or market. Unrealized losses, if any, are charged to current period
earnings.
Portfolio Loans Loans held in portfolio are stated at the principal amount
outstanding, net of unamortized deferred loan origination fees and costs.
Interest income is accrued on various methods which approximate a level yield
related to principal amounts outstanding. Deferred loan origination fees and
costs are amortized as an adjustment to yield over the life of the related
loans.
Nonaccrual Loans Loans, with the exception of credit card loans and certain
well-secured residential mortgage loans, are placed on nonaccrual status and
interest recognition is suspended when such loans are 90 days or more overdue
with respect to principal and/or interest. Loans are also placed on nonaccrual
status when, in the opinion of management, full collection of prinicpal and
interest is doubtful. Interest previously accrued, but not collected on such
loans is reversed against current period income. Subsequent cash receipts on
nonaccrual loans are applied to the outstanding principal balance of the loan,
or recognized as interest income depending on management's assessment of the
ultimate collectibility of the loan. Loans are removed from nonaccrual status
when they have been current as to principal and interest for a period of time,
the borrower has demonstrated an ability to comply with repayment terms, and
when, in management's opinion, the loans are considered to be fully collectible.
Restructured Loans Restructured loans include those for which concessions such
as reduction of interest rates other than normal market rate adjustments, or
deferral of principal or interest payments have been granted due to a borrower's
financial condition. Subsequent cash receipts on restructured loans are applied
to the outstanding principal balance of the loan, or recognized as interest
income depending on management's assessment of the ultimate collectibility of
the loan.
Allowance for Loan Losses
The allowance for loan losses is available for future credit losses inherent in
the loan portfolio. The level of the allowance is based on management's ongoing
review of the growth and composition of the loan portfolio, net charge-off
experience, current and expected economic conditions, and other pertinent
factors. Loans (or portions thereof) deemed to be uncollectible are charged
against the allowance and recoveries of amounts previously charged off are added
to the allowance. Loss provisions charged to earnings are added to the
allowance to bring it to the desired level.
Effective January 1, 1995, the Corporation adopted Statements of Financial
Accounting Standards ("SFAS") No. 114 and No. 118. These Statements, which
apply to the Corporation's commercial loan portfolio, address how allowances for
loan losses and income recognized for certain loans should be determined. A
loan is impaired when it is probable that the creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. The
Corporation considers all nonaccrual commercial loans to be impaired.
Impairment is measured on a discounted cash flow method, or at the loan's
observable market price, or at the fair value of the collateral if the loan is
collateral dependent. Impairment is measured based on the fair value of the
collateral if it is determined that foreclosure is probable. If the measure of
impairment is less than the recorded investment in the loan, an allowance for
loan losses is established with a corresponding charge to the provision for loan
losses.
While management believes that the allowance for loan losses is adequate, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in the northeastern United States. In addition,
various regulatory agencies periodically review the Corporation's allowance for
loan losses. Such agencies may require the recognition of additions to the
allowance based on their judgments about information available to them at the
time of their examination.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation for financial reporting purposes is calculated on the straight-line
method over the estimated useful lives of assets. Expenditures for major
additions and improvements are capitalized while the costs of current
maintenance and repairs are charged to operating expenses.
Other Real Estate Owned (OREO)
Other real estate owned consists of property acquired through foreclosure and
loans determined to be substantively repossessed. SFAS No. 114 narrowed the
definition of real estate loans substantively repossessed to include only those
loans for which the Corporation has taken possession of the collateral, but has
not completed legal foreclosure proceedings. Accordingly, loans previously
included in OREO have been reclassified to be reported as nonaccrual loans. All
prior period amounts in the consolidated financial statements and related notes
pertaining thereto, including the related loss provisions and allowances, have
been reclassified from OREO to loans or the allowance for loan losses, as
applicable.
OREO, including real estate substantively repossessed, is stated at the lower of
cost or fair value minus estimated costs to sell at the date of acquisition or
classification to OREO status. Fair value of such assets is determined based on
independent appraisals and other relevant factors. Any write-down to fair value
at the time of foreclosure is charged to the allowance for loan losses. A
valuation allowance is maintained for known specific and potential market
declines and for estimated selling expenses. Increases to the valuation
allowance, expenses associated with ownership of these properties, and gains and
losses from their sale are included in foreclosed property costs.
Interest Rate Risk Management Agreements
The Corporation uses financial instruments as part of its interest rate risk
management strategy. Interest rate swap and floor agreements are entered into
as hedges against future interest rate fluctuations on specifically identified
assets or liabilities. The Corporation does not enter into financial
instruments for trading or speculative purposes. Therefore, these instruments
are not marked to market.
The net amounts to be paid or received on outstanding interest rate risk
management agreements are recognized on the accrual basis as an adjustment to
the related interest income or expense over the life of the agreements.
Premiums paid for interest rate floor agreements are amortized as an adjustment
to interest income over the term of the agreements. Unamortized premiums are
included in other assets. Gains or losses resulting from the termination of
interest rate swap and floor agreements on qualifying hedges of existing assets
or liabilities are deferred and amortized over the remaining lives of the
related assets/liabilities as an adjustment to the yield. Unamortized deferred
gains/losses on terminated interest rate swap and floor agreements are included
in the underlying assets/liabilities hedged.
Deposit Taxes and Assessments
Deposit taxes and assessments consist of amounts assessed to members of the Bank
Insurance Fund by the FDIC and deposit taxes imposed by the State of Rhode
Island. These amounts are calculated based on levels of bank deposits using
rates established by the respective regulatory authorities.
Pension Costs
Pension costs are funded on a current basis in compliance with the requirements
of the Employee Retirement Income Security Act and are accounted for in
accordance with SFAS No. 87, "Employers' Accounting for Pensions."
Postemployment Benefits
The expected cost of providing benefits to former or inactive employees after
employment but before retirement is recognized during the period in which the
employee renders service.
Income Taxes
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 Corporation adopted SFAS No. 109, "Accounting for Income Taxes", on January
1, 1993. The cumulative effect of adoption of SFAS No. 109 was reported in the
1993 Consolidated Statement of Income.
Earnings Per Share
Earnings per share is determined by dividing net income by the average number of
common shares and common stock equivalents outstanding, net of shares assumed to
be repurchased using the treasury stock method. Common stock equivalents arise
from the assumed exercise of outstanding stock options, if dilutive.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are sold on an overnight basis.
(2) Cash and Due From Banks
The Corporation's bank subsidiary is required to maintain certain average
reserve balances with the Federal Reserve. Such reserve balances amounted to
$7,512,422 and $6,856,533 at December 31, 1995 and 1994, respectively.
