FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ________________ to _____________
Commission file Number 0-13091
-----------------------------------------------
WASHINGTON TRUST BANCORP, INC.
- ---------------------------------------------------------------------
(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
-------------
N/A
- ---------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the close of August 8, 1996.
Class Outstanding at August 8, 1996
------------------------------ --------------------------
Common stock, $.0625 par value 2,896,627 Shares
Page 1
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
CONTENTS
--------
Page No.
PART I. ITEM 1. Financial Information --------
- --------------------------------------
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income
Three Months and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Changes in Shareholders' Equity
Six Months Ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 6
Condensed Notes to Consolidated Financial Statements 7
PART I. ITEM 2.
- ----------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. Other Information 18
- ---------------------------
Signatures 19
- ----------
-2-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
- ------ ----------- ------------
<S> <C> <C>
Cash and due from banks $ 17,040,605 $ 15,051,777
Federal funds sold 1,953,325 13,598,869
Mortgage loans held for sale 441,224 456,152
Securities available for sale, at fair value;
cost $93,671,935 and $78,249,075 at June 30, 1996
and December 31, 1995, respectively 100,241,341 85,552,335
Securities held to maturity, at cost; fair value
$29,487,598 and $29,432,819 at June 30, 1996
and December 31, 1995, respectively 29,532,410 28,872,991
Federal Home Loan Bank stock, at cost 2,995,000 2,995,000
Loans 399,535,525 386,458,892
Less allowance for loan losses 8,150,002 7,784,516
----------- -----------
Net loans 391,385,523 378,674,376
Premises and equipment, net 15,060,333 14,646,157
Accrued interest receivable 3,977,633 3,539,305
Other real estate owned, net 1,360,388 1,705,147
Other assets 2,650,023 2,567,195
----------- -----------
Total assets $ 566,637,805 $ 547,659,304
=========== ===========
LIABILITIES
Demand deposits $ 63,935,328 $ 59,470,321
Savings deposits 172,281,152 177,891,247
Time deposits 234,040,042 230,492,444
----------- -----------
Total deposits 470,256,522 467,854,012
Dividends payable 753,750 686,189
Federal Home Loan Bank advances 35,391,493 20,951,266
Accrued expenses and other liabilities 4,395,848 5,231,339
----------- -----------
Total liabilities 510,797,613 494,722,806
----------- -----------
SHAREHOLDERS' EQUITY
Common stock of $.0625 par value; authorized
10,000,000 shares; issued 2,899,699 shares in
1996 and 2,880,000 shares in 1995 181,231 180,000
Paid-in capital 3,494,101 3,010,795
Retained earnings 48,223,213 45,690,676
Unrealized gain on securities available for sale, net of tax 3,941,647 4,381,958
Treasury stock, at cost; 27,130 shares at
December 31, 1995 -- (326,931)
----------- -----------
Total shareholders' equity 55,840,192 52,936,498
----------- -----------
Total liabilities and shareholders' equity $ 566,637,805 $ 547,659,304
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,977,336 $ 8,936,551 $17,814,180 $17,674,282
Income from securities:
Interest 1,531,720 1,111,653 3,021,468 2,226,438
Dividends 335,691 193,513 702,843 384,114
Federal funds sold 55,308 192,671 140,080 293,954
---------- ---------- ---------- ----------
Total interest income 10,900,055 10,434,388 21,678,571 20,578,788
---------- ---------- ---------- ----------
Interest expense:
Savings deposits 947,991 961,300 1,915,353 1,955,400
Time deposits 3,099,747 2,994,511 6,177,080 5,492,846
Other 507,596 341,584 850,463 750,275
---------- ---------- ---------- ----------
Total interest expense 4,555,334 4,297,395 8,942,896 8,198,521
---------- ---------- ---------- ----------
Net interest income 6,344,721 6,136,993 12,735,675 12,380,267
Provision for loan losses 300,000 300,000 600,000 450,000
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 6,044,721 5,836,993 12,135,675 11,930,267
---------- ---------- ---------- ----------
Noninterest income:
Trust income 1,016,433 847,232 1,892,420 1,625,055
Service charges on deposit accounts 553,990 486,278 1,046,827 956,565
Merchant processing fees 143,635 115,089 237,973 191,618
Gains (losses) on sales of securities (49,253) 169,210 148,337 169,210
Gains on loan sales 46,046 26,086 75,041 48,075
Other income 284,817 209,481 492,940 463,927
---------- ---------- ---------- ----------
Total noninterest income 1,995,668 1,853,376 3,893,538 3,454,450
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 2,777,604 2,569,163 5,481,958 5,160,084
Net occupancy 306,815 277,289 635,040 578,386
Equipment 371,845 311,235 736,612 620,680
Deposit taxes and assessments 71,820 310,849 137,000 618,966
Foreclosed property costs, net 39,917 122,420 158,521 175,748
