UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number: 000-13091
-----------------------------------
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)
(401) 348-1200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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
The number of shares of common stock of the registrant outstanding as of
May 7, 1998 was 6,641,968.
Page 1
<PAGE>
FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
For The Quarter Ended March 31, 1998
TABLE OF CONTENTS
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 6
Condensed Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. Other Information 16
Signatures 17
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks $16,467 $12,925
Federal funds sold and other short-term investments 8,421 13,203
Mortgage loans held for sale 5,582 3,772
Securities:
Available for sale, at fair value 302,926 237,366
Held to maturity, at cost; fair value $53,771
in 1998 and $52,586 in 1997 53,005 51,807
- ----------------------------------------------------------------------------------------
Total securities 355,931 289,173
Federal Home Loan Bank stock, at cost 16,444 16,444
Loans 450,909 455,910
Less allowance for loan losses 9,309 8,835
- ----------------------------------------------------------------------------------------
Net loans 441,600 447,075
Premises and equipment, net 22,102 21,821
Accrued interest receivable 5,337 4,896
Other real estate owned, net 233 497
Other assets 4,914 4,587
- ----------------------------------------------------------------------------------------
Total assets $877,031 $814,393
- ----------------------------------------------------------------------------------------
Liabilities:
Deposits:
Demand $73,845 $75,282
Savings 183,307 185,073
Time 290,626 270,571
- ----------------------------------------------------------------------------------------
Total deposits 547,778 530,926
Dividends payable 998 927
Short-term borrowings 19,727 20,337
Federal Home Loan Bank advances 230,810 187,001
Accrued expenses and other liabilities 8,384 7,998
- ----------------------------------------------------------------------------------------
Total liabilities 807,697 747,189
- ----------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock of $.0625 par value; authorized
30 million shares; issued 6,682,418 shares
in 1998 and 6,601,947 shares in 1997 418 413
Paid-in capital 4,206 3,705
Retained earnings 57,755 56,360
Accumulated other comprehensive income 7,969 7,059
Treasury stock, at cost; 31,397 shares in 1998
and 14,205 shares in 1997 (1,014) (333)
- ----------------------------------------------------------------------------------------
Total shareholders' equity 69,334 67,204
- ----------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $877,031 $814,393
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $10,072 $9,274
Interest on securities 4,571 3,738
Dividends on corporate stock and Federal Home Loan Bank stock 509 402
Interest on federal funds sold and other short-term investments 169 61
- ---------------------------------------------------------------------------------------------------
Total interest income 15,321 13,475
- ---------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 827 860
Time deposits 3,890 3,276
Federal Home Loan Bank advances 3,072 2,345
Other 232 300
- ---------------------------------------------------------------------------------------------------
Total interest expense 8,021 6,781
- ---------------------------------------------------------------------------------------------------
Net interest income 7,300 6,694
Provision for loan losses 450 300
- ---------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 6,850 6,394
- ---------------------------------------------------------------------------------------------------
Noninterest income:
Trust revenue 1,224 1,088
Service charges on deposit accounts 633 553
Merchant processing fees 155 116
Net gains on sales of securities 41 254
Net gains on loan sales 329 72
Other income 282 249
- ---------------------------------------------------------------------------------------------------
Total noninterest income 2,664 2,332
- ---------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 3,419 2,953
Net occupancy 459 383
Equipment 566 464
Merchant processing costs 111 86
Office supplies 159 156
Advertising and promotion 112 122
Other 1,364 1,327
- ---------------------------------------------------------------------------------------------------
Total noninterest expense 6,190 5,491
- ---------------------------------------------------------------------------------------------------
Income before income taxes 3,324 3,235
Income tax expense 931 1,084
- ---------------------------------------------------------------------------------------------------
Net income $2,393 $2,151
- ---------------------------------------------------------------------------------------------------
Earnings per share - basic $.36 $.33
Earnings per share - diluted $.35 $.32
Cash dividends declared per share $.15 $.13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Other
Common Paid-in Retained Comprehensive Treasury
Three months ended March 31, Stock Capital Earnings Income Stock Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
Balance at beginning of year $273 $3,764 $50,886 $4,504 $ - $59,427
Net income 2,151 2,151
Other comprehensive income, net of tax:
Valuation adjustments for securities
available for sale (524) (524)
-------------
Comprehensive income 1,627
Cash dividends declared (831) (831)