(3) Securities Available For Sale
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995
U.S. Treasury obligations
and obligations of U.S.
government agencies $37,346,696 $ 549,035 $ (18,203) $37,877,528
Mortgage-backed securities 30,024,608 189,634 (187,345) 30,026,897
Corporate stocks 10,877,771 6,783,369 (13,230) 17,647,910
- --------------------------------------------------------------------------------------
Total $78,249,075 $7,522,038 $(218,778) $85,552,335
======================================================================================
December 31, 1994
U.S. Treasury obligations $25,059,480 $ 181,660 $(707,920) $24,533,220
Corporate stocks 3,880,685 5,215,167 (19,757) 9,076,095
- --------------------------------------------------------------------------------------
Total $28,940,165 $5,396,827 $(727,677) $33,609,315
======================================================================================
</TABLE>
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
special report which allowed enterprises to reassess the appropriateness of
their securities classifications under SFAS No. 115, accounting for any
resulting reclassifications between "held-to-maturity" and "available-for-sale"
categories at fair value. In accordance with this report, the Corporation
reassessed its securities classifications, resulting in the transfer of debt
securities with an amortized cost of $37,131,457 and an unrealized loss of
$706,937 from the held-to-maturity category to available for sale.
Mortgage-backed securities included in the available-for-sale portfolio are
issued by the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association and the Government National Mortgage Association. These
securities represent participating interests in pools of long-term residential
mortgage loans.
The contractual maturities and weighted average yields of debt securities are
summarized below. Mortgage-backed securities are included based on weighted
average maturities, adjusted for anticipated prepayments:
<TABLE>
<CAPTION>
Weighted
Amortized Fair Average
December 31, 1995 Cost Value Yield
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Due in 1 year or less $13,026,068 $13,104,354 6.98%
After 1 but within 5 years 36,961,572 37,131,956 6.37%
After 5 but within 10 years 9,199,652 9,106,160 6.91%
After 10 years 8,184,012 8,561,955 7.69%
-----------------------------------------------------------------------------
Total $67,371,304 $67,904,425 6.72%
=============================================================================
</TABLE>
The following is a summary of amounts relating to sales of securities available
for sale:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales $16,469,090 $9,666,129 $7,387,344
===========================================================================
Realized gains $1,028,726 $ 713,534 $ 345,844
Realized losses (532,909) (28,944) (170)
- ---------------------------------------------------------------------------
Net realized gains $ 495,817 $ 684,590 $ 345,674
===========================================================================
</TABLE>
Included in proceeds from sales of securities in 1994 are proceeds of $699,896
which represent the donation of corporate stocks to a charitable trust
established by the Corporation. The gain on this transaction is included in
gains on sales of securities and amounted to $676,058, the excess of the fair
market value of the donated securities over their historical cost. See Note 13
for a discussion regarding the contribution expense related to this transaction.
Included in proceeds from sales of securities are $3.5 million, $7.5 million and
$7.0 million in 1995, 1994 and 1993, respectively, from dispositions of dutch
auction preferred stocks with no gain or loss. Purchases of dutch auction
preferred stocks available for sale amounted to $10.0 million, $3.5 million and
$5.0 million in 1995, 1994 and 1993, respectively. These are preferred stock
instruments whose dividend rate is reset by auction every 49 days to a market
rate, resulting in a market value of par. At each auction, the holder can elect
not to participate in the auction and therefore liquidate its investment at par
(cost).
Securities available for sale with a book value of $4,519,878 and $2,999,133
were pledged to secure public deposits and for other purposes at December 31,
1995 and 1994, respectively.
(4) Securities Held to Maturity
Securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995
Mortgage-backed securities $13,947,011 $497,755 $ -- $14,444,766
States and political
subdivisions 14,925,980 77,329 (15,256) 14,988,053
- -------------------------------------------------------------------------------------
Total $28,872,991 $575,084 $ (15,256) $29,432,819
=====================================================================================
December 31, 1994
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $20,413,017 $ -- $(1,714,040) $18,698,977
Mortgage-backed securities 21,696,508 -- (1,160,590) 20,535,918
States and political
subdivisions 10,387,091 9,385 (236,109) 10,160,367
- -------------------------------------------------------------------------------------
Total $52,496,616 $ 9,385 $(3,110,739) $49,395,262
=====================================================================================
</TABLE>
Included in mortgage-backed securities are Federal Home Loan Mortgage
Corporation participation certificates backed by mortgage loans originated by
the bank subsidiary amounting to $13,947,011 and $15,084,526 at December 31,
1995 and 1994, respectively.
Securities held to maturity with a carrying value of $999,828 were pledged to
secure public deposits and for other purposes at December 31, 1994.
The contractual maturities and weighted average yields of debt securities are
summarized below. Mortgage-backed securities are included based on weighted
average maturities, adjusted for anticipated future prepayments:
<TABLE>
<CAPTION>
Weighted
Amortized Fair Average
December 31, 1995 Cost Value Yield
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Due in 1 year or less $ 4,732,939 $ 4,780,819 5.06%
After 1 but within 5 years 12,307,233 12,476,182 5.16%
After 5 but within 10 years 5,834,507 5,963,268 6.15%
After 10 years 5,998,312 6,212,550 7.54%
-----------------------------------------------------------------------------
Total $28,872,991 $29,432,819 5.84%
=============================================================================
</TABLE>
There were no sales of securities from the held-to-maturity portfolio during
1995, 1994 and 1993. During 1995, securities with an amortized cost of
$37,131,457 were transferred from the held-to-maturity category to available for
sale. See Note 3 for additional information related to this transaction.
(5) Loans
The following is a summary of loans:
<TABLE>
<CAPTION>
December 31, 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Residential real estate:
Mortgages $167,510,929 $170,366,731
Homeowner construction 3,071,177 6,933,793
- ----------------------------------------------------------------------------------
Total residential real estate 170,582,106 177,300,524
Commercial and other:
Mortgages (1) 58,837,483 56,014,628
Construction and development (2) 5,968,404 12,089,966
Other (3) 96,830,889 103,334,837
- ----------------------------------------------------------------------------------
Total commercial and other 161,636,776 171,439,431
Installment 54,240,010 45,186,245
- ----------------------------------------------------------------------------------
Total loans $386,458,892 $393,926,200
==================================================================================
<FN>
(1) Amortizing mortgages, primarily secured by income producing property
(2) Loans for construction of residential and commercial properties and for
land development
(3) Loans to businesses and individuals, a substantial portion of which are
fully or partially collateralized by real estate
</TABLE>
Concentrations of Credit Risk
The Corporation's lending activities are primarily conducted in southern Rhode
Island and southeastern Connecticut. The Corporation grants single family and
multi-family residential loans, commercial real estate loans, commercial loans,
and a variety of consumer loans. In addition, loans are granted for the
construction of residential homes, multi-family properties, commercial real
estate properties, and for land development. The ability of single family
residential and consumer borrowers to honor their repayment commitments is
generally dependent on the level of overall economic activity within the market
area and real estate values. The ability of commercial borrowers to honor their
repayment commitments is dependent on the general economy as well as the health
of the real estate economic sector in the Corporation's market area.