Office supplies 101,928 145,327 243,589 274,930
Advertising and promotion 153,127 160,781 218,554 270,327
Credit and collection 117,257 124,917 213,813 247,360
Other 1,125,326 952,779 2,090,153 1,871,997
---------- ---------- ---------- ----------
Total noninterest expense 5,065,639 4,974,760 9,915,240 9,818,478
---------- ---------- ---------- ----------
Income before income taxes 2,974,750 2,715,609 6,113,973 5,566,239
Applicable income taxes 948,000 965,000 2,078,000 1,977,000
---------- ---------- ---------- ----------
Net income $ 2,026,750 $ 1,750,609 $ 4,035,973 $ 3,589,239
========== ========== ========== ==========
Weighted average shares outstanding - primary 2,986,304 2,898,705 2,959,063 2,886,957
Weighted average shares outstanding - fully diluted 2,995,596 2,916,779 2,973,510 2,912,321
Earnings per share - primary $ .68 $ .60 $1.36 $1.24
Earnings per share - fully diluted $ .68 $ .60 $1.36 $1.23
Cash dividends declared per share $ .26 $ .22 $ .52 $ .44
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
Washington Trust Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Six months ended June 30, 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Common Stock
Balance at beginning of year $ 180,000 $ 180,000
Issuance of common stock for stock option plan 1,231 --
- ---------------------------------------------------------------------------------
Balance at end of period 181,231 180,000
- ---------------------------------------------------------------------------------
Paid-in Capital
Balance at beginning of year 3,010,795 2,869,135
Issuance of common stock for dividend
reinvestment and stock option plans 483,306 16,711
- ---------------------------------------------------------------------------------
Balance at end of period 3,494,101 2,885,846
- ---------------------------------------------------------------------------------
Retained Earnings
Balance at beginning of year 45,690,676 40,613,979
Net income 4,035,973 3,589,239
Cash dividends declared (1,503,436) (1,243,471)
- ---------------------------------------------------------------------------------
Balance at end of period 48,223,213 42,959,747
- ---------------------------------------------------------------------------------
Unrealized Gain on Securities Available for Sale
Balance at beginning of year 4,381,958 2,801,490
Change in unrealized gain on securities
available for sale, net of tax (440,311) 1,145,844
- ---------------------------------------------------------------------------------
Balance at end of period 3,941,647 3,947,334
- ---------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year (326,931) (681,620)
Issuance of common stock for dividend
reinvestment and stock option plans 326,931 43,689
- ---------------------------------------------------------------------------------
Balance at end of period -- (637,931)
- ---------------------------------------------------------------------------------
Total Shareholders' Equity $55,840,192 $49,334,996
=================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,035,973 $ 3,589,239
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 600,000 450,000
Provision for valuation of other real estate owned 185,764 54,695
Depreciation of premises and equipment 703,660 661,663
Amortization of net deferred loan fees and costs (70,005) (365,005)
Gains on sales of securities (148,337) (169,210)
Losses (gains) on sales of other real estate owned (132,682) 36,818
Gains on loan sales (75,041) (48,075)
Proceeds from sales of loans 7,193,221 5,230,692
Loans originated for sale (9,783,568) (5,512,449)
Increase in accrued interest receivable (438,328) (290,574)
Decrease (increase) in other assets 273,416 (1,305,000)
Increase (decrease) in accrued expenses
and other liabilities (835,491) 270,988
Other, net 142,366 47,131
---------- ----------
Net cash provided by operating activities 1,650,948 2,650,913
---------- ----------
Cash flows from investing activities:
Securities available for sale:
Purchases (33,507,552) (14,588,200)
Proceeds from sales of equity securities 11,109,117 2,202,384
Maturities 7,012,074 5,000,000
Investment securities:
Purchases (3,470,841) (1,828,306)
Maturities and principal repayments 2,779,954 1,974,527
Loan originations in excess of principal
collected on loans (10,869,025) (2,343,073)
Proceeds from sales and other reductions
of other real estate owned 546,172 34,523
Purchases of premises and equipment (1,125,893) (758,863)
---------- ----------
Net cash used in investing activities (27,525,994) (10,307,008)
---------- ----------
Cash flows from financing activities:
Net increase in deposits 2,402,510 21,143,030
Proceeds from Federal Home Loan Bank advances 30,044,000 12,564,839
Repayment of Federal Home Loan Bank advances (15,603,773) (17,114,925)
Proceeds from issuance of commmon stock 811,468 60,400
Cash dividends paid (1,435,875) (1,186,200)
---------- ----------