Shares issued for stock option plan
and dividend reinvestment plan - 98 - 98
Shares repurchased - -
- -----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $273 $3,862 $52,206 $3,980 $ - $60,321
- -----------------------------------------------------------------------------------------------------------------------
1998
Balance at beginning of year $413 $3,705 $56,360 $7,059 $(333) $67,204
Net income 2,393 2,393
Other comprehensive income, net of tax:
Valuation adjustments for securities
available for sale 910 910
-------------
Comprehensive income 3,303
Cash dividends declared (998) (998)
Shares issued for stock option plan
and dividend reinvestment plan 5 501 1,003 1,509
Shares repurchased (1,684) (1,684)
- -----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 $418 $4,206 $57,755 $7,969 $(1,014) $69,334
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $2,393 $2,151
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 450 300
Depreciation of premises and equipment 573 449
Amortization of premium in excess of accretion of
discount on debt securities 284 217
Net gains on sales of securities (41) (254)
Net gains on loan sales (329) (72)
Proceeds from sales of loans 22,265 4,249
Loans originated for sale (24,016) (5,219)
Increase in accrued interest receivable (441) (976)
Increase in other assets (327) (417)
Increase (decrease) in accrued expenses and other liabilities (79) 912
Other, net (53) (33)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 679 1,307
- ---------------------------------------------------------------------------------------------------
Cash flows from investing activities: Securities available for sale:
Purchases (95,619) (63,389)
Proceeds from sales 19,532 1,847
Maturities and principal repayments 11,658 6,931
Securities held to maturity:
Purchases (1,567) (105)
Maturities and principal repayments 370 444
Purchases of Federal Home Loan Bank stock - (4,572)
Loan originations under (over) principal collected on loans 5,276 (4,926)
Purchase of loans - (324)
Proceeds from sales of other real estate owned 340 15
Purchases of premises and equipment (858) (1,644)
Purchase of deposits, net of premium paid - 7,029
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (60,868) (58,694)
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 16,852 4,322
Net increase (decrease) in other short-term borrowings (610) 5,309
Proceeds from Federal Home Loan Bank advances 168,400 132,600
Repayment of Federal Home Loan Bank advances (124,591) (78,025)
Repurchase of common stock (1,684) -
Proceeds from issuance of common stock 1,509 98
Cash dividends paid (927) (785)
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 58,949 63,519
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,240) 6,132
Cash and cash equivalents at beginning of year 26,128 18,990
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $24,888 $25,122
- ---------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Three months ended March 31, 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Noncash Investing and Financing Activities:
Net transfers from loans to other real estate owned $44 $248
Loans charged off 55 316
Loans made to facilitate the sale of other real estate owned - 77
Increase (decrease) in net unrealized gain on securities
available for sale 910 (524)
Supplemental Disclosures:
Interest payments $4,541 $3,599
Income tax payments 2 44
</TABLE>
<PAGE>
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 of the banking industry. In the opinion of
management, the accompanying consolidated financial statements present fairly
the Corporation's financial position as of March 31, 1998 and December 31, 1997
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, 1997, included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997.
In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS No. 130 established standards for reporting and displaying comprehensive
income, which is defined as all changes to equity except investments by and
distributions to shareholders. Net income is a component of comprehensive
income, with all other components referred to in the aggregate as other
comprehensive income. The Corporation has adopted SFAS No. 130 effective for the
quarter ended March 31, 1998.
(2) Securities Available for Sale
<TABLE>
<CAPTION>
Securities available for sale are summarized as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1998
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies $116,134 $985 $(377) $116,742
Mortgage-backed securities 152,561 638 (212) 152,987
Corporate bonds 7,097 13 (21) 7,089
Corporate stocks 14,091 12,078 (61) 26,108
- --------------------------------------------------------------------------------------------------------------------
Total 289,883 13,714 (671) 302,926
- --------------------------------------------------------------------------------------------------------------------
December 31, 1997
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies 89,632 1,000 (40) 90,592
Mortgage-backed securities 121,728 865 (61) 122,532
Corporate bonds 1,985 15 - 2,000
Corporate stocks 12,319 9,976 (53) 22,242
- --------------------------------------------------------------------------------------------------------------------
Total $225,664 $11,856 $(154) $237,366
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities available for sale with a fair value of $33,609 and $29,127 were
pledged to secure Treasury Tax and Loan deposits, short-term borrowings and
public deposits at March 31, 1998 and December 31, 1997, respectively.