Nonaccrual Loans
The balance of loans on nonaccrual status as of December 31, 1995 and 1994 was
$8,573,656 and $10,911,999, respectively. Interest income that would have been
recognized had these loans been performing at originally contracted rates was
approximately $598,000 in 1995 and $628,000 in 1994. Interest income
attributable to these loans included in the Consolidated Statements of Income
amounted to approximately $458,000 in 1995 and $287,000 in 1994. Included in
nonaccrual loans at December 31, 1995 and 1994 are loans amounting to $2.4
million and $1.8 million, respectively, whose terms have been restructured.
Pursuant to the adoption of SFAS No. 114, loans reported in 1994 as OREO have
been reclassified to nonaccrual loans. The resulting increase in nonaccrual
loans at December 31, 1994 was approximately $3,793,000.
Mortgage Servicing Activities
At December 31, 1995 and 1994, mortgage loans sold to others and serviced by the
Corporation on a fee basis under various agreements amounted to $95,078,817 and
$91,767,691, respectively. Loans serviced for others are not included in the
Consolidated Balance Sheets.
Effective January 1, 1996, the Corporation will adopt SFAS No. 122, "Accounting
for Mortgage Servicing Rights". This statement requires that the rights to
service mortgage loans for others be recognized as an asset, including rights
acquired through both purchases and originations. Capitalized mortgage
servicing rights will be amortized over the period of estimated net servicing
income and will be periodically evaluated for impairment based on their fair
value. The adoption of this pronouncement is not expected to have a significant
effect on the Corporation's financial position or results of operations.
Loans to Related Parties
At December 31, 1995, the Corporation has made loans in the ordinary course of
business to certain directors and executive officers including their immediate
families and their affiliated companies. Such loans were made under normal
interest rate and collateralization terms. Activity related to these loans in
1995 was as follows:
Balance at December 31, 1994 $3,050,401
Additions 835,567
Reductions (893,997)
- ----------------------------------------------------------------------------
Balance at December 31, 1995 $2,991,971
============================================================================
(6) Allowance for Loan Losses
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $9,327,942 $9,089,775 $7,872,351
Provision charged to expense 1,400,000 1,256,912 2,774,407
Recoveries of loans previously charged off 472,641 317,515 327,208
Loans charged off (3,416,067) (1,336,260) (1,884,191)
- -------------------------------------------------------------------------------------
Balance at end of year $7,784,516 $9,327,942 $9,089,775
=====================================================================================
</TABLE>
As discussed in Note 1, the Corporation adopted SFAS No. 114 and No. 118 as of
January 1, 1995. Amounts presented for 1994 and 1993 reflect the
reclassification of the valuation allowance and related loss provision activity
to the allowance for loan losses for loans which no longer meet the criteria for
classification as OREO.
Impaired loans consist of all nonaccrual commercial loans. At December 31,
1995, the recorded investment in impaired loans was $5,855,000, including
$4,854,000 which had a related allowance amounting to $953,000. The balance of
impaired loans which did not require an allowance was $1,001,000. The average
recorded investment in impaired loans was $6,412,000 for the year ended December
31, 1995. Also during this period, interest income recognized on impaired loans
amounted to approximately $414,000. Interest income on impaired loans is
recognized on a cash basis only.
(7) Premises and Equipment
The following is a summary of premises and equipment:
<TABLE>
<CAPTION>
December 31, 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 1,561,936 $ 1,530,736
Premises and improvements 15,294,192 15,120,987
Furniture, fixtures and equipment 9,954,675 8,977,727
- ----------------------------------------------------------------------------
26,810,803 25,629,450
Less accumulated depreciation 12,164,646 10,849,547
- ----------------------------------------------------------------------------
Total premises and equipment, net $14,646,157 $14,779,903
============================================================================
</TABLE>
(8) Financial Instruments with Off-Balance Sheet Risk and Derivative Financial
Instruments
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to manage the Corporation's exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit, financial guarantees and interest rate swaps and floors.
These instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the Consolidated Balance Sheets. The contract or
notional amounts of these instruments reflect the extent of involvement the
Corporation has in particular classes of financial instruments. The Corporation
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. The contractual and notional
amounts of financial instruments with off-balance sheet risk are as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit:
Commercial and other loans $24,014,537 $18,607,837
Revolving, open-end loans secured by
residential properties; home equity lines 12,538,507 11,000,699
Credit card lines 12,201,670 10,975,795
Homeowner construction loans 2,993,240 2,602,710
Construction and development loans 944,736 1,274,763
Standby letters of credit 2,603,072 521,800
Loans sold with recourse 1,188,336 1,505,466
Financial instruments whose notional amounts
exceed the amount of credit risk:
Interest rate swaps 10,000,000 10,000,000
Interest rate floor contracts 50,000,000 --
</TABLE>
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer as long as
there are no violations of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each borrower's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained is based
on management's credit evaluation of the borrower.
Standby Letters of Credit
Standby letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.
Loans Sold With Recourse
The Corporation has retained credit risk on certain residential mortgage loans
sold with recourse. In the event of default by the mortgagor, the Corporation
could become obligated to repurchase the loan. Such repurchases have been
negligible and have not resulted in any significant losses to the Corporation.
Interest Rate Risk Management Agreements
The Corporation uses interest rate swaps and floors as part of its interest rate
risk management strategy. Swaps are agreements in which the Corporation and
another party agree to exchange interest payments (e.g. fixed-rate for variable-
rate payments) computed on a notional principal amount. A floor is a purchased
contract that entitles the Corporation to receive payment from a counterparty if
a rate index falls below a contractual rate. The amount of the payment is the
difference between the contractual floor rate and the rate index multiplied by
the notional principal amount of the contract. If the rate index does not fall
below the contractual floor rate, no payment is received. The credit risk
associated with swap and floor transactions is the risk of default by the
counterparty. To minimize this risk, the Corporation enters into interest rate
agreements only with highly rated counterparties that management believes to be
creditworthy. The notional amounts of these agreements do not represent amounts
exchanged by the parties and, thus, are not a measure of the Corporation's
potential loss exposure.
At December 31, 1995, the Corporation had outstanding interest rate swap
agreements with a total notional amount of $10 million maturing in May 1996.