Net cash provided by financing activities 16,218,330 15,467,144
---------- ----------
Net increase (decrease) in cash and cash equivalents (9,656,716) 7,811,049
Cash and cash equivalents at beginning of period 28,650,646 18,404,910
---------- ----------
Cash and cash equivalents at end of period $ 18,993,930 $ 26,215,959
========== ==========
Noncash Investing Activities:
Transfers from loans to other real estate owned $ 552,761 $ 233,328
Loans charged off 732,571 1,333,053
Loans made to facilitate the sale of OREO 292,600 221,750
Change in unrealized gain on securities
available for sale, net of tax (440,311) 1,145,844
Supplemental Disclosures:
Interest payments $ 3,819,407 $ 3,710,718
Income tax payments 2,114,250 2,078,250
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(1) BASIS OF PRESENTATION
- -------------------------
The accounting and reporting policies of Washington Trust Bancorp, Inc. (the
"Corporation") are in accordance with generally accepted accounting principles
and conform to general practices within the banking industry. In the opinion of
management, the accompanying consolidated financial statements present fairly
the Corporation's financial position as of June 30, 1996 and December 31, 1995
and the results of operations and cash flows for the interim periods presented.
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiary, The Washington Trust Company. All significant
intercompany balances and transactions have been eliminated.
The unaudited consolidated financial statements of Washington Trust Bancorp,
Inc. presented herein have been prepared pursuant to the rules of the Securities
and Exchange Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1995, included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995.
(2) SECURITIES AVAILABLE FOR SALE
- ---------------------------------
Securities available for sale are those which the Corporation intends to use as
part of its asset/liability strategy or that may be sold as a result of changes
in market conditions, changes in prepayment risk, rate fluctuations, liquidity
or capital requirements.
Securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
June 30, 1996 Cost Gains Losses Value
------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $43,759,424 269,618 (230,207) $43,798,835
Mortgage-backed securities 37,570,020 11,589 (530,246) 37,051,363
Corporate stocks 12,342,491 7,134,408 (85,756) 19,391,143
----------- ---------- --------- ----------
$93,671,935 7,415,615 (846,209) $100,241,341
=========== ========== ========= ===========
<CAPTION>
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
----------------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations
and obligations of U.S.
government-sponsored 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
----------- ---------- --------- ----------
$78,249,075 7,522,038 (218,778) $85,552,335
=========== ========== ========= ===========
</TABLE>
Included in corporate stocks at December 31, 1995 were $7.0 million of auction
rate preferred stocks. These are preferred stock instruments whose dividend
rate is reset by auction every 49 days to a market rate which results in a
market value of par. There were no auction rate preferred stocks at June 30,
1996.
U.S. Treasury obligations with a carrying value of $4,494,772 and $4,519,878
were pledged to secure public deposits and for other purposes at June 30, 1996
and December 31, 1995, respectively.
For the six months ended June 30, 1996, proceeds from sales of corporate stocks
amounted to $11,109,117. Realized gains and losses on these sales were $259,006
and $110,669, respectively. Realized gains and losses from sales of corporate
stocks were determined using the average cost method.
(3) SECURITIES HELD TO MATURITY
- -------------------------------
Those debt securities that the Corporation has the ability and intent to hold
until maturity are classified as securities held to maturity. Debt securities
held to maturity are carried at cost, adjusted for amortization of premium and
accretion of discount.
The amortized cost and market values of securities held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
June 30, 1996 Cost Gains Losses Value
------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities $12,972,405 70,389 (7,935) $13,034,859
States and political subdivisions 16,560,005 30,286 (137,552) 16,452,739
----------- ---------- --------- -----------
$29,532,410 100,675 (145,487) $29,487,598
=========== ========== ========= ===========
<CAPTION>
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
----------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
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
----------- ---------- --------- -----------
$28,872,991 575,084 (15,256) $29,432,819
=========== ========== ========= ===========
</TABLE>
There were no sales or transfers of securities held to maturity during the six
months ended June 30, 1996.
