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 March 31, 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 April 22, 1996.
Class Outstanding at April 22, 1996
------------------------------ --------------------------
Common stock, $.0625 par value 2,887,937 Shares
Page 1
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
CONTENTS
--------
Page No.
PART I. ITEM 1. Financial Information --------
- --------------------------------------
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 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 11
PART II. Other Information 18
- ---------------------------
Signatures 19
- ----------
-2-
<TABLE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
- ------ ---------- ----------
<S> <C> <C>
Cash and due from banks $ 12,540,210 $ 15,051,777
Federal funds sold 1,782,796 13,598,869
Mortgage loans held for sale 565,318 456,152
Securities available for sale, at fair value;
cost $82,674,883 and $78,249,075 at March 31,
1996 and December 31, 1995, respectively 89,490,352 85,552,335
Securities held to maturity, at cost; fair value
$29,980,524 and $29,432,819 at March 31,
1996 and December 31, 1995, respectively 29,799,185 28,872,991
Federal Home Loan Bank stock, at cost 2,995,000 2,995,000
Loans 391,367,078 386,458,892
Less allowance for loan losses 7,932,099 7,784,516
----------- -----------
Net loans 383,434,979 378,674,376
Premises and equipment, net 14,869,164 14,646,157
Accrued interest receivable 4,044,816 3,539,305
Other real estate owned, net 1,464,833 1,705,147
Other assets 2,659,655 2,567,195
----------- -----------
Total assets $ 543,646,308 $ 547,659,304
=========== ===========
LIABILITIES
Demand deposits $ 50,800,249 $ 59,470,321
Savings deposits 174,194,466 177,891,247
Time deposits 231,881,717 230,492,444
----------- -----------
Total deposits 456,876,432 467,854,012
Dividends payable 749,685 686,189
Federal Home Loan Bank advances 25,940,389 20,951,266
Accrued expenses and other liabilities 5,612,505 5,231,339
----------- -----------
Total liabilities 489,179,011 494,722,806
----------- -----------
SHAREHOLDERS' EQUITY
Common stock of $.0625 par value; authorized
10,000,000 shares; issued 2,881,062 shares in
1996 and 2,880,000 shares in 1995 180,066 180,000
Paid-in capital 3,247,734 3,010,795
Retained earnings 46,950,214 45,690,676
Unrealized gain on securities available for sale, net of tax 4,089,283 4,381,958
Treasury stock, at cost; 27,130 shares at
December 31, 1995 -- (326,931)
----------- -----------
Total shareholders' equity 54,467,297 52,936,498
----------- -----------
Total liabilities and shareholders' equity $ 543,646,308 $ 547,659,304
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<TABLE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three months ended March 31, 1996 1995
- ---------------------------- ---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 8,836,844 $ 8,737,731
Income from securities:
Interest 1,489,748 1,114,785
Dividends 367,152 190,601
Federal funds sold 84,772 101,283
---------- ----------
Total interest income 10,778,516 10,144,400
---------- ----------
Interest expense:
Savings deposits 967,362 994,100
Time deposits 3,077,333 2,498,335
Other 342,867 408,691
---------- ----------
Total interest expense 4,387,562 3,901,126
---------- ----------
Net interest income 6,390,954 6,243,274
Provision for loan losses 300,000 150,000
---------- ----------
Net interest income after provision for loan losses 6,090,954 6,093,274
---------- ----------
Noninterest income:
Trust income 875,987 777,823
Service charges on deposit accounts 492,837 470,287
Merchant processing fees 94,338 76,529
Gains on sales of securities 197,590 --
Gains on loan sales 28,995 21,989
Other income 208,123 254,446
---------- ----------
Total noninterest income 1,897,870 1,601,074
---------- ----------
Noninterest expense:
Salaries and employee benefits 2,704,354 2,590,921
Net occupancy 328,225 301,097
Equipment 364,767 309,445
Deposit taxes and assessments 65,180 308,117
Foreclosed property costs, net 118,604 53,328
Office supplies 141,661 129,603
Advertising and promotion 65,427 109,546
Credit and collection 96,556 122,443
Other 964,827 919,218
---------- ----------
Total noninterest expense 4,849,601 4,843,718
---------- ----------
Income before income taxes 3,139,223 2,850,630
Applicable income taxes 1,130,000 1,012,000
---------- ----------
Net income $ 2,009,223 $ 1,838,630
========== ==========
Weighted average shares outstanding - primary 2,962,654 2,876,668
Weighted average shares outstanding - fully diluted 2,964,755 2,879,382
Earnings per share - primary $ .68 $ .64
Earnings per share - fully diluted $ .68 $ .64
Cash dividends declared per share $ .26 $ .22
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<TABLE>
Washington Trust Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
<CAPTION>
Three months ended March 31, 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Common Stock