For the three months ended March 31, 1998, proceeds from sales of securities
available for sale amounted to $19,532 , while net realized gains on these sales
amounted to $41.
<PAGE>
(3) Securities Held to Maturity
<TABLE>
<CAPTION>
The amortized cost and fair value of securities held to maturity are summarized
as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1998
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies $23,947 $265 $(1) $24,211
Mortgage-backed securities 10,442 371 - 10,813
States and political subdivisions 18,616 143 (12) 18,747
- --------------------------------------------------------------------------------------------------------------------
Total 53,005 779 (13) 53,771
- --------------------------------------------------------------------------------------------------------------------
December 31, 1997
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies 23,932 245 (4) 24,173
Mortgage-backed securities 10,695 377 - 11,072
States and political subdivisions 17,180 161 - 17,341
- --------------------------------------------------------------------------------------------------------------------
Total $51,807 $783 $(4) $52,586
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales or transfers of securities held to maturity during the three
months ended March 31, 1998.
(4) Loan Portfolio The following is a summary of loans:
March 31, December 31,
1998 1997
- -----------------------------------------------------------------------------
Commercial:
Mortgages $63,310 $62,264
Construction and development 928 3,539
Other 127,201 127,956
- -----------------------------------------------------------------------------
Total commercial 191,439 193,759
Residential real estate:
Mortgages 179,311 181,790
Homeowner construction 5,974 6,097
- -----------------------------------------------------------------------------
Total residential real estate 185,285 187,887
Consumer 74,185 74,264
- -----------------------------------------------------------------------------
Total loans $450,909 $455,910
- -----------------------------------------------------------------------------
(5) Allowance For Loan Losses
The following is an analysis of the allowance for loan losses:
Three months ended March 31, 1998 1997
- -----------------------------------------------------------------------------
Balance at beginning of period $8,835 $8,495
Provision charged to expense 450 300
Recoveries 79 106
Loans charged off (55) (316)
- -----------------------------------------------------------------------------
Balance at end of period $9,309 $8,585
- -----------------------------------------------------------------------------
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations - Quarters Ended March 31, 1998 and 1997
Net income for the three months ended March 31, 1998 amounted to $2.4 million,
up 11.3% over the $2.2 million of net income recorded in the first quarter of
1997. Diluted earnings per share for the quarter ended March 31, 1998 amounted
to $.35, up from $.32 per share on net income earned in the comparable 1997
quarter.
Net interest income for the first quarter of 1998 increased by 9.1% over the
prior year quarter, to $7.3 million. This increase was primarily attributable to
net interest income generated under an investment program, as well as higher
interest and fees on loans. (See additional discussion under the caption "Net
Interest Income".)
The provision for loan losses for the three months ended March 31, 1998 amounted
to $450 thousand, up from $300 thousand for the first quarter of 1997.
Other noninterest income (noninterest income excluding net gains on sales of
securities) amounted to $2.6 million for the first quarter of 1998, up 26.2%
from the same 1997 period. This increase was primarily due to increases in net
gains on loan sales, higher revenues for trust services as well as increases in
service charges earned on deposit accounts. For the three months ended March 31,
1998 and 1997, net gains on sales of securities amounted to approximately $41
thousand and $254 thousand, respectively.
Total noninterest expense for the quarter ended March 31, 1998 amounted to $6.2
million, an increase of 12.7% from the comparable 1997 amount. This increase was
primarily attributable to higher salaries and benefits expense and increases in
other expenses resulting from the opening of five additional branch offices
throughout 1997 and the March 1998 opening of a financial services branch office
located in New London, Connecticut. (See additional discussion of the expansion
of the Corporation's market area under the caption "Financial Condition and
Liquidity".) Equipment and net occupancy costs rose 22.0% and 19.8%,
respectively, over the prior year period due primarily to rental expense and
depreciation of premises and equipment incurred in connection with the
Corporation's market area expansion efforts.
Net Interest Income
(The accompanying schedule entitled "Average Balances / Net Interest Margin -
Fully Taxable Equivalent Basis (FTE)" should be read in conjunction with this
discussion.)