The purpose of the swap agreements is to convert the fixed rate paid on certain
time deposits to a quarterly-resetting rate. Under the agreements, the
Corporation pays a quarterly-resetting rate equal to 3-month London Interbank
Offered Rate (LIBOR) on the notional balance while receiving an average fixed
rate of 6.1% over the life of the agreements. At December 31, 1995, the
weighted average rate paid by the Corporation on the swap agreements was 5.89%.
At December 31, 1995, the fair value, or the value to the Corporation of
terminating the agreements, was $15,000.
During 1995, the Corporation entered into interest rate floor contracts with a
total notional amount of $50 million which mature in February 2000. The purpose
of the floor contracts is to offset the risk of future reductions in interest
earned on certain floating rate loans. The Corporation receives payment under
contracts with a total notional value of $30.0 million when the prime rate falls
below 9.0% and on the remaining $20.0 million when 3-month LIBOR at the
quarterly resetting dates is below 6.1875%. The prime rate and 3-month LIBOR
applicable to the outstanding floor contracts at December 31, 1995 were 8.5% and
5.875%, respectively. At December 31, 1995, the fair value, or the value to the
Corporation of terminating the contracts was $2,522,000.
The Corporation has not terminated any interest rate swap agreements or floor
contracts and there are no unamortized deferred gains or losses.
(9) Other Real Estate Owned
An analysis of the composition of OREO follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Commercial real estate $ 671,340 $ 751,857
Residential real estate 706,655 457,210
Construction and development -- 401,302
Land 737,158 967,388
- --------------------------------------------------------------------------
2,115,153 2,577,757
- --------------------------------------------------------------------------
Valuation allowance (410,006) (570,545)
- --------------------------------------------------------------------------
Other real estate owned, net $ 1,705,147 $ 2,007,212
==========================================================================
</TABLE>
An analysis of the activity relating to other real estate owned follows:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 2,577,757 $ 4,568,121
Net transfers from loans 666,158 1,290,381
Sales and other reductions (1,512,508) (3,228,167)
Other, net 383,746 (52,578)
- ----------------------------------------------------------------------------
2,115,153 2,577,757
Valuation allowance (410,006) (570,545)
- ----------------------------------------------------------------------------
Balance at end of year $ 1,705,147 $ 2,007,212
============================================================================
</TABLE>
The following is an analysis of activity relating to the OREO valuation
allowance:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $570,545 $1,155,700 $1,252,340
Provision charged to expense 172,041 137,389 768,021
Sales and other reductions (301,294) (716,214) (1,005,626)
Selling expenses incurred (31,286) (55,763) (114,712)
Other, net -- 49,433 255,677
- -------------------------------------------------------------------------------
Balance at end of year $410,006 $ 570,545 $1,155,700
===============================================================================
</TABLE>
Net realized losses on dispositions of properties amounted to $15,095 in 1995.
Net realized gains on dispositions of properties amounted to $465,292 and
$674,331 in 1994 and 1993, respectively. These amounts are included in
foreclosed property costs in the Consolidated Statements of Income.
Pursuant to the adoption of SFAS No. 114, loans reported in 1994 and 1993 as
OREO have been reclassified to nonaccrual loans.
(10) Time Certificates of Deposit
The aggregate amount of time certificates of deposit in denominations of
$100,000 or more was $28,948,924 and $24,562,617 at December 31, 1995 and 1994,
respectively.
(11) Federal Home Loan Bank Advances
The following table presents scheduled maturities and interest rates of Federal
Home Loan Bank advances outstanding at December 31, 1995:
<TABLE>
<CAPTION>
Years ending Weighted
December 31, Average Rate Amount
--------------------------------------------------
<S> <C> <C>
1996 5.68% $ 8,604,409
1997 6.65% 7,114,285
1998 5.62% 2,623,995
1999 6.19% 1,134,855
2000 7.47% 146,470
2001 and thereafter 6.46% 1,327,252
--------------------------------------------------
Balance at end of year $20,951,266
==================================================
</TABLE>
The Corporation's subsidiary bank is a member of the Federal Home Loan Bank of
Boston ("FHLBB"). In addition to the outstanding advances, the subsidiary bank
also has access to an unused line of credit amounting to $10.3 million at
December 31, 1995. Under agreement with the FHLBB, the subsidiary bank is
required to maintain qualified collateral, free and clear of liens, pledges, or
encumbrances that, based on certain percentages of book and market values, has a
value equal to the aggregate amount of the line of credit and outstanding
advances. Qualified collateral may consist of residential mortgage loans, U.S.
government or agency securities, and amounts maintained on deposit at the FHLBB.
The subsidiary bank maintains qualified collateral in excess of the amount
required to collateralize the line of credit and outstanding advances at
December 31, 1995.
(12) Employee Benefits
Pension Plan
The Corporation's noncontributory defined benefit pension plan covers
substantially all full-time employees. Benefits are based on an employee's
years of service and highest 3-year compensation. The plan is funded on a
current basis, in compliance with the requirements of the Employee Retirement
Income Security Act.
The following table presents the Plan's funded status:
<TABLE>
<CAPTION>
October 1, 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Vested accumulated benefit obligation $(7,106,888) $(5,828,039)
Nonvested accumulated benefit obligation (203,609) (97,350)
Effect of future compensation increases (2,130,483) (2,042,538)
- ---------------------------------------------------------------------------------------
Projected benefit obligation (9,440,980) (7,967,927)
Plan assets at fair value, primarily listed stocks
and fixed income securities 10,158,452 8,244,396
- ---------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $ 717,472 $ 276,469
=======================================================================================
<FN>
The assumptions used in determining the projected benefit obligation were as follows:
Discount rate 7.00% 8.00%
Rate of increase in compensation levels 5.00% 6.00%
</TABLE>
Certain changes in the items shown are not recognized as they occur, but are
amortized systematically over subsequent periods. Unrecognized amounts to be
amortized and the amounts included in the Consolidated Balance Sheets are
as follows:
<TABLE>
<CAPTION>
October 1, 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Unrecognized net gain $583,799 $376,273
Unrecognized prior service cost (395,836) (426,319)
Unrecognized net transition asset being amortized
over 21 years 72,570 78,552
Prepaid pension cost 456,939 247,963
- ---------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $717,472 $276,469
=======================================================================================
</TABLE>
The assumptions used and the components of net pension cost for the years ended
December 31, 1995, 1994 and 1993 include the following:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumptions used:
Discount rate 8.00% 6.75% 7.50%
Rate of increase in compensation levels 6.00% 5.00% 6.00%
Expected long term rate of return on plan assets 8.75% 7.75% 8.50%
Net pension cost:
Service cost; benefits earned during the period $ 344,855 $328,194 $303,208
Interest cost on projected benefit obligation 653,828 519,478 521,132
Actual return on plan assets (1,693,630) (126,374) (350,777)
Net amortization and deferral 1,002,748 (450,023) (238,801)
- -----------------------------------------------------------------------------------------
Net periodic pension cost $ 307,801 $271,275 $234,762
=========================================================================================
</TABLE>
Supplemental Pension Plan
Effective November 1, 1994, the Corporation established a nonqualified
retirement plan to provide supplemental retirement benefits to certain
employees, as defined in the plan. The projected benefit obligation for this
plan amounted to $556,780 and $386,200 at December 31, 1995 and 1994,
respectively. The expense of this plan amounted to $78,320 and $19,125 in 1995
and 1994, respectively. The actuarial assumptions used for this supplemental
plan are the same as those used for the Corporation's regular pension plan.