Balance at beginning of year $ 180,000 $ 180,000
Issuance of common stock for stock option plans 66 --
- ---------------------------------------------------------------------------------
Balance at end of period 180,066 180,000
- ---------------------------------------------------------------------------------
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 236,939 4,870
- ---------------------------------------------------------------------------------
Balance at end of period 3,247,734 2,874,005
- ---------------------------------------------------------------------------------
Retained Earnings
Balance at beginning of year 45,690,676 40,613,979
Net income 2,009,223 1,838,630
Cash dividends declared (749,685) (621,514)
- ---------------------------------------------------------------------------------
Balance at end of period 46,950,214 41,831,095
- ---------------------------------------------------------------------------------
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 (292,675) 583,860
- ---------------------------------------------------------------------------------
Balance at end of period 4,089,283 3,385,350
- ---------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year (326,931) (681,620)
Issuance of common stock for dividend
reinvestment and stock option plans 326,931 19,456
- ---------------------------------------------------------------------------------
Balance at end of period -- (662,164)
- ---------------------------------------------------------------------------------
Total Shareholders' Equity $54,467,297 $47,608,286
=================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<TABLE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three months ended
March 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,009,223 $ 1,838,630
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 300,000 150,000
Provision for valuation of other real estate owned 126,284 7,712
Depreciation of premises and equipment 348,790 325,000
Amortization of net deferred loan fees and costs (28,147) (196,421)
Gains on sales of securities available for sale (197,590) --
Losses (gains) on sales of other real estate owned (57,608) 1,914
Gains on loan sales (28,995) (21,989)
Proceeds from sales of loans 2,871,551 1,949,853
Loans originated for sale (2,973,721) (2,054,467)
Increase in accrued interest receivable (505,511) (329,176)
Increase in other assets (70,460) (449,838)
Increase in accrued expenses and
other liabilities 576,283 1,140,419
Other, net 80,183 22,322
---------- ----------
Net cash provided by operating activities 2,450,282 2,383,959
---------- ----------
Cash flows from investing activities:
Securities available for sale:
Purchases (8,208,788) (88,200)
Proceeds from sales of equity securities 1,651,020 --
Maturities 2,270,005 3,000,000
Investment securities:
Purchases (2,518,049) --
Maturities and principal repayments 1,574,588 701,730
Loan originations in excess of principal
collected on loans (5,260,866) (2,304,086)
Proceeds from sales and other reductions
of other real estate owned 401,978 1,905
Purchases of premises and equipment (577,100) (348,393)
---------- ----------
Net cash provided by (used in) investing activities (10,667,212) 962,956
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits (10,977,580) 2,160,558
Proceeds from Federal Home Loan Bank advances 9,000,000 12,564,839
Repayment of Federal Home Loan Bank advances (4,010,877) (14,010,475)
Proceeds from issuance of commmon stock 563,936 24,326
Cash dividends paid (686,189) (564,686)
---------- ----------
Net cash provided by (used in) financing activities (6,110,710) 174,562
---------- ----------
Net increase (decrease) in cash and cash equivalents (14,327,640) 3,521,477
Cash and cash equivalents at beginning of period 28,650,646 18,404,910
---------- ----------
Cash and cash equivalents at end of period $ 14,323,006 $21,926,387
========== ==========
Noncash Investing Activities:
Transfers from loans to other real estate owned $ 323,047 $ 88,428
Loans charged off 325,363 807,274
Loans made to facilitate the sale of OREO 81,000 90,250
Change in unrealized gain on securities
available for sale, net of tax (292,675) 583,860
Supplemental Disclosures:
Interest payments $ 1,870,828 $ 1,859,443
Income tax payments 58,250 117,250
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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
March 31, 1996 Cost Gains Losses Value
-------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $36,339,971 337,545 (94,079) $36,583,437
Mortgage-backed securities 28,701,783 24,762 (343,618) 28,382,927
Corporate stocks 17,633,129 6,959,362 (68,503) 24,523,988
----------- ---------- --------- ----------
$82,674,883 7,321,669 (506,200) $89,490,352
=========== ========== ========= ===========
<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 March 31, 1996 and 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.