(4) LOAN PORTFOLIO
- ------------------
The following is a summary of loans:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Residential real estate:
Mortgages $170,186,159 $167,510,929
Homeowner construction 5,619,139 3,071,177
----------- -----------
Total residential real estate 175,805,298 170,582,106
----------- -----------
Commercial:
Mortgages 61,656,438 58,837,483
Construction and development 6,170,024 5,968,404
Other 99,190,324 96,830,889
----------- -----------
Total commercial 167,016,786 161,636,776
----------- -----------
Installment 56,713,441 54,240,010
----------- -----------
$399,535,525 $386,458,892
=========== ===========
</TABLE>
(5) ALLOWANCE FOR LOAN LOSSES
- -----------------------------
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period $7,932,099 $8,742,225 $7,784,516 $9,327,942
Provision charged to expense 300,000 300,000 600,000 450,000
Recoveries 325,111 114,430 498,057 185,987
Loans charged off (407,208) (525,779) (732,571) (1,333,053)
--------- --------- --------- ---------
Balance at end of period $8,150,002 $8,630,876 $8,150,002 $8,630,876
========= ========= ========= =========
</TABLE>
(6) RECENT ACCOUNTING DEVELOPMENTS
- ----------------------------------
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Those standards are based
on an approach that focuses on control, whereby after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This
Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
SFAS No. 125 is effective January 1, 1997. The effect that this pronouncement
will have on the financial condition and results of operations of the
Corporation has not been fully determined.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Quarters Ended June 30, 1996 and 1995
- -------------------------------------------------------------
Net income for the three months ended June 30, 1996 amounted to $2,026,750, up
15.8% over the $1,750,609 of net income recorded in the second quarter of 1995.
Earnings per share for the quarter ended June 30, 1996 amounted to $.68, up
13.3% over the $.60 per share earned in the comparable 1995 period.
Net interest income for the three months ended June 30, 1996 increased by 3.4%
over the prior year quarter, to $6.3 million. This increase was primarily
attributable to higher dividend and interest income from securities, which was
partially offset by an increase in interest paid on time deposits and
borrowings. (See additional discussion under the caption "Net Interest
Income".)
The provision for loan losses amounted to $300,000 for both the second quarter
of 1996 and 1995.
Total noninterest income for the three months ended June 30, 1996 amounted to
$2.0 million, up from $1.9 million for the same 1995 period. The 1996 amount
includes losses on sales of securities of $49,253, compared to gains on sales of
securities of $169,210 included in the 1995 amount. Noninterest income
excluding securities gains and losses and gains on loan sales rose 20.6% over
the prior year quarter primarily due to higher trust income.
Total noninterest expense for the quarter ended June 30, 1996 amounted to $5.1
million, slightly higher than the 1995 quarter. Federal Deposit Insurance
Corporation premiums for the second quarter of 1996 were reduced by
approximately $246,000 from the comparable 1995 amount due to a reduction in
rates paid by banks for deposit insurance premiums. This savings was offset by
increases in salaries and benefits and equipment expense. Salaries and benefits
were up due to increased staffing levels and normal salary adjustments, while
equipment costs were higher due to depreciation expense associated with
purchases that occurred in 1995 and in the first quarter of 1996. Foreclosed
property costs were down 67.4% in the 1996 quarter compared to the 1995 quarter
due to a higher amount of net realized gains on sales of foreclosed properties
in the 1996 quarter.
Results of Operations - Six Months Ended June 30, 1996 and 1995
- ---------------------------------------------------------------
Net income for the six months ended June 30, 1996 amounted to $4,035,973 or
12.5% higher than the $3,589,239 of net income recorded in the comparable 1995
period. Fully diluted earnings per share for the six months ended June 30, 1996
amounted to $1.36, up 10.6% over the $1.23 per share earned in the comparable
1995 period.
The increase in net income in 1996 is due to increases in net interest income
and noninterest income totaling $794,496, which was partially offset by an
increase in the provision for loan losses of $150,000.
Net interest income for the six months ended June 30, 1996 increased by 2.9%
over the same prior year period. This increase was primarily attributable to
higher dividend and interest income from securities, which was partially offset
by an increase in interest paid on time deposits and borrowings. (See
additional discussion under the caption "Net Interest Income".)
Total noninterest income for the six months ended June 30, 1996 amounted to $3.9
million, up from $3.5 million for the same 1995 period. The 1996 amount
includes gains on sales of securities of $148,337, compared to gains on sales of
securities of $169,210 included in the 1995 amount. Noninterest income
excluding securities gains and gains on loan sales rose 13.4% over the prior
year primarily due to higher trust income.