Accrued and unpaid benefits under this plan are an unfunded obligation of the
subsidiary bank. The accrued pension liability related to this plan amounted to
$97,445 and $19,125 at December 31, 1995 and 1994, respectively.
Savings and Profit Sharing Plan
The Corporation has a qualified savings and profit sharing plan. The plan
provides a specified match of employee contributions for substantially all full-
time employees. In addition, full-time employees, excluding those key employees
participating in the Short-Term Incentive Plan, are eligible for an annual
benefit pursuant to a formula based on return on equity. Total employer
matching contributions under this plan amounted to $185,710, $173,675 and
$165,322 in 1995, 1994 and 1993, respectively. The amount of the profit sharing
benefit was $239,295, $241,807 and $110,846 for 1995, 1994 and 1993,
respectively.
Short-Term Incentive Plan
The Corporation's nonqualified Short-Term Incentive Plan rewards key employees
for their contributions to the Corporation's success. This plan provides for
annual payments up to a maximum percentage of each participant's base salary,
which percentages vary among participants. Payment amounts are based on the
achievement of target levels of return on equity and/or the achievement of
individual objectives. Participants in this plan are not eligible to receive
benefits provided under the profit sharing component of the Savings and Profit
Sharing Plan. The expense of the Short-Term Incentive Plan amounted to
$501,143, $480,646 and $462,459 in 1995, 1994 and 1993, respectively.
Directors' Retainer Continuation Plan
The Corporation has a nonqualified plan which provides retirement benefits to
non-officer directors. The plan pays the regular quarterly retainer in effect
at the time of departure for as many quarters as the director served with the
Corporation or a subsidiary. The benefit commences upon departure and is
reduced for departure occurring before age 65. Prior service cost is being
amortized over the expected remaining service period of each director. Current
cost is being recognized based on the present value of expected future benefits.
The expense of this plan is included in other noninterest expense and amounted
to $100,923, $89,517 and $77,847 for 1995, 1994 and 1993, respectively. Accrued
and unpaid benefits under this plan are an unfunded obligation of the subsidiary
bank. The accrued liability related to this plan amounted to $532,671 and
$462,209 at December 31, 1995 and 1994, respectively.
(13) Other Noninterest Expense
Included in other noninterest expense is charitable contribution expense of
$120,000, $699,896 and $6,894 in 1995, 1994 and 1993, respectively. The 1994
expense consists of the fair value of securities donated to a charitable trust
established by the Corporation, recorded in accordance with SFAS No. 116,
"Accounting for Contributions Received and Contributions Made". This statement
requires contributions to be measured at the fair value of the asset given. A
corresponding gain was recorded in the amount of the excess of the fair value
over the historical cost of the donated assets (Note 3). Prior to 1994,
contribution expense was recorded in the amount of the historical cost of
donated assets.
(14) Income Taxes
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current expense:
Federal $2,760,000 $2,858,000 $2,614,000
State 508,000 528,000 522,000
- -----------------------------------------------------------------------------------------
Total current expense 3,268,000 3,386,000 3,136,000
- -----------------------------------------------------------------------------------------
Deferred expense (benefit):
Federal 762,000 (271,000) (715,000)
State 169,000 (89,000) (186,000)
Change in valuation allowance for
deferred tax assets (168,000) -- 20,000
- -----------------------------------------------------------------------------------------
Total deferred expense (benefit) 763,000 (360,000) (881,000)
- -----------------------------------------------------------------------------------------
Total income tax expense $4,031,000 $3,026,000 $2,255,000
=========================================================================================
</TABLE>
Total income tax expense varied from the amount determined by applying the
Federal income tax rate to income before income taxes. The reasons for the
differences were as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at Federal statutory rate $3,984,000 $3,159,000 $2,289,000
Increase (decrease) in taxes resulting from:
Tax-exempt income (187,000) (155,000) (134,000)
Dividends received deduction (168,000) (134,000) (179,000)
State tax, net of Federal income tax benefit 446,000 289,000 222,000
Appreciated value of donated assets -- (230,000) (30,000)
Change in valuation allowance for
deferred tax assets (168,000) -- 20,000
Other 124,000 97,000 67,000
- -----------------------------------------------------------------------------------------
Total income tax expense $4,031,000 $3,026,000 $2,255,000
=========================================================================================
</TABLE>
The approximate tax effects of temporary differences that give rise to gross
deferred tax assets and gross deferred tax liabilities at December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Gross deferred tax assets:
Allowance for loan losses $2,951,000 $3,471,000
Other real estate owned 208,000 338,000
Deferred loan origination fees 590,000 920,000
Interest on nonperforming loans 372,000 455,000
Other 646,000 531,000
- ------------------------------------------------------------------------------
Gross deferred tax assets 4,767,000 5,715,000
Valuation allowance -- (168,000)
- ------------------------------------------------------------------------------
Gross deferred tax assets, net of
valuation allowance 4,767,000 5,547,000
- ------------------------------------------------------------------------------
Gross deferred tax liabilities:
Securities available for sale (2,921,302) (1,867,660)
Premises and equipment (1,103,000) (1,020,000)
Deferred loan origination costs (529,000) (525,000)
Other (233,000) (337,000)
- ------------------------------------------------------------------------------
Gross deferred tax liabilities (4,786,302) (3,749,660)
- ------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (19,302) $1,797,340
==============================================================================
</TABLE>
In addition to future taxable income, a primary source of recovery of deferred
tax assets is taxes paid in prior years available for carryback. Since there is
no carryback provision for state purposes, management believes the existing net
deductible temporary differences will reverse during periods in which the
Corporation generates net taxable income.
(15) Litigation
The Corporation is involved in various claims and legal proceedings arising out
of the ordinary course of business. Management is of the opinion, based on its
review with counsel of the development of such matters to date, that the
ultimate disposition of these matters will not materially affect the
consolidated financial position or results of operations of the Corporation.