FTE net interest income for the three months ended March 31, 1998 amounted to
$7.5 million, up by 7.2% over the same 1997 period due primarily to the growth
in interest-earning assets. The interest rate spread and the net interest margin
for the three months ended March 31, 1998 amounted to 3.24% and 3.81%,
respectively. Comparable amounts for quarter ended March 31, 1997 were 3.55% and
4.10%, respectively.
For the three months ended March 31, 1998, average interest-earning assets
amounted to $790.4 million, an increase of $105.7 million, or 15.4%, over the
comparable 1997 amount. The growth in average interest-earning assets was due
primarily to increases in total average loans and average taxable debt
securities. The $59.1 million increase in average taxable debt securities
resulted primarily from an investment securities purchase program. The objective
of the program is to increase net interest income and improve returns on equity,
while incurring limited interest rate risk. The securities purchased under this
program were funded with Federal Home Loan Bank (FHLB) advances with similar
interest rate repricing characteristics and growth in deposits. The FTE rate of
return on average interest-earning assets was 7.87% for the three months ended
March 31, 1998, down from 8.06% for the same 1997 period primarily due to
reduction in yields on taxable debt securities.
<PAGE>
The yield on average total loans amounted to 8.87% for the three months ended
March 31, 1998, up from 8.84% in the comparable 1997 period due primarily to
growth in average consumer and commercial loans. Average total loans for the
three months ended March 31, 1998 rose 8.1% over the prior year and amounted to
$455.6 million. Average consumer loans rose by 16.1% over the prior year, while
the average balance of residential real estate and commercial loans increased by
7.8% and 5.6%, respectively. The yield on consumer loans amounted to 9.10%, down
from the prior year yield of 9.15%. The yield on commercial loans declined
slightly from the first quarter of 1997 to 9.43%. The yields on total
residential real estate loans amounted to 8.21%, up 11 basis points from the
comparable 1997 period as a result of the refinancing of adjustable-rate
mortgages with new loans which are being sold in the secondary market.
The Corporation's total cost of funds on interest-bearing liabilities amounted
to 4.63% for the three months ended March 31, 1998, up from 4.51% for the
comparable 1997 period. This increase was due primarily to higher average FHLB
advances outstanding as well as increases in average balances and rates paid on
time deposits. FHLB advances have the highest overall cost of funds rate of the
bank's interest-bearing liabilities. Average FHLB advances for the three months
ended March 31, 1998 amounted to $210.5 million, up 28.6% from the $163.7
million average balance for the same 1997 period. The additional advances were
used primarily to purchase securities under the investment program. The average
rate paid on FHLB advances for the three months ended March 31, 1998 was 5.84%,
an increase of 11 basis points from the prior year rate. Average time deposits
rose 15.8% from the prior year amount, to $283.9 million due to a certificate of
deposit promotion conducted in February 1998. The rate paid on time deposits
increased to 5.48%, up 14 basis points from the prior year rate. Average savings
deposits for the three months ended March 31, 1998 increased 6.6% from the
comparable 1997 amount to $182.2 million. The rate paid on these deposits was
1.82% for the first three months of 1998, down from 2.01% for the same 1997
period. For the three months ended March 31, 1998, average demand deposits, an
interest-free funding source, were up by $8.9 million, or 14.2%, from the same
prior year period.
The Corporation supplements its interest rate risk management strategies with
off-balance sheet transactions. In March 1998, the Corporation entered into a
five year interest rate floor contract with a notional amount of $20 million.
This floor contract entitles the Corporation to receive payment from a
counterparty if the three month LIBOR rate falls below 5.50%. The amount of the
payment is the difference between the contractual floor rate and the three month
LIBOR rate multiplied by the notional principal amount of the contract. If the
contractual rate does not fall below the floor rate, no payment is received. The
credit risk associated with this type of transaction is risk of default by the
counterparty. To minimize this risk, the Corporation enters into interest rate
contracts only with creditworthy counterparties. The notional amount of the
agreement does not represent the amount exchanged by the parties and, therefore,
is not a measure of the Corporation's potential loss exposure.
<PAGE>
Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis
The following table sets forth average balance and interest rate information.
Income is presented on a fully taxable equivalent basis (FTE). For dividends on
corporate stocks, the 70% federal dividends received deduction is also used in
the calculation of tax equivalency. Nonaccrual and renegotiated loans, as well
as interest earned on these loans (to the extent recognized in the Consolidated
Statements of Income), are included in amounts presented for loans.