U.S. Treasury obligations with a carrying value of $4,519,326 and $4,519,878
were pledged to secure public deposits and for other purposes at March 31, 1996
and December 31, 1995, respectively.
For the three months ended March 31, 1996, proceeds from sales of corporate
stocks amounted to $1,651,020. Realized gains and losses on these sales were
$212,594 and $15,004, 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
March 31, 1996 Cost Gains Losses Value
-------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities $13,739,885 202,829 -- $13,942,714
States and political subdivisions 16,059,300 43,771 (65,261) 16,037,810
----------- ---------- --------- -----------
$29,799,185 246,600 (65,261) $29,980,524
=========== ========== ========= ===========
<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 three
months ended March 31, 1996.
(4) LOAN PORTFOLIO
- ------------------
The following is a summary of loans:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Residential real estate:
Mortgages $167,587,592 $167,510,929
Homeowner construction 4,031,274 3,071,177
----------- -----------
Total residential real estate 171,618,866 170,582,106
----------- -----------
Commercial:
Mortgages 62,312,431 58,837,483
Construction and development 5,443,210 5,968,404
Other 96,508,199 96,830,889
----------- -----------
Total commercial 164,263,840 161,636,776
----------- -----------
Installment 55,484,372 54,240,010
----------- -----------
$391,367,078 $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
March 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Balance at beginning of period $7,784,516 $9,327,942
Provision charged to expense 300,000 150,000
Recoveries 172,946 71,557
Loans charged off (325,363) (807,274)
--------- ---------
Balance at end of period $7,932,099 $8,742,225
========= =========
</TABLE>
(6) MORTGAGE SERVICING RIGHTS
- -----------------------------
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights". 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. The total cost of the mortgage loan is allocated
between the mortgage servicing rights and the loan without the mortgage
servicing rights based on their relative fair values. Capitalized mortgage
servicing rights are amortized over the period of estimated net servicing income
and are periodically evaluated for impairment based on their fair value. In
order to estimate fair value, the Corporation utilizes a valuation model that
calculates the present value of expected cash flows. This model incorporates
assumptions for discount rate, prepayment speed and servicing cost. The fair
value of capitalized mortgage servicing rights resulting from loan sales during
the three months ended March 31, 1996 amounted to approximately $22,000.
(7) ACCOUNTING FOR STOCK-BASED COMPENSATION
- -------------------------------------------
As of January 1, 1996, the Corporation adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". The statement establishes financial accounting and
reporting standards for stock-based compensation plans. SFAS No. 123
encourages, but does not require, a fair value based method of accounting for
stock-based compensation plans. The statement allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based method
prescribed by 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 continues 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Quarters Ended March 31, 1996 and 1995
- --------------------------------------------------------------
Net income for the three months ended March 31, 1996 amounted to $2,009,223, up
9.3% over the $1,838,630 of net income recorded in the first quarter of 1995.
Earnings per share for the quarter ended March 31, 1996 amounted to $.68, up
6.3% over the $.64 per share earned in the comparable 1995 period.
Net interest income for the three months ended March 31, 1996 increased
approximately $148,000, or 2.4%, over the prior year quarter. 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.
(See additional discussion under the caption "Net Interest Income".)
The provision for loan losses amounted to $300,000 for the first quarter of
1996, up from $150,000 for the first quarter of 1995.
Total noninterest income for the three months ended March 31, 1996 amounted to
$1.9 million, up from $1.6 million for the same 1995 period. The 1996 amount
includes gains on sales of securities of $197,590. There were no sales of
securities in the first quarter of 1995. Noninterest income excluding
securities gains and gains on loan sales rose 5.8% over the prior year quarter
primarily due to higher trust income.