(16) Shareholders' Equity
Stock Option Plan
The 1988 Amended and Restated Stock Option Plan provides for the granting of
options to directors, officers and key employees. Up to 600,000 shares of the
Corporation's common stock may be used from authorized but unissued shares,
treasury stock, or shares available from expired options. Options are
designated either as non-qualified or as incentive options and may be granted
with stock appreciation rights (SARs). The exercise price of an option may not
be less than the fair market value on the date of grant. The option price is
payable in cash, by the delivery of shares of the Corporation's common stock
already owned by the grantee, or a combination thereof. Options may be granted
at any time until December 31, 1997. As of December 31, 1995, no options have
been granted with SARs.
All options granted prior to 1993 are exercisable. Options granted in 1995,
1994 and 1993 become vested over a three year period. At December 31, 1995,
1994 and 1993, there were 289,114, 281,126 and 246,137 shares, respectively,
that were fully vested and exercisable. The following table presents changes in
options outstanding during 1993, 1994 and 1995:
<TABLE>
<CAPTION>
$21.750 $16.583 $13.250 $9.166
to to to to
Exercise price per share $25.750 $18.833 $13.916 $11.666 Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1992 -- 202,200 -- 60,416 262,616
Granted during 1993 -- -- 48,823 -- 48,823
Cancelled during 1993 -- -- -- (341) (341)
- -----------------------------------------------------------------------------------------
Outstanding at December 31, 1993 -- 202,200 48,823 60,075 311,098
Granted during 1994 37,294 13,500 -- -- 50,794
Exercised during 1994 -- (3,750) -- (1,243) (4,993)
- -----------------------------------------------------------------------------------------
Outstanding at December 31, 1994 37,294 211,950 48,823 58,832 356,899
Granted during 1995 39,501 -- -- -- 39,501
Exercised during 1995 (307) (33,819) (1,729) (3,386) (39,241)
Cancelled during 1995 (461) -- (1,092) -- (1,553)
- -----------------------------------------------------------------------------------------
Outstanding at December 31, 1995 76,027 178,131 46,002 55,446 355,606
=========================================================================================
</TABLE>
Dividend Reinvestment
Under the Dividend Reinvestment and Stock Purchase Plan, 180,000 shares of
common stock were originally reserved to be issued for dividends reinvested and
cash payments to the plan.
As of December 31, 1995, a total of 649,935 common stock shares were reserved
for issuance under the Stock Option Plan and the Dividend Reinvestment and Stock
Purchase Plan.
Dividends
The source of funds for dividends paid by the Corporation is dividends received
from its subsidiary bank. The Corporation and its subsidiary bank are regulated
enterprises and their abilities to pay dividends are subject to regulatory
review and restriction. Certain regulatory and statutory restrictions exist
regarding dividends, loans, and advances from the subsidiary bank to the
Corporation. Generally the subsidiary bank has the ability to pay dividends to
the parent subject to minimum regulatory capital requirements. Under the most
restrictive of these requirements, the subsidiary bank could have declared
aggregate additional dividends of $24.4 million as of December 31, 1995.
Effective January 1, 1996, the Corporation will adopt SFAS No. 123, "Accounting
for Stock-Based Compensation". The Statement encourages, but does not require,
a fair value based method of accounting for stock-based compensation plans.
SFAS No. 123 allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method prescribed by Accounting Principles
Board ("APB") Opinion No. 25. For those entities electing to use the intrinsic
value based method, SFAS No. 123 requires pro forma disclosures of net income
and earnings per share computed as if the fair value based method had been
applied. The Corporation intends to continue to account for stock-based
compensation costs under APB Opinion No. 25, and will provide the additional
required disclosures relating to 1995 and 1996 stock options in its 1996 Annual
Report to Shareholders.
(17) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
that the Corporation disclose estimated fair values of its financial
instruments. Fair value estimates are made as of a specific point in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any pricing adjustments that could
result from the sale of the Corporation's entire holding of a particular
financial instrument. Because no quoted market exists for a significant portion
of the financial instruments, fair value estimates are based on subjective
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. Changes in assumptions could significantly affect the estimates of
fair value. Fair value estimates, methods, and assumptions are set forth
as follows:
Cash and Investments
The carrying amount of short-term instruments such as cash and federal funds
sold is used as an estimate of fair value.
The fair value of securities available for sale and held to maturity is
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. No market exists for shares of the
Federal Home Loan Bank of Boston. Such stock may be redeemed at par upon
termination of FHLBB membership and is therefore valued at par, which equals
cost.
Mortgage Loans Held for Sale
The fair value of mortgage loans held for sale is estimated using the quoted
market prices for sales of similar loans on the secondary market.
Loans
Fair values are estimated for categories of loans with similar financial
characteristics. Loans are segregated by type and are then further segmented
into fixed rate and adjustable rate interest terms to determine their fair
value. The fair value of fixed rate commercial and consumer loans is calculated
by discounting scheduled cash flows through the estimated maturity of the loan
using interest rates offered at December 31, 1995 and 1994 that reflect the
credit and interest rate risk inherent in the loan. The estimate of maturity is
based on the Corporation's historical repayment experience. For residential
mortgages, fair value is estimated by using quoted market prices for sales of
similar loans on the secondary market, adjusted for servicing costs. The fair
value of floating rate commercial and consumer loans approximates carrying
value. The fair value of nonaccrual loans is calculated by discounting
estimated cash flows, using a rate commensurate with the risk associated with
the loan type or by other methods that give consideration to the value of the
underlying collateral.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain money market
accounts is equal to the amount payable on demand as of December 31, 1995 and
1994. The discounted values of cash flows using the rates currently offered for
deposits of similar remaining maturities were used to estimate the fair value of
certificates of deposit.
Federal Home Loan Bank Advances
Rates currently available to the Corporation for advances with similar terms and
remaining maturities are used to estimate fair value of existing advances.
Off-Balance Sheet Instruments
The fair values of interest rate swap agreements and floor contracts generally
reflect the estimated amounts that the Corporation would receive or pay to
terminate the contracts. The fair value of commitments to extend credit is
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed rate loan commitments, fair
value also considers the difference between current levels of interest rates and
the committed rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them or otherwise settle the obligations with the counterparties.