<TABLE>
<CAPTION>
Three months ended March 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
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 loans $189,444 3,891 8.21% $175,687 3,558 8.10%
Commercial and other loans 192,136 4,532 9.43% 182,002 4,293 9.44%
Consumer loans 73,970 1,682 9.10% 63,687 1,456 9.15%
- -------------------------------------------------------------------------------------------------------------------
Total loans 455,550 10,105 8.87% 421,376 9,307 8.84%
Federal funds sold and other
short-term investments 12,405 168 5.43% 4,819 61 5.11%
Taxable debt securities 275,253 4,380 6.37% 216,114 3,670 6.79%
Nontaxable debt securities 17,774 290 6.52% 15,678 259 6.61%
Corporate stocks and FHLB stock 29,448 607 8.25% 26,699 507 7.59%
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 790,430 15,550 7.87% 684,686 13,804 8.06%
Non interest-earning assets 49,231 43,132
- -------------------------------------------------------------------------------------------------------------------
Total assets $839,661 $727,818
- -------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings deposits $182,156 827 1.82% $170,830 860 2.01%
Time deposits 283,880 3,890 5.48% 245,245 3,276 5.34%
FHLB advances 210,466 3,072 5.84% 163,714 2,345 5.73%
Other 16,649 232 5.57% 21,627 300 5.54%
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 693,151 8,021 4.63% 601,416 6,781 4.51%
Demand deposits 71,149 62,287
Non interest-bearing liabilities 8,539 3,641
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 772,839 667,344
Total shareholders' equity 66,822 60,474
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $839,661 $727,818
- -------------------------------------------------------------------------------------------------------------------
Net interest income /
interest rate spread $7,529 3.24% $7,023 3.55%
- -------------------------------------------------------------------------------------------------------------------
Net interest margin 3.81% 4.10%
- -------------------------------------------------------------------------------------------------------------------
<FN>
Interest income amounts presented in the table above include the following
adjustments for taxable equivalency:
(Dollars in thousands)
Three months ended March 31, 1998 1997
- --------------------------------------------------------------------------------
Commercial and other loans $33 $33
Taxable debt securities - 99
Nontaxable debt securities 98 92
Corporate stocks 98 105
</FN>
</TABLE>
<PAGE>
Financial Condition and Liquidity
Total assets amounted to $877.0 million at March 31, 1998, an increase of $62.6
million, or 7.7%, from the December 31, 1997 amount of $814.4 million. Average
assets totaled $839.7 million for the three months ended March 31, 1998, up by
15.4% over the comparable 1997 period.
Securities Available for Sale - The carrying value of securities available for
sale at March 31, 1998 amounted to $302.9 million, an increase of 27.6% over the
December 31, 1997 amount of $237.4 million. This increase is attributable to
purchases of mortgage-backed securities and obligations of U.S.
government-sponsored agencies. The net unrealized gain on securities available
for sale amounted to $13.0 million, up 11.5% from the December 31, 1997 balance
of $11.7 million. This increase was attributable to the rise in the equity
market that occurred in the first quarter of 1998.
Securities Held to Maturity - The carrying value of securities held to maturity
amounted to $53.0 million at March 31, 1998, up from $51.8 million at December
31, 1997. The net unrealized gain on securities held to maturity amounted to
approximately $766 thousand at March 31, 1998, down from $779 thousand at
December 31, 1997.
Loans - Total loans amounted to $450.9 million at March 31, 1998, a decrease of
$5.0 million, or 1.1%, from the December 31, 1997 balance of $455.9 million. The
$2.6 million decline in residential real estate loans was primarily due to
refinancings of adjustable-rate mortgages with new loans largely sold into the
secondary market. Commercial loans decreased $2.3 million mainly due to
construction and development loan payoffs.
Deposits - Total deposits amounted to $547.8 million at March 31, 1998, up by
3.1% from the December 31, 1997 amount of $530.9 million. This increase was
attributable to a 7.4% rise in time deposits resulting from a certificate of
deposit promotion held in February 1998. Savings deposits decreased by $1.8
million or 1.0% from the December 31, 1997 balance. Demand deposits amounted to
$73.8 million, down 1.9% from the December 31, 1997 balance of $75.2 million.