Total noninterest expense for the six months ended June 30, 1996 amounted to
$9.9 million, slightly higher than the 1995 amount. Federal Deposit Insurance
Corporation premiums for the six months ended June 30, 1996 were reduced by
approximately $493,000 from the comparable 1995 amount due to a reduction in
rates paid by banks for deposit insurance premiums. This savings was offset by
increases in salaries and benefits and equipment expense. Salaries and benefits
were up due to increased staffing levels and normal salary adjustments, while
equipment costs were higher due to depreciation expense associated with
purchases that occurred in 1995 and in the first quarter of 1996.
<TABLE>
<CAPTION>
Average Balances/Net Interest Margin - Fully Taxable Equivalent Basis (FTE)
---------------------------------------------------------------------------
The following table presents average balance and interest rate information. Tax exempt income is
converted to a FTE basis by assuming the applicable 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.
Six months ended June 30, 1996 1995
---------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Residential real estate $172,729 7,154 8.28% $177,740 7,384 8.31%
Commercial and other 164,312 8,039 9.79% 171,387 8,013 9.35%
Installment loans 55,126 2,662 9.66% 46,362 2,321 10.01%
---------------------------------------------------------------------------------------------------------
Total loans 392,167 17,855 9.11% 395,489 17,718 8.96%
Federal funds sold 5,301 140 5.28% 10,105 294 5.82%
Taxable securities 99,564 3,719 7.47% 73,741 2,607 7.07%
Nontaxable securities 15,885 520 6.55% 10,205 337 6.60%
---------------------------------------------------------------------------------------------------------
Total interest-earning assets 512,917 22,234 8.67% 489,540 20,956 8.56%
Non interest-earning assets 36,109 34,805
---------------------------------------------------------------------------------------------------------
Total assets $549,026 $524,345
=========================================================================================================
Interest-bearing liabilities:
Savings deposits $174,008 1,915 2.20% $178,325 1,955 2.19%
Time deposits 231,393 6,177 5.34% 217,556 5,493 5.05%
FHLB advances 26,801 802 5.98% 24,105 736 6.10%
Other 1,793 48 5.41% 496 15 5.86%
---------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 433,995 8,942 4.12% 420,482 8,199 3.90%
Non interest-bearing liabilities 60,286 55,860
---------------------------------------------------------------------------------------------------------
Total liabilities 494,281 476,342
Total shareholders' equity 54,745 48,003
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $549,026 $524,345
=========================================================================================================
Net interest income / interest rate spread $13,292 4.55% $12,757 4.66%
=========================================================================================================
Net interest margin 5.18% 5.21%
=========================================================================================================
<FN>
Interest income amounts presented in the table above include the following adjustments for taxable equivalency
(in thousands):
June 30, 1996 June 30, 1995
------------- -------------
Commercial and other loans $ 41 $ 44
Nontaxable debt securities 275 222
Corporate stocks 240 111
</TABLE>
Net Interest Income
- -------------------
(The accompanying schedule on page 12 should be read in conjunction with this
discussion.)
FTE net interest income for the six months ended June 30, 1996 amounted to $13.3
million, up by approximately $535,000, or 4.2%, over the same 1995 period. The
growth in interest-earning assets, as well as an increase in the overall rate
earned on those assets, were responsible for the improvement in net interest
income. The interest rate spread and the net interest margin for the six months
ended June 30, 1996 amounted to 4.55% and 5.18%, respectively. Comparable
amounts for 1995 were 4.66% and 5.21%, respectively. The decreases in the
interest rate spread and net interest margin were due primarily to growth in
average time deposits and the higher rate paid on those deposits.
Average interest-earning assets amounted to $512.9 million for the first half of
1996, an increase of $23.4 million, or 4.8%, over the comparable 1995 amount.
The FTE rate of return on interest-earning assets was 8.67% for the six months
ended June 30, 1996, up from 8.56% for the same 1995 period. While average
total loans decreased by $3.3 million from June 30, 1995 to June 30, 1996,
average securities increased by $31.5 million or 37.5%. This change in asset
mix resulted from relatively soft loan demand and from liquidity due to deposit
growth.
The overall yield on average total loans amounted to 9.11% for the six months
ended June 30, 1996, up from 8.96% in the comparable 1995 period due to the
increase in the yield on commercial loans, which rose 44 basis points to 9.79%.
Most commercial loans reprice periodically based upon the prime rate. Although
the prime rate in effect at June 30, 1996 was 8.25% versus 9.0% a year earlier,
many periodically repricing loans have not yet repriced downward by the full 75
basis point change in prime.