Total noninterest expense for the quarter ended March 31, 1996 amounted to $4.9
million, essentially unchanged from the 1995 amount. Federal Deposit Insurance
Corporation premiums were reduced by approximately $246,000 from the 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, foreclosed property
costs and equipment expense. Salaries and benefits were up due to increased
staffing levels and normal salary adjustments. Foreclosed property costs rose
due to increased provisions for valuation of other real estate owned, while
equipment costs were higher due to depreciation expense associated with
purchases that occurred in 1995 and in the first quarter of 1996. Advertising
and promotion costs were down 40.3% in the 1996 quarter compared to the 1995
quarter, due to the timing of certain promotional events.
<TABLE>
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.
<CAPTION>
Three months ended March 31, 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 $170,825 3,531 8.27% $178,265 3,686 8.27%
Commercial and other 162,973 3,999 9.82% 171,209 3,968 9.27%
Installment loans 54,638 1,327 9.71% 45,154 1,107 9.80%
---------------------------------------------------------------------------------------------------------
Total loans 388,436 8,857 9.12% 394,628 8,761 8.88%
Federal funds sold 6,319 85 5.37% 7,081 101 5.72%
Taxable securities 95,538 1,872 7.84% 72,341 1,296 7.17%
Nontaxable securities 15,128 248 6.56% 10,170 171 6.74%
---------------------------------------------------------------------------------------------------------
Total interest-earning assets 505,421 11,062 8.75% 484,220 10,329 8.53%
Non interest-earning assets 35,763 32,498
---------------------------------------------------------------------------------------------------------
Total assets $541,184 $516,718
=========================================================================================================
Interest-bearing liabilities:
Savings deposits $175,671 968 2.20% $181,912 994 2.19%
Time deposits 230,412 3,077 5.34% 207,525 2,498 4.82%
FHLB advances 22,032 335 6.08% 26,319 399 6.06%
Other 597 8 5.35% 674 10 5.83%
---------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 428,712 4,388 4.09% 416,430 3,901 3.75%
Non interest-bearing liabilities 58,325 53,130
---------------------------------------------------------------------------------------------------------
Total liabilities 487,037 469,560
Total shareholders' equity 54,147 47,158
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $541,184 $516,718
=========================================================================================================
Net interest income / interest rate spread $ 6,674 4.66% $ 6,428 4.78%
=========================================================================================================
Net interest margin 5.28% 5.31%
=========================================================================================================
<FN>
Interest income amounts presented in the table above include the following adjustments for taxable equivalency
(in thousands):
March 31, 1996 March 31, 1995
-------------- --------------
Commercial and other loans $ 20 $ 23
Nontaxable debt securities 137 114
Corporate stocks 126 49
</TABLE>
Net Interest Income
- -------------------
(The accompanying schedule on page 12 should be read in conjunction with this
discussion.)
FTE net interest income for the first quarter of 1996 amounted to $6.7 million,
up by approximately $246,000, or 3.8%, over the prior year quarter. 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 amounted to 4.66% and 5.28%,
respectively. Comparable amounts for the 1995 quarter were 4.78% and 5.31%,
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 $505.4 million for the first quarter
of 1996, an increase of $21.2 million, or 4.4%, over the comparable 1995 amount.
The FTE rate of return on interest-earning assets was 8.75% for the three months
ended March 31, 1996, up from 8.53% for the same 1995 period. While average
total loans decreased by $6.2 million, average securities increased by $28.2
million or 34.1%. During 1995, excess liquidity resulting from deposit growth
and relatively soft loan demand was invested in various categories of
securities.
The overall yield on average total loans amounted to 9.12% for the three months
ended March 31, 1996, up from 8.88% in the comparable 1995 period. Contributing
to this improvement was the increase in the yield on commercial loans which
rose 55 basis points to 9.82%. Most commercial loans reprice periodically based
upon the prime rate. Although the prime rate in effect at March 31, 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 67 basis points over the prior year
quarter to 7.84% for the first quarter of 1996 as a result of both increases in
average balances and increases in yields. The composition of taxable and
nontaxable securities has changed from the prior year, as well as from
December 31, 1995. Maturing U.S. Treasury obligations, short-term investments
and liquidity generated from deposit growth were reallocated to mortgage-backed
securities, auction rate preferred stock instruments and to state and municipal
obligations. Included in taxable securities were average mortgage-backed
securities of $43.4 million, up from an average of $21.5 million during the
first quarter of 1995 and $29.7 million during the fourth quarter of 1995. (See
notes 2 and 3 to the Consolidated Financial Statements for more information on
the composition of securities.)