The following table presents the fair values of the Corporation's financial
instruments:
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
On-balance sheet:
Cash and cash equivalents $ 28,650,646 $ 28,650,646 $ 18,404,910 $ 18,404,910
Securities available for sale 85,552,335 85,552,335 33,609,315 33,609,315
Mortgage loans held for sale 456,152 456,152 203,750 203,750
Securities held to maturity 28,872,991 29,432,819 52,496,616 49,395,262
Federal Home Loan Bank stock 2,995,000 2,995,000 2,906,800 2,906,800
Loans, net of allowance for
loan losses 378,674,376 384,781,786 384,598,258 382,309,431
Accrued interest receivable 3,539,305 3,539,305 3,232,211 3,232,211
Off-balance sheet financial instruments
relating to assets:
Interest rate floor contracts 763,333 2,522,000 -- --
Financial Liabilities
On-balance sheet:
Noninterest bearing demand deposits $ 59,470,321 $ 59,470,321 $ 53,373,386 $ 53,373,386
Non-term savings accounts 177,891,247 177,891,247 192,653,937 192,653,937
Certificates of deposit 230,492,444 231,511,307 194,703,819 193,611,981
Federal Home Loan Bank advances 20,951,266 21,055,045 23,522,343 22,542,346
Accrued interest payable 1,743,937 1,743,937 1,278,552 1,278,552
Off-balance sheet financial instruments
relating to liabilities:
Interest rate swap agreements -- (15,000) -- 256,000
</TABLE>
Other off-balance sheet financial instruments, consisting largely of loan
commitments and letters of credit, contain provisions for fees, conditions and
term periods which are consistent with customary market practices. Accordingly,
the fair value amounts (considered to be the discounted present value of the
remaining contractual fees over the unexpired commitment period) would not be
material.
(18) Parent Company Financial Statements
The following are parent company only financial statements of Washington Trust
Bancorp, Inc. reflecting the investment in the bank subsidiary on the equity
basis of accounting. The Statements of Changes in Shareholders' Equity for the
parent company only are identical to the Consolidated Statements of Changes in
Shareholders' Equity and are therefore not presented.
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash on deposit with bank subsidiary $ 805,171 $ 245,100
Investment in bank subsidiary at equity value 51,977,516 45,541,081
Dividend receivable from bank subsidiary 840,000 552,000
Recoverable income taxes -- 9,489
- --------------------------------------------------------------------------------------
Total assets $53,622,687 $46,347,670
======================================================================================
Liabilities:
Dividends payable $ 686,189 $ 564,686
- --------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock of $.0625 par value; authorized
10,000,000 shares; issued 2,880,000 shares 180,000 180,000
Paid-in capital 3,010,795 2,869,135
Retained earnings 45,690,676 40,613,979
Unrealized gain on securities available for sale, net of tax 4,381,958 2,801,490
Treasury stock, at cost; 27,130 shares
in 1995 and 56,570 shares in 1994 (326,931) (681,620)
- --------------------------------------------------------------------------------------
Total shareholders' equity 52,936,498 45,782,984
- --------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $53,622,687 $46,347,670
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Statements of Income
Years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from bank subsidiary $2,832,000 $1,776,000 $1,368,000
Equity in undistributed earnings of subsidiary 4,855,967 4,488,640 3,413,531
- -----------------------------------------------------------------------------------------
Net income $7,687,967 $6,264,640 $4,781,531
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
Years ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $7,687,967 $6,264,640 $4,781,531
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity effect of undistributed earnings
of subsidiary (4,855,967) (4,488,640) (3,413,531)
Increase in dividend receivable (288,000) (210,000) (42,000)
Decrease (increase) in recoverable income taxes 9,489 (9,489) --
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 2,553,489 1,556,511 1,326,000
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock from treasury 496,349 322,663 371,803
Cash dividends paid (2,489,767) (1,915,521) (1,599,173)
- -----------------------------------------------------------------------------------------
Net cash used in financing activities (1,993,418) (1,592,858) (1,227,370)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in cash 560,071 (36,347) 98,630
Cash at beginning of year 245,100 281,447 182,817
- -----------------------------------------------------------------------------------------
Cash at end of year $ 805,171 $ 245,100 $ 281,447
=========================================================================================
</TABLE>
Independent Auditors' Report
The Board of Directors and Shareholders
Washington Trust Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets
of Washington Trust Bancorp, Inc. and Subsidiary (the
Corporation) as of December 31, 1995 and 1994 and the related
consolidated statements of income, changes in shareholders'
equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Washington Trust Bancorp, Inc. and
Subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in note 1 to the financial statements, the
Corporation adopted a new method of accounting for certain
investments in debt and equity securities effective January
1, 1994, and a new method of accounting for income taxes
effective January 1, 1993.
KPMG Peat Marwick, LLP
Providence, Rhode Island
January 16, 1996
Summary of Unaudited Quarterly Financial Information
Washington Trust Bancorp, Inc. and Subsidiary
<TABLE>
<CAPTION>
1995 Q1 Q2 Q3 Q4 Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $8,737,731 $8,936,551 $9,008,831 $9,020,457 $35,703,570
Income from securities 1,305,386 1,305,166 1,484,315 1,632,537 5,727,404
Interest on federal funds sold and
securities purchased under
agreements to resell 101,283 192,671 281,664 279,588 855,206
- ---------------------------------------------------------------------------------------------------------------
Total interest income 10,144,400 10,434,388 10,774,810 10,932,582 42,286,180
- ---------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 994,100 961,300 993,927 996,692 3,946,019
Time deposits 2,498,335 2,994,511 3,123,944 3,153,306 11,770,096
Other 408,691 341,584 274,886 273,988 1,299,149
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 3,901,126 4,297,395 4,392,757 4,423,986 17,015,264
- ---------------------------------------------------------------------------------------------------------------
Net interest income 6,243,274 6,136,993 6,382,053 6,508,596 25,270,916
Provision for loan losses 150,000 300,000 275,000 675,000 1,400,000
- ---------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 6,093,274 5,836,993 6,107,053 5,833,596 23,870,916
- ---------------------------------------------------------------------------------------------------------------
Noninterest income:
Trust income 777,823 847,232 808,735 821,704 3,255,494
Service charges on deposit accounts 470,287 486,278 491,763 502,571 1,950,899
Merchant processing fees 76,529 115,089 367,015 171,816 730,449