The FTE yield on taxable securities rose by 40 basis points over the prior year,
to 7.47% for the first six months of 1996, as a result of a change in the mix of
securities. For the six months ended June 30, 1996, average U.S. Treasury
obligations comprised 38% of total average taxable securities, down from 60% for
the comparable 1995 period, as proceeds from maturing U.S. Treasury obligations
were reallocated to higher-yielding mortgage-backed securities and corporate
stocks. The additional growth in mortgage-backed securities and corporate
stocks resulted from maturing short-term investments and liquidity generated
from deposit growth. (See notes 2 and 3 to the Consolidated Financial
Statements for more information on the composition of securities.)
The Corporation's total cost of funds on interest-bearing liabilities amounted
to 4.12% for the six months ended June 30, 1996, up from 3.90% for the
comparable 1995 period. This increase was primarily due to increases in both
the volume of average time deposits and the rate paid on these deposits.
Average time deposits rose 6.4% from the prior year amount, to $231.4 million.
The rate paid on time deposits was 5.34% for the first six months of 1996, up
from 5.05% for the same 1995 period. While average savings deposits for the six
months ended June 30, 1996 declined by 2.4% from the comparable 1995 amount, the
rate paid on these deposits remained substantially unchanged from the prior year
period at 2.20%.
Average Federal Home Loan Bank (FHLB) advances for the six months ended June 30,
1996 amounted to $26.8 million, up from $24.1 million for the same 1995 period.
The average rate paid on FHLB advances for the six months ended June 30, 1996
was 5.98%, a decrease of 12 basis points from the prior year rate.
Financial Condition and Liquidity
- ---------------------------------
Total assets amounted to $566.7 million at June 30, 1996, an increase of $19.0
million from the December 31, 1995 amount of $547.7 million. Average assets
totalled $549.0 million for the six months ended June 30, 1996, up 4.7% over the
comparable 1995 period.
Securities Available for Sale - The amortized cost of securities available for
sale at June 30, 1996 amounted to $93.7 million, up $15.4 million from December
31, 1995. During the second quarter of 1996, the Corporation implemented an
investment leverage program designed to purchase certain adjustable rate
mortgage-backed securities which are match funded with Federal Home Loan Bank
advances. The objective of the program is to increase net interest income and
improve returns on equity, while incurring limited interest rate risk. As of
June 30, 1996, approximately $9.2 million of adjustable rate pass-through
securities and collateralized mortgage obligations issued by U.S. government-
sponsored agencies had been purchased under this investment leverage program.
The net unrealized gain on securities available for sale decreased in the first
six months of 1996 by approximately $734,000. This decline is attributable to
the decline in the market value of U.S. Treasury obligations, obligations of
U.S. government-sponsored agencies and mortgage-backed securities resulting from
the rise in medium-term and long-term Treasury rates that has occurred since
December 31, 1995.
Securities Held to Maturity - The carrying value of securities held to maturity
amounted to $29.5 million at June 30, 1996, up from $28.9 million at December
31, 1995. The net unrealized loss on investment securities amounted to
approximately $45,000 at June 30, 1996, compared to a net unrealized gain of
$560,000 at December 31, 1995, representing a reduction of $605,000 during this
six-month period. This decline was attributable to the rise in medium-term and
long-term Treasury rates occurring in the first half of 1996.
Loans - Total loans amounted to $399.5 million at June 30, 1996, an increase of
3.4% from the December 31, 1995 balance of $386.5 million. All categories of
loans exhibited increases over the year-end 1995 amounts.
Deposits and Other Borrowings - Total deposits amounted to $470.3 million at
June 30, 1996, up slightly from the December 31, 1995 amount. While savings
deposits decreased by 3.2% from the December 31, 1995 balance, time deposits
grew by 1.5%. Demand deposits increased by 7.5% from the year-end 1995 amount
due to the normal seasonal deposit inflow.
The Corporation utilizes Federal Home Loan Bank (FHLB) advances as a funding
source. FHLB advances amounted to $35.4 million at June 30, 1996, up by $14.4
million from the December 31, 1995 amount. The additional advances were used to
fund loan growth and to purchase securities under the investment leverage
program implemented in the second quarter of 1996. There were no other short-
term borrowings outstanding at June 30, 1996.