The overall cost of funds on interest-bearing liabilities rose to 4.09% for the
three months ended March 31, 1996, up from 3.75% for the comparable 1995 period.
This increase is due to the average rate paid on time deposits, which increased
in each quarter of 1995 as funds were shifted from lower-cost savings accounts
to time deposits and maturing time deposits were renewed at higher rates.
This trend, however, has leveled off in the first quarter of 1996. The rate
paid on time deposits was 5.34% for the first quarter of 1996, up from 4.82% for
the first quarter of 1995 but down from 5.46% for the fourth quarter of 1995.
The average rate paid on savings deposits was substantially unchanged from the
prior year quarter. Total average deposits grew by $16.6 million from the first
quarter of 1995 to the first quarter of 1996, while average savings deposits
declined by $6.2 million over the same period.
Average Federal Home Loan Bank (FHLB) advances for the first quarter of 1996
amounted to $22.0 million, down from $26.3 million for the same 1995 period, but
up from $17.0 million from the fourth quarter of 1995. The average rate paid on
FHLB advances remained relatively unchanged from the prior year rate.
Financial Condition and Liquidity
- ---------------------------------
Total assets amounted to $543.6 million at March 31, 1996, a decrease of $4.0
million from the December 31, 1995 amount of $547.7 million. Average assets
totalled $541.2 million for the three months ended March 31, 1996, up 4.7% over
the comparable 1995 period.
Securities Available for Sale - The amortized cost of securities available for
sale at March 31, 1996 amounted to $82.7 million, up $4.4 million from the year-
end 1995 amount due to purchases of corporate stocks. The net unrealized gain
on securities available for sale decreased in the first quarter of 1996 by
approximately $488,000. 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 during the first
quarter of 1996.
Securities Held to Maturity - The carrying value of securities held to maturity
amounted to $29.8 million at March 31, 1996, up from $28.9 million at December
31, 1995. The net unrealized gain on investment securities amounted to
approximately $181,000 at March 31, 1996, compared to $560,000 at December 31,
1995, representing a reduction of $379,000 during this three-month period. This
decline was attributable to the rise in medium-term and long-term Treasury rates
occurring in the first quarter of 1996.
Loans - Total loans amounted to $391.4 million at March 31, 1996, an increase of
1.3% from the December 31, 1995 balance of $386.5 million. Residential real
estate loans, commercial mortgages and installment loans exhibited increases
over the year-end 1995 amount. The largest increase was in the commercial
mortgage category and was attributable to several large loans originated in the
first quarter of 1996.
Deposits and Other Borrowings - Total deposits amounted to $456.9 million at
March 31, 1996, down 2.3% from $467.9 million at December 31, 1995 due to normal
seasonal deposit outflow. While demand and savings deposits decreased by 14.6%
and 2.1%, respectively from December 31, 1995 balances, time deposits grew
slightly during the first quarter of 1996 due to retail time deposit
promotional programs.
The Corporation utilizes Federal Home Loan Bank (FHLB) advances as a funding
source. FHLB advances amounted to $25.9 million at March 31, 1996, up by $5.0
million from the December 31, 1995 amount. The additional advances were used to
supplement decreased liquidity created by the seasonal deposit outflow. There
were no other short-term borrowings outstanding at March 31, 1996.
For the three months ended March 31, 1996, net cash provided by operations
amounted to $2.5 million, the majority of which was generated by net income.
Proceeds from sales of loans in the first quarter of 1996 amounted to $2.9
million, while loans originated for sale amounted to $3.0 million.
Net cash used in investing activities amounted to $10.7 million and was
primarily used to purchase securities available for sale and for loan
originations. 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
$5.0 million. These funds were also used to fund a net reduction in deposits of
$11.0 million. (See Consolidated Statements of Cash Flows for additional
information.)