Borrowings - The Corporation utilizes FHLB advances as a funding source. FHLB
advances amounted to $230.8 million at March 31, 1998, up by $43.8 million from
the December 31, 1997 amount. In addition, short-term borrowings outstanding at
March 31, 1998 amounted to $19.7 million. The additional FHLB advances were used
to purchase securities under the investment program.
For the three months ended March 31, 1998, net cash provided by operations
amounted to $679 thousand, the majority of which was generated by net income. A
lower interest rate environment lead to volume growth in both mortgage loan
originations and loans sold into the secondary market. Loans originated for sale
in the first three months of 1998 amounted to $24.0 million, significantly
higher than the $5.2 million originated in the first quarter of 1997. Proceeds
from sales of loans in the three months ended March 31, 1998 amounted to $22.3
million, up from $4.2 million in the comparable 1997 period. Net cash used in
investing activities amounted to $60.9 million and was primarily used to
purchase securities available for sale. Net cash provided by investing
activities of $58.9 million was generated mainly by a net increase in FHLB
advances of $43.8 million, and by an increase in deposits of $16.9 million. (See
Consolidated Statements of Cash Flows for additional information.)
Expansion
During the first quarter of 1998, the Corporation opened a financial services
branch office in New London, Connecticut. Financial services provided at the
office include trust and investment management, commercial lending and
residential mortgage origination. The office does not currently accept deposits
or perform other retail banking services, but may offer them in the future. The
Corporation has also announced the opening of an operations center to be located
in Westerly, Rhode Island. Operations functions currently performed at the
Corporation's headquarters are expected to be relocated to this leased facility
during the second quarter of 1998.
<PAGE>
Asset Quality
Nonperforming assets are summarized in the following table:
March 31, December 31,
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Nonaccrual loans 90 days or more past due $3,688 $4,089
Nonaccrual loans less than 90 days past due 3,777 3,246
- --------------------------------------------------------------------------------
Total nonaccrual loans 7,465 7,335
Other real estate owned 233 497
- --------------------------------------------------------------------------------
Total nonperforming assets $7,698 $7,832
- --------------------------------------------------------------------------------
Nonaccrual loans as a % of total loans 1.66% 1.61%
Nonperforming assets as a % of total assets .88% .96%
Allowance for loan losses to nonaccrual loans 124.71% 120.45%
Not included in the analysis of nonperforming assets at March 31, 1998 and
December 31, 1997 above are approximately $731 thousand and $644 thousand,
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:
March 31, December 31,
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
Residential mortgages $1,431 $1,290
Commercial:
Mortgages 1,616 1,977
Other (1) 3,903 3,616
Consumer 515 452
- --------------------------------------------------------------------------------
Total nonaccrual loans $7,465 $7,335
- --------------------------------------------------------------------------------
(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 March 31, 1998,
the recorded investment in impaired loans was $5.5 million, including $5.2
million which had a related allowance amounting to $1.1 million. The balance of
impaired loans which did not require an allowance at March 31, 1998 was $356
thousand. During the three months ended March 31, 1998, the average recorded
investment in impaired loans was $6.0 million. Also during this period, interest
income recognized on impaired loans amounted to approximately $87 thousand.
Interest income on impaired loans is recognized on a cash basis only.
Capital Resources
Total equity capital amounted to $69.3 million, or 7.9% of total assets at March
31, 1998. This compares to $67.2 million, or 8.3% at December 31, 1997. The
reduction in this ratio is due primarily to the growth in assets resulting from
the investment program. Total equity increased by approximately $2.1 million
from December 31, 1997. This increase was primarily attributable to a $2.4
million increase in earnings retention. (See the Consolidated Statements of
Changes in Shareholders' Equity for additional information.)
At March 31, 1998, the Corporation's Tier 1 capital ratio was 13.19%, the total
risk-adjusted capital ratio was 14.45% and the leverage ratio was 7.28%. These
ratios were all above the ratios required to be categorized as well-capitalized.
Dividends payable at March 31, 1998 amounted to approximately $998 thousand,
representing $.15 per share payable on April 15, 1998, an increase of 7.1% over
the $.14 per share declared in the fourth quarter of 1997. 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity and Liquidity
See discussion and analysis of interest rate sensitivity and liquidity provided
in the Corporation's Annual Report on Form 10-K for the year ended December 31,
1997. There have been no material changes in reported market risks faced by the
Corporation since the filing of the Corporation's 1997 Annual Report on
Form 10-K.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On January 28, 1997, a suit was filed against the Bank in the
Superior Court of Washington County, Rhode Island by Maxson
Automatic Machinery Company ("Maxson"), a corporate customer, and
Maxson's shareholders for damages which the plaintiffs allegedly
incurred as a result of an embezzlement by Maxson's former
president and treasurer. The suit alleges that the Bank wrongly
permitted this individual, while an officer of Maxson, to divert
funds from Maxson's account at the Bank for his personal benefit.