Gains on sales of securities -- 169,210 111,198 215,409 495,817
Gains (losses) on loan sales 21,989 26,086 (193,143) 9,217 (135,851)
Other income 254,446 209,481 214,744 227,358 906,029
- ---------------------------------------------------------------------------------------------------------------
Total noninterest income 1,601,074 1,853,376 1,800,312 1,948,075 7,202,837
- ---------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 2,590,921 2,569,163 2,588,549 2,474,527 10,223,160
Net occupancy 301,097 277,289 324,673 318,868 1,221,927
Equipment 309,445 311,235 315,748 355,235 1,291,663
Deposit taxes and assessments 308,117 310,849 40,036 110,581 769,583
Foreclosed property costs, net 53,328 122,420 48,648 139,451 363,847
Office supplies 129,603 145,327 85,802 100,769 461,501
Other 1,151,207 1,238,477 1,392,088 1,241,333 5,023,105
- ---------------------------------------------------------------------------------------------------------------
Total noninterest expense 4,843,718 4,974,760 4,795,544 4,740,764 19,354,786
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 2,850,630 2,715,609 3,111,821 3,040,907 11,718,967
Applicable income taxes 1,012,000 965,000 1,079,000 975,000 4,031,000
- ---------------------------------------------------------------------------------------------------------------
Net income $1,838,630 $1,750,609 $2,032,821 $2,065,907 $ 7,687,967
===============================================================================================================
Fully diluted earnings per share $ .64 $ .60 $ .70 $ .70 $2.62
Cash dividends declared per share $ .22 $ .22 $ .24 $ .24 $ .92
<CAPTION>
1994 Q1 Q2 Q3 Q4 Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $7,246,159 $7,549,389 $7,948,985 $8,371,885 $31,116,418
Income from securities 1,319,146 1,313,828 1,308,567 1,347,968 5,289,509
Interest on federal funds sold 50,614 42,304 99,412 63,431 255,761
- ---------------------------------------------------------------------------------------------------------------
Total interest income 8,615,919 8,905,521 9,356,964 9,783,284 36,661,688
- ---------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 1,070,141 1,050,681 1,104,627 1,109,188 4,334,637
Time deposits 1,917,840 1,887,310 1,974,678 2,137,600 7,917,428
Other 319,282 391,369 325,417 300,449 1,336,517
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 3,307,263 3,329,360 3,404,722 3,547,237 13,588,582
- ---------------------------------------------------------------------------------------------------------------
Net interest income 5,308,656 5,576,161 5,952,242 6,236,047 23,073,106
Provision for loan losses 333,365 369,982 252,089 301,476 1,256,912
- ---------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 4,975,291 5,206,179 5,700,153 5,934,571 21,816,194
- ---------------------------------------------------------------------------------------------------------------
Noninterest income:
Trust income 801,520 800,043 880,659 802,213 3,284,435
Service charges on deposit accounts 383,357 412,278 408,265 406,650 1,610,550
Merchant processing fees 57,568 94,673 326,115 143,657 622,013
Gains on sales of securities 681,558 -- -- 3,032 684,590
Gains (losses) on loan sales (43,726) 11,909 13,276 2,543 (15,998)
Other income 185,050 177,636 193,424 180,466 736,576
- ---------------------------------------------------------------------------------------------------------------
Total noninterest income 2,065,327 1,496,539 1,821,739 1,538,561 6,922,166
- ---------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 2,459,221 2,398,778 2,557,631 2,514,313 9,929,943
Net occupancy 307,985 295,758 313,090 289,198 1,206,031
Equipment 292,036 310,861 300,599 284,856 1,188,352
Deposit taxes and assessments 298,356 299,567 295,726 385,768 1,279,417
Foreclosed property costs, net 108,846 (83,361) 80,719 (122,141) (15,937)
Office supplies 181,040 149,320 177,227 98,058 605,645
Other 1,762,507 1,054,934 1,182,666 1,254,162 5,254,269
- ---------------------------------------------------------------------------------------------------------------
Total noninterest expense 5,409,991 4,425,857 4,907,658 4,704,214 19,447,720
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 1,630,627 2,276,861 2,614,234 2,768,918 9,290,640
Applicable income taxes 526,000 733,000 844,000 923,000 3,026,000
- ---------------------------------------------------------------------------------------------------------------
Net income $1,104,627 $1,543,861 $1,770,234 $1,845,918 $ 6,264,640
===============================================================================================================
Fully diluted earnings per share $ .39 $ .53 $ .61 $ .64 $2.18
Cash dividends per share .16 .17 .20 .20 .73
</TABLE>
EXHIBIT 21
----------
Subsidiaries of the Registrant
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
The Washington Trust Company of Westerly Rhode Island
EXHIBIT 23
ACCOUNTANTS' CONSENT
--------------------
The Board of Directors
Washington Trust Bancorp, Inc.:
We consent to incorporation by reference in the Registration Statement No. 33-
23048 on Form S-8/S-3 and in the Registration Statement No. 33-28065 on Form S-3
of Washington Trust Bancorp, Inc. of our report dated January 16, 1996, relating
to the consolidated balance sheets of Washington Trust Bancorp, Inc. and
subsidiary as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1995, which report
included an explanatory paragraph that described the adoption of new methods of
accounting for debt securities and income taxes, such report has been
incorporated by reference in the 1995 annual report of Washington Trust Bancorp,
Inc. on Form 10-K.
KPMG Peat Marwick
Providence, Rhode Island
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF WASHINGTON TRUST BANCORP,
INC. AS OF DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 15,051,777
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,598,869
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85,552,335
<INVESTMENTS-CARRYING> 28,872,991
<INVESTMENTS-MARKET> 29,432,819
<LOANS> 386,458,892
<ALLOWANCE> 7,784,516
<TOTAL-ASSETS> 547,659,304
<DEPOSITS> 467,854,012
<SHORT-TERM> 8,604,409
<LIABILITIES-OTHER> 5,917,528
<LONG-TERM> 12,346,857
0
0
<COMMON> 180,000
<OTHER-SE> 52,756,498
<TOTAL-LIABILITIES-AND-EQUITY> 547,659,304
<INTEREST-LOAN> 35,703,570
<INTEREST-INVEST> 5,727,404
<INTEREST-OTHER> 855,206
<INTEREST-TOTAL> 42,286,180
<INTEREST-DEPOSIT> 15,716,115
<INTEREST-EXPENSE> 17,015,264
<INTEREST-INCOME-NET> 25,270,916
<LOAN-LOSSES> 1,400,000
<SECURITIES-GAINS> 495,817
<EXPENSE-OTHER> 19,354,786
<INCOME-PRETAX> 11,718,967
<INCOME-PRE-EXTRAORDINARY> 11,718,967
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,687,967
<EPS-PRIMARY> 2.64
<EPS-DILUTED> 2.62
<YIELD-ACTUAL> 8.65
<LOANS-NON> 8,573,656
<LOANS-PAST> 256,276
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,100,000<F1>
<ALLOWANCE-OPEN> 9,327,942
<CHARGE-OFFS> 3,416,067
<RECOVERIES> 472,641
<ALLOWANCE-CLOSE> 7,784,516
<ALLOWANCE-DOMESTIC> 7,784,516
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,768,035
<FN>
<F1>
See discussion of potential problem loans required by Guide 3,
section III.C.2 under the caption Guide 3 Statistical Disclosures
in the Corporation's Form 10-K.
</FN>
</TABLE>