Asset Quality
- -------------
Nonperforming assets are summarized in the following table:
<TABLE>
<CAPTION>
(Dollars in thousands) 03/31/96 12/31/95
-------- --------
<S> <C> <C>
Nonaccrual loans 90 days or more past due $ 5,418 $ 4,616
Nonaccrual loans less than 90 days past due 3,169 3,958
------- --------
Total nonperforming loans 8,587 8,574
------- --------
Other real estate owned:
Properties acquired through foreclosure 1,804 2,115
Valuation allowance (339) (410)
------- --------
Total other real estate owned 1,465 1,705
------- --------
Total nonperforming assets $10,052 $10,279
======= ========
Nonaccrual loans as a % of total loans 2.2% 2.2%
Nonperforming assets as a % of total assets 1.8% 1.9%
Allowance for loan losses to nonaccrual loans 92.4% 90.8%
</TABLE>
Not included in the analysis of nonperforming assets at March 31, 1996 and
December 31, 1995 above are approximately $622,000 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 nonperforming loans by loan category:
<TABLE>
<CAPTION>
(In thousands) 03/31/96 12/31/95
-------- --------
<S> <C> <C>
Residential mortgages $2,509 $2,280
Commercial:
Mortgages 2,917 2,798
Construction and development 280 280
Other (1) 2,476 2,779
Installment 405 437
------- -------
Total nonperforming loans $8,587 $8,574
======= =======
<FN>
(1) Loans to businesses and individuals, a substantial portion of which is fully
or partially collateralized by real estate.
</TABLE>
Impaired loans consist of all nonaccrual commercial loans. At March 31, 1996,
the recorded investment in impaired loans was $5,673,000, including $3,495,000
which had a related allowance amounting to $870,000. 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 March 31, 1996 and December 31, 1995 was
$2,178,000 and $1,001,000, respectively. During the three months ended March
31, 1996, the average recorded investment in impaired loans was $5,939,000.
Also during this period, interest income recognized on impaired loans amounted
to approximately $41,000. 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>
03/31/96 12/31/95
-------- --------
<S> <C> <C>
Commercial real estate $ 465 $ 671
Residential real estate 644 707
Construction and development -- --
Land and other 695 737
------ ------
1,804 2,115
Valuation allowance (339) (410)
------ ------
Total other real estate owned $1,465 $1,705
====== ======
</TABLE>
An analysis of the activity relating to other real estate owned for the three
months ended March 31, 1996 follows (in thousands):
Balance at beginning of year $ 2,115
Transfers from loans, net 323
Sales and other reductions (636)
Other 2
-------
1,804
Valuation allowance (339)
-------
Balance at end of period $ 1,465
=======
The following is an analysis of the OREO valuation allowance for the three
months ended March 31, 1996 (in thousands):
Balance at beginning of period $ 410
Provision charged to expense 126
Sales and other reductions (197)
-----
Balance at end of period $ 339
=====
Capital Resources
- -----------------
Total equity capital amounted to $54.5 million, or 10.0% of total assets at
March 31, 1996. This compares to $52.9 million, or 9.7% at December 31, 1995.
Total equity increased by $1.5 million from December 31, 1995, $1.3 million of
which is attributable to earnings retention.
The Corporation's total risk-adjusted capital ratio amounted to 15.56% at March
31, 1996. Banks are required to maintain a minimum capital to risk-adjusted
asset ratio of 8%. The Corporation's leverage ratio amounted to 9.43% at
March 31, 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 March 31, 1996 amounted to $749,685, representing $.26 per
share payable on April 15, 1996, an increase of 8.3% over the $.24 per share
paid in the fourth 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.
PART II
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
- ------ -----------------
None
Item 2. Changes in Securities
- ------ ---------------------
None
Item 3. Defaults upon Senior Securities
- ------ -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None
Item 5. Other Information
- ------ -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibit index
Exhibit No.
----------
10 Material Contracts - Consulting Agreement with
Executive Officer of the Registrant
(b) The following report on Form 8-K was filed during the quarter
ended March 31, 1996:
On January 4, 1996 a Form 8-K was filed which reported the
appointment of John C. Warren as President and Chief Operating
Officer of the Corporation and its subsidiary, The Washington
Trust Company (the "Bank"), effective January 16, 1996. The Form
8-K also reported that Mr. Warren was to become a member of the
Board of Directors of the Bank and Joseph J. Kirby, the then-
current President of the Corporation, had been appointed as
Chairman of the Board and Chief Executive Officer of the
Corporation and the Bank.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON TRUST BANCORP, INC.