The claims against the Bank are based upon theories of breach of
fiduciary duties, negligence, breach of contract, unjust enrichment
and conversion.
The suit as originally filed sought recovery for losses alleged to
be directly related to the embezzlement of approximately $3.1
million, as well as consequential damages amounting to
approximately $2.6 million. On March 19, 1998, Maxson amended its
claims to seek recovery of an additional $2.6 million in losses,
plus an unspecified amount of interest thereon, which are alleged
to be directly related to the embezzlement.
Management believes, based on its review with counsel of the
development of this matter to date, that the Bank has asserted
meritorious defenses in this litigation. Additionally, the Bank has
filed counterclaims against Maxson and its principal shareholder as
well as claims against the officer responsible for the
embezzlement. The Bank intends to vigorously defend the suit as
well as to vigorously pursue its counterclaims. Management and
legal counsel are unable to form an opinion regarding the outcome
of this matter. Consequently, no loss provision has been recorded.
The Corporation is involved in various other claims and legal
proceedings arising out of the ordinary course of business.
Management is of the opinion, based on its review with counsel of
the development of such matters to date, that the ultimate
disposition of such other matters will not materially affect the
consolidated financial position or results of operations of the
Corporation.
Item 2. Changes in Securities and Use of Proceeds
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.
11 Statement re Computation of Per Share Earnings
(b) There were no reports on Form 8-K filed during the quarter ended
March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON TRUST BANCORP, INC.
(Registrant)
May 14, 1998 By: John C. Warren
----------------------------------------
John C. Warren
President and Chief Executive Officer
(principal executive officer)
May 14, 1998 By: David V. Devault
-----------------------------------------------------
David V. Devault
Vice President, Treasurer and Chief Financial Officer
(principal financial and accounting officer)
<TABLE>
<CAPTION>
EXHIBIT 11
Washington Trust Bancorp, Inc.
Computation of Per Share Earnings
For the Three Months Ended March 31, 1998 and 1997
(In thousands, except per share amounts) 1998 1997
- ----------------------------------------------------------------------- -------------------------
Basic Diluted Basic Diluted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $2,393 $2,393 $2,151 $2,151
Share amounts, in thousands:
Average outstanding 6,649.3 6,649.3 6,549.4 6,549.4
Common stock equivalents - 274.4 - 264.3
- --------------------------------------------- ------------ ------------ ------------ ------------
Weighted average outstanding 6,649.3 6,923.7 6,549.4 6,813.7
- --------------------------------------------- ------------ ------------ ------------ ------------
Earnings per share $.36 $.35 $.33 $.32
- --------------------------------------------- ------------ ------------ ------------ ------------
</TABLE>
<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 MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 16,467
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,421
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 302,926
<INVESTMENTS-CARRYING> 53,005
<INVESTMENTS-MARKET> 53,771
<LOANS> 450,909
<ALLOWANCE> 9,309
<TOTAL-ASSETS> 877,031
<DEPOSITS> 547,778
<SHORT-TERM> 19,727
<LIABILITIES-OTHER> 240,192
<LONG-TERM> 0
0
0
<COMMON> 418
<OTHER-SE> 68,916
<TOTAL-LIABILITIES-AND-EQUITY> 877,031
<INTEREST-LOAN> 10,072
<INTEREST-INVEST> 5,080
<INTEREST-OTHER> 169
<INTEREST-TOTAL> 15,321
<INTEREST-DEPOSIT> 4,717
<INTEREST-EXPENSE> 8,021
<INTEREST-INCOME-NET> 7,300
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 41
<EXPENSE-OTHER> 6,190
<INCOME-PRETAX> 3,324
<INCOME-PRE-EXTRAORDINARY> 3,324
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,393
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
<YIELD-ACTUAL> 3.81
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,835
<CHARGE-OFFS> 55
<RECOVERIES> 79
<ALLOWANCE-CLOSE> 9,309
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