For the six months ended June 30, 1996, net cash provided by operations amounted
to $1.7 million, the majority of which was generated by net income. Proceeds
from sales of loans in the first half of 1996 amounted to $7.2 million, while
loans originated for sale amounted to $9.8 million. Net cash used in investing
activities amounted to $27.5 million and was primarily used to purchase
securities available for sale and for loan originations. Net cash used in
investing activities also included $1.1 million used to purchase premises and
equipment. The funding for cash used in investing activities was generated by
utilizing cash and cash equivalents and by a net increase in FHLB advances of
$14.4 million. (See Consolidated Statements of Cash Flows for additional
information.)
During 1996, the Corporation purchased land in North Kingstown, Rhode Island, on
which it plans to build a new 5,900 square foot branch office that will open
later this year. The branch will be a full service banking office, offering
deposit and loan services as well as trust and investment services.
Asset Quality
- -------------
Nonperforming assets are summarized in the following table:
<TABLE>
<CAPTION>
(Dollars in thousands) 06/30/96 12/31/95
-------- --------
<S> <C> <C>
Nonaccrual loans 90 days or more past due $4,852 $ 4,616
Nonaccrual loans less than 90 days past due 1,891 3,958
------ -------
Total nonaccrual loans 6,743 8,574
------ -------
Other real estate owned:
Properties acquired through foreclosure 1,737 2,115
Valuation allowance (377) (410)
------ -------
Total other real estate owned 1,360 1,705
------ -------
Total nonperforming assets $8,103 $10,279
====== =======
Nonaccrual loans as a % of total loans 1.7% 2.2%
Nonperforming assets as a % of total assets 1.4% 1.9%
Allowance for loan losses to nonaccrual loans 120.9% 90.8%
</TABLE>
Not included in the analysis of nonperforming assets at June 30, 1996 and
December 31, 1995 above are approximately $1.1 million and $257,000,
respectively, of loans greater than 90 days past due and still accruing. These
loans consist primarily of residential mortgages which are considered well-
collateralized and in the process of collection and therefore are deemed to have
no loss exposure.
The following is an analysis of nonaccrual loans by loan category:
<TABLE>
<CAPTION>
(In thousands) 06/30/96 12/31/95
-------- --------
<S> <C> <C>
Residential mortgages $1,928 $2,280
Commercial:
Mortgages 2,137 2,798
Construction and development 230 280
Other (1) 2,076 2,779
Installment 372 437
------ ------
Total nonperforming loans $6,743 $8,574
====== ======
</TABLE>
(1) Loans to businesses and individuals, a substantial portion of which is fully
or partially collateralized by real estate.
Impaired loans consist of all nonaccrual commercial loans. At June 30, 1996,
the recorded investment in impaired loans was $4,443,000, including $2,573,000
which had a related allowance amounting to $462,000. 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 at June 30, 1996 and December 31, 1995 was
$1,870,000 and $1,001,000, respectively. During the six months ended June 30,
1996, the average recorded investment in impaired loans was $5,162,000. Also
during this period, interest income recognized on impaired loans amounted to
approximately $110,000. Interest income on impaired loans is recognized on a
cash basis only.
The balance of other real estate owned is comprised of the following types of
properties (in thousands):
<TABLE>
<CAPTION>
06/30/96 12/31/95
-------- --------
<S> <C> <C>
Commercial real estate $ 465 $ 671
Residential real estate 608 707
Construction and development -- --
Land and other 664 737
------ ------
1,737 2,115
Valuation allowance (377) (410)
------ ------
Total other real estate owned $1,360 $1,705
====== ======
</TABLE>
An analysis of the activity relating to other real estate owned for the six
months ended June 30, 1996 follows (in thousands):
<TABLE>
<S> <C>
Balance at beginning of year $ 2,115
Transfers from loans, net 553
Sales and other reductions (939)
Other 8
-------
1,737
Valuation allowance (377)
-------
Balance at end of period $ 1,360
=======
</TABLE>
The following is an analysis of the OREO valuation allowance for the six
months ended June 30, 1996 (in thousands):
<TABLE>
<S> <C>
Balance at beginning of period $ 410
Provision charged to expense 186
Sales and other reductions (219)
-----
Balance at end of period $ 377
=====
</TABLE>
Capital Resources
- -----------------
Total equity capital amounted to $55.8 million, or 9.9% of total assets at
June 30, 1996. This compares to $52.9 million, or 9.7% at December 31, 1995.
Total equity increased by $2.9 million from December 31, 1995, $2.5 million of
which is attributable to earnings retention.