------------------------------
(Registrant)
May 14, 1996 By: Joseph J. Kirby
--------------------------------
Joseph J. Kirby
Chairman and Chief Executive Officer
(principal executive officer)
May 14, 1996 By: David V. Devault
--------------------------------
David V. Devault
Vice President and Chief Financial Officer
(principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO OF WASHINGTON TRUST BANCORP, INC. AS OF
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,540,210
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,782,796
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 89,490,352
<INVESTMENTS-CARRYING> 29,799,185
<INVESTMENTS-MARKET> 29,980,524
<LOANS> 391,367,078
<ALLOWANCE> 7,932,099
<TOTAL-ASSETS> 543,646,308
<DEPOSITS> 456,876,432
<SHORT-TERM> 25,940,389
<LIABILITIES-OTHER> 6,362,190
<LONG-TERM> 0
<COMMON> 180,066
0
0
<OTHER-SE> 54,287,231
<TOTAL-LIABILITIES-AND-EQUITY> 543,646,308
<INTEREST-LOAN> 8,836,844
<INTEREST-INVEST> 1,856,900
<INTEREST-OTHER> 84,772
<INTEREST-TOTAL> 10,778,516
<INTEREST-DEPOSIT> 4,044,695
<INTEREST-EXPENSE> 4,387,562
<INTEREST-INCOME-NET> 6,390,954
<LOAN-LOSSES> 300,000
<SECURITIES-GAINS> 197,590
<EXPENSE-OTHER> 4,849,601
<INCOME-PRETAX> 3,139,223
<INCOME-PRE-EXTRAORDINARY> 3,139,223
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,009,223
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 8.75
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,784,516
<CHARGE-OFFS> 325,363
<RECOVERIES> 172,946
<ALLOWANCE-CLOSE> 7,932,099
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Exhibit 10
April 17, 1996
Mr. Joseph H. Potter
53 Breach Drive
Westerly, RI 02891
Dear Joe:
re: Consulting Agreement
This letter constitutes our mutual agreement regarding your early retirement
election and consulting arrangement with Washington Trust Company (the
Company).
A. Early Retirement Election
1. Early Retirement Election: As of May 1, 1996, you have elected to take
early retirement and vacate your position as Executive Vice President
of both the Company and Washington Trust Bancorp, Inc.
2. Cash Compensation Payments: Your base salary payments will continue up
to and include April 30, 1996. No payment from the Short Term
Incentive Plan will be made to you for the 1996 partial year.
3. Company Vehicle: The Company agrees to transfer title of your current
company vehicle to you on or before May 1, 1996. You will be
responsible for any sales tax due upon transfer.
4. Pension: On or before May 1, 1996, you agree to make an election under
the terms of the qualified pension plan sponsored by the Company to
take the early retirement benefit provided under the terms of such plan
and to take distributions under that plan. You also agree that, on or
before May 1, 1996, you will make an election under the terms of the
Supplemental Pension Benefit Plan (called the "SERP") sponsored by the
Company to commence payment of supplemental retirement benefits. You
have indicated that your elections will be in the form of a qualified
joint and 50% survivor annuity, which will provide you with gross
annual pension payments of $69,995 from the qualified plan and $10,938
from the SERP (both payable monthly commencing on May 31, 1996).
5. Additional Nonqualified Pension: You will also receive an additional
nonqualified pension amount of $7,272 per year (payable monthly,
commencing on May 31, 1996) for your lifetime to reflect the additional
pension benefit you would have accrued if you had continued to work
until your normal retirement date at age 65 at an annual salary of
$131,000.
6. Spousal Pension Benefits: Given the presumption that you will elect
pension payments in the form of a qualified joint and 50% survivor
annuity, there will be survivor spousal pension benefits for your
current wife. Upon your death, your wife will continue to receive
annual pension payments of one-half of the amounts mentioned in
paragraphs 4 and 5 (payable monthly) for the remainder of her lifetime;
however, if your current wife predeceases you, payments will stop at
your death regardless of your marital status at the time of your death.