The Corporation's total risk-adjusted capital ratio amounted to 15.78% at June
30, 1996. Banks are required to maintain a minimum capital to risk-adjusted
asset ratio of 8%. The Corporation's leverage ratio amounted to 9.39% at
June 30, 1996, well above the regulatory requirement of 3% for banking
organizations with strong earnings, liquidity and asset quality who do not
anticipate significant growth and who have well-diversified risk.
Dividends payable at June 30, 1996 amounted to $753,750, representing $.26 per
share payable on July 15, 1996, an increase of 18.2% over the $.22 per share
declared in the second quarter of 1995.
The source of funds for dividends paid by the Corporation is dividends received
from its subsidiary bank. The subsidiary bank is a regulated enterprise, and as
such its ability to pay dividends to the parent is subject to regulatory review
and restriction.
In June 1996, the Corporation's Board of Directors approved a program to
repurchase up to 58,000 or 2% of its outstanding common shares. Shares may be
repurchased from time to time in the open market or in private transactions,
based upon market conditions. There is no guarantee as to the exact number of
shares to be repurchased. The Corporation plans to hold the repurchased shares
as treasury stock to be used for general corporate purposes. No repurchases had
occurred by June 30, 1996.
PART II
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
- ------ -----------------
None
Item 2. Changes in Securities
- ------ ---------------------
None
Item 3. Defaults upon Senior Securities
- ------ -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
(a) The Annual Meeting of Shareholders was held April 30, 1996.
(c) Matters voted upon were as follows:
* A proposal to elect Gary P. Bennett, Larry J. Hirsch, Mary E.
Kennard and Joseph J. Kirby as directors of the Corporation for
three year terms expiring at the 1999 Annual Meeting of
Shareholders passed as follows:
Abstentions
Votes Votes and Broker
In Favor Withheld Non-votes
--------- ----------- -----------
Gary P. Bennett 2,437,821 1,465 0
Larry J. Hirsch 2,436,253 3,033 0
Mary E. Kennard 2,426,874 12,412 0
Joseph J. Kirby 2,432,236 7,050 0
* A proposal for the ratification of KPMG Peat Marwick LLP to
serve as independent auditors of the Corporation for the
current fiscal year ending December 31, 1996 was passed by a
vote of 2,429,372 shares in favor; 9,914 shares against; with no
abstentions or broker non-votes.
Item 5. Other Information
- ------ -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibit index
None
(b) The following report on Form 8-K was filed during the quarter
ended June 30, 1996:
On June 25, 1996, a Form 8-K was filed which reported that the
Corporation's Board of Directors approved a program to repurchase
up to 58,000 shares of its common stock, or approximately 2% of
its outstanding shares, from time to time in the open market or in
private transactions, based upon market conditions.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON TRUST BANCORP, INC.
------------------------------
(Registrant)
August 14, 1996 By: Joseph J. Kirby
--------------------------------
Joseph J. Kirby
Chairman and Chief Executive Officer
(principal executive officer)
August 14, 1996 By: David V. Devault
--------------------------------
David V. Devault
Vice President and Chief Financial Officer
(principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO OF WASHINGTON TRUST BANCORP, INC. AS OF
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,040,605
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,953,325
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 100,241,341
<INVESTMENTS-CARRYING> 29,532,410
<INVESTMENTS-MARKET> 29,487,598
<LOANS> 399,535,525
<ALLOWANCE> 8,150,002
<TOTAL-ASSETS> 566,637,805
<DEPOSITS> 470,256,522
<SHORT-TERM> 35,391,493
<LIABILITIES-OTHER> 5,149,598
<LONG-TERM> 0
<COMMON> 181,231
0
0
<OTHER-SE> 55,658,961
<TOTAL-LIABILITIES-AND-EQUITY> 566,637,805
<INTEREST-LOAN> 17,814,180
<INTEREST-INVEST> 3,724,311
<INTEREST-OTHER> 140,080
<INTEREST-TOTAL> 21,678,571
<INTEREST-DEPOSIT> 8,092,433
<INTEREST-EXPENSE> 8,942,896
<INTEREST-INCOME-NET> 12,735,675
<LOAN-LOSSES> 600,000
<SECURITIES-GAINS> 148,337
<EXPENSE-OTHER> 9,915,240
<INCOME-PRETAX> 6,113,973
<INCOME-PRE-EXTRAORDINARY> 6,113,973
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,035,973
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 8.67
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,784,516
<CHARGE-OFFS> 732,571
<RECOVERIES> 498,057
<ALLOWANCE-CLOSE> 8,150,002
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