7. Benefit Coverage: For twenty-four months following May 1, 1996, the
Company agrees to continue you and your wife in the health insurance
and dental insurance plans, and to continue your coverage in the life
insurance plan sponsored by the Company. Your contributions, at the
rate set by the Company each year, will be payable by you for such
continued coverage and will be deducted on an after-tax basis from the
monthly payments you will receive from the SERP. Your participation in
all other benefit and compensation plans sponsored by the Company will
terminate as of April 30, 1996.
8. Stock Options: You will be permitted to exercise your stock options
according to the terms of the Stock Option Plan, including stock-for-
stock exercises and non-vested options scheduled to vest during the
period of June 2, 1996, through May 12, 1998.
9. Tax Liability and Reporting: You will be responsible for any and all
income and payroll taxes due as a result of any of the early retirement
provisions of this letter agreement. The Company will calculate such
tax amounts that may by law be required to be withheld by the Company
and deduct such amounts from the SERP and/or additional nonqualified
pension payments made to you (or your wife, as the case may be). The
Company will provide a statement to you of such amounts periodically
and will report such amounts to the IRS and appropriate state tax
authorities on Form W-2 annually.
B. Consulting Arrangement
1. Term of Consulting Arrangement: May 1, 1996 to April 30, 1998.
2. Position and Duties: You will be available to me, as Chairman and
Chief Executive Officer of the Company, from time to time (up to a
maximum of 20 hours per month) as an outside, independent consultant
focusing on site selection and related building projects, participating
in monitoring legislative and lobbying matters, and handling any other
matters as may be assigned to you by me. You have the right to decline
to me any specific assignment within 3 business days of receiving the
request from me, however, you have agreed that you will not be
unreasonable in declining any request within those parameters.
3. Reporting Relationship: You will report directly to me and take
overall project direction from me. You will work with other employees
and outside vendors as necessary and contemplated when I assign the
projects to you. It is contemplated that you may be asked to make
presentations to, and attend meetings of, the Building Committee of the
Board of Directors.
4. Consulting Rate: You will be paid as an outside consultant at the rate
of $3,650 per month at the end of the month. Payments will be reported
on Form 1099 annually. You will be responsible for paying income taxes
as well as dues and memberships that would be expected to be continued
in the context of your role and scope of duties.
5. Expense Reimbursement: The Company will reimburse you for out of
pocket expenses (except dues and memberships) that you incur if such
expenses are reasonable and approved in advance by me.
6. Termination Due to Disability: Disability is defined as your inability
to perform the service due to mental or physical impairment as
determined by a physician selected by me. Upon disability during the
term of the consulting arrangement, the last payment will be for the
month in which the disability is confirmed and determined.
7. Termination Due to Death: Upon your death during the term of the
consulting arrangement, the last payment will be for the month in which
death occurs.
8. Termination Due to Cause: Cause is defined as (a) the conviction for a
felony or crime of moral turpitude or (b) disclosure of confidential
information about the Company or its customers which has not been
previously approved by me or (c) breach of the Company's ethics policy.
Upon an event of cause, this consulting arrangement will be terminated
immediately and you will be paid through the last day of the
consultancy as identified by me.
9. Confidential Information: You agree to abide by the Company's ethics
policy and be bound by its terms during the period of the consulting
arrangement.
10. Non-compete Clause: During the term of this consulting arrangement,
you will be prohibited from engaging in any business relationship with
any financial services organization in our market area as a director,
consultant, officer, employee or any other role without previous
consent.
The terms of this letter agreement will be governed by the laws of the state
of Rhode Island; however, in the event of a dispute arising under the terms of
this letter, we have agreed to nonbinding arbitration before any other legal
action is commenced.
If the terms and conditions of this letter agreement meet with your approval,
please sign both copies, retain one for your files, and return one to me at
your earliest convenience.
Joe, on behalf of the entire Washington Trust Company family, I want to extend
our sincere thanks for your 38 years of service to the "Hometown Bank". We
wish you much health and happiness in your retirement years. I look forward
to working with you on our various building projects during the term of the
consulting arrangement.
Sincerely yours, Agreed and accepted,
Joseph J. Kirby Joseph H. Potter
Joseph J. Kirby Joseph H. Potter
Chairman and Chief Executive Officer
