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 SEPTEMBER 30, 2002 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
October 31, 2002 was 13,034,996.
Page 1
FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
For The Quarter Ended September 30, 2002
TABLE OF CONTENTS
Page
Number
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001
Consolidated Statements of Income
Three and Nine Months Ended September 30, 2002 and 2001
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 2002 and 2001
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001
Condensed Notes to Consolidated Financial Statements
Independent Auditors' Review Report
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
This report contains certain statements that may be considered "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Corporation's actual results, performance or achievements could differ
materially from those projected in the forward-looking statements as a result,
among other factors, of changes in general national or regional economic
conditions, changes in interest rates, reductions in the market value of trust
and investment management assets under management, reductions in deposit levels
necessitating increased borrowing to fund loans and investments, changes in the
size and nature of the Corporation's competition, changes in loan default and
charge-off rates and changes in the assumptions used in making such
forward-looking statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Assets:
Cash and due from banks $34,012 $30,399
Federal funds sold and other short-term investments 10,325 20,500
Mortgage loans held for sale 9,516 7,710
Securities:
Available for sale, at fair value 558,536 453,956
Held to maturity, at cost; fair value $224,799
in 2002 and $177,595 in 2001 216,719 175,105
- --------------------------------------------------------------------------------
Total securities 775,255 629,061
Federal Home Loan Bank stock, at cost 24,582 23,491
Loans 756,978 605,645
Less allowance for loan losses 15,660 13,593
- --------------------------------------------------------------------------------
Net loans 741,318 592,052
Premises and equipment, net 24,398 22,102
Accrued interest receivable 8,051 7,124
Goodwill and other intangibles 25,750 669
Other assets 31,375 29,121
- --------------------------------------------------------------------------------
Total assets $1,684,582 $1,362,229
- --------------------------------------------------------------------------------
Liabilities:
Deposits:
Demand $175,245 $134,783
Savings 454,437 316,953
Time 479,743 365,140
- --------------------------------------------------------------------------------
Total deposits 1,109,425 816,876
Dividends payable 1,500 1,569
Federal Home Loan Bank advances 425,725 431,490
Other borrowings 7,691 2,087
Accrued expenses and other liabilities 14,906 12,270
- --------------------------------------------------------------------------------
Total liabilities 1,559,247 1,264,292
- --------------------------------------------------------------------------------
Shareholders' Equity:
Common stock of $.0625 par value; authorized
30 million shares; issued 13,086,795 shares
in 2002 and 12,065,283 shares in 2001 818 754
Paid-in capital 28,782 10,696
Retained earnings 88,064 81,114
Accumulated other comprehensive income 8,667 6,416
Treasury stock, at cost; 51,805 shares in 2002
and 54,102 shares in 2001 (996) (1,043)
- --------------------------------------------------------------------------------
Total shareholders' equity 125,335 97,937
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,684,309 $1,362,229
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands,
CONSOLIDATED STATEMENTS OF INCOME except per share data)
(Unaudited)
Three Months Nine Months
Periods ended September 30, 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $12,958 $12,846 $36,762 $38,666
Interest from securities 9,342 8,752 26,837 25,833
Dividends on corporate stock and Federal Home Loan Bank stock 500 591 1,480 1,790
Interest on federal funds sold and other short-term investments 63 134 171 517
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 22,863 22,323 65,250 66,806
- -----------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 1,773 1,300 3,926 4,054
Time deposits 4,161 4,573 12,624 14,621
Federal Home Loan Bank advances 4,963 5,971 15,692 18,724
Other 28 23 65 76
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 10,925 11,867 32,307 37,475
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 11,938 10,456 32,943 29,331
Provision for loan losses 100 100 300 450
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 11,838 10,356 32,643 28,881
- -----------------------------------------------------------------------------------------------------------------------
Noninterest income:
Trust and investment management 2,468 2,620 7,700 7,928
Service charges on deposit accounts 986 894 2,788 2,679
Merchant processing fees 1,221 1,099 2,443 2,091
Net gains on loan sales 608 352 1,522 1,188
Income from bank-owned life insurance 291 287 864 838
Net realized (losses) gains on securities (52) - 620 408
Other income 507 401 1,105 1,079
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest income 6,029 5,653 17,042 16,211
- -----------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 6,047 5,326 17,630 15,685
Net occupancy 675 652 1,970 2,004
Equipment 887 760 2,470 2,394
Legal, audit and professional fees 815 235 1,209 1,072
Merchant processing costs 965 872 1,936 1,672
Advertising and promotion 271 311 947 790
Office supplies 146 157 432 485
Amortization of intangibles 220 32 441 97
Acquisition related expenses - - 605 -
Litigation settlement (recovery) cost - (775) - 4,025
Other 1,303 1,434 4,327 4,302
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expense 11,329 9,004 31,967 32,526
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 6,538 7,005 17,718 12,566
Income tax expense 2,027 2,163 5,439 3,770
- -----------------------------------------------------------------------------------------------------------------------
Net income $4,511 $4,842 $12,279 $8,796
- -----------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - basic 13,032.9 12,056.9 12,635.9 12,033.6
Weighted average shares outstanding - diluted 13,254.3 12,270.1 12,833.7 12,198.1
Per share information:
Basic earnings per share $.35 $.40 $.97 $.73
Diluted earnings per share $.34 $.40 $.96 $.72
Cash dividends declared per share $.14 $.13 $.42 $.39
The accompanying notes are an integral part of these consolidated financial
statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Accumulated
Other
Common Paid-in Retained Comprehensive Treasury
Nine months ended September 30, Stock Capital Earnings Income Stock Total
- -----------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2001 $750 $10,144 $74,265 $4,027 $ - $89,186
Net income 8,796 8,796
Cumulative effect of change in
accounting principle, net of tax (391) (391)
Other comprehensive income, net of tax:
Net unrealized gains on securities 5,744 5,744
Reclassification adjustments (400) (400)
----------
Comprehensive income 5,344
Cash dividends declared (4,697) (4,697)
Shares issued 4 544 1 549
Shares repurchased (1) (1)
- -----------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2001 $754 $10,688 $78,364 $8,980 $ - $98,786
- -----------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2002 $754 $10,696 $81,114 $6,416 $(1,043) $97,937
Net income 12,279 12,279
Other comprehensive income, net of tax:
Net unrealized gains on securities 2,858 2,858
Reclassification adjustments (607) (607)
----------
Comprehensive income 14,530
Cash dividends declared (5,329) (5,329)
Shares issued (169) 585 416
Shares issued for acquisition 64 18,255 18,319
Shares repurchased (538) (538)
- ------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002 $818 $28,782 $88,064 $8,667 $(996) $125,335
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, 2002 2001
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $12,279 $8,796
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 300 450
Depreciation of premises and equipment 2,220 2,168
Amortization of premium in excess of accretion of
discount on debt securities 951 266
Increase in bank-owned life insurance (864) (838)
Depreciation (appreciation) of
derivative instruments 398 (573)
Net amortization of intangibles 51 -
Net realized gains on securities (620) (408)
Net gains on loan sales (1,522) (1,188)
Proceeds from sales of loans 66,001 61,402
Loans originated for sale (66,392) (63,315)
Increase in accrued interest receivable (453) (112)
Increase in other assets (2,214) (2,790)
Increase (decrease) in accrued expenses
and other liabilities (1,230) 2,337
Other, net 501 679
- --------------------------------------------------------------------------------
Net cash provided by operating activities 9,406 6,874
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Securities available for sale:
Purchases (236,233) (146,887)
Proceeds from sales 28,911 238
Maturities and principal repayments 112,483 106,037
Securities held to maturity:
Purchases (92,477) (92,805)
Maturities and principal repayments 50,658 24,107
Purchase of Federal Home Loan Bank stock - (3,933)
Principal collected on loans under loan originations (12,410) (8,691)
Purchase of loans (23,892) (15,151)
Proceeds from sales of other real estate owned 36 150
Proceeds from sales of premises and equipment 638 -
Purchases of premises and equipment (2,609) (3,043)
Cash acquired, net of payment made for acquisition 34,506 -
- --------------------------------------------------------------------------------
Net cash used in investing activities (140,389) (139,978)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 155,240 62,412
Net increase in other borrowings 2,750 1,593
Proceeds from Federal Home Loan Bank advances 476,700 886,000
Repayment of Federal Home Loan Bank advances (504,634) (822,219)
Purchase of treasury stock (538) (1)
Net effect of common stock transactions 301 245
Cash dividends paid (5,398) (4,567)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 124,421 123,463
- --------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (6,562) (9,641)
Cash and cash equivalents at beginning of year 50,899 43,860
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $44,337 $34,219
- --------------------------------------------------------------------------------
(Continued)
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY (Dollars in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Nine months ended September 30, 2002 2001
- --------------------------------------------------------------------------------
Noncash Investing and Financing Activities:
Net transfers from loans to other real
estate owned (OREO) $- $168
Loans charged off 229 221
Increase in unrealized gain on securities
available for sale, net of tax 2,251 4,953
Increase in paid-in capital resulting from
tax benefits on stock option exercises 115 304
In conjunction with the purchase acquisition detailed in Note 3 to the
Consolidated Financial Statements, assets were acquired and liabilities were
assumed as follows:
Fair value of assets acquired $204,807 $-
Less liabilities assumed 166,753 -
Supplemental Disclosures:
Interest payments $31,922 $38,087
Income tax payments 6,603 2,926
The accompanying notes are an integral part of these consolidated financial
statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accounting and reporting policies of Washington Trust Bancorp, Inc. (the
"Bancorp") and its wholly owned subsidiary, The Washington Trust Company (the
"Subsidiary") (together, 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 reflect all adjustments (consisting of normal recurring adjustments)
and disclosures necessary to present fairly the Corporation's financial position
as of September 30, 2002 and December 31, 2001 and the results of operations and
cash flows for the interim periods presented.
The consolidated financial statements include the accounts of the Bancorp and
the Subsidiary. All significant intercompany balances and transactions have been
eliminated.
The unaudited consolidated financial statements of the Corporation 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 accounting principles generally
accepted in the United States of America. The Corporation has not changed its
accounting and reporting policies from those disclosed in the Bancorp's Annual
Report on Form 10-K for the year ended December 31, 2001. Certain
reclassifications have been made to prior period financial statements to conform
to the 2002 presentation. Such reclassifications have no effect on previously
reported net income.
(2) New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations." SFAS 141 addresses financial accounting and
reporting for business combinations and supersedes APB Opinion No. 16, "Business
Combinations," and FASB Statement No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." All business combinations in the scope
of this Statement are to be accounted for using one method - the purchase
method. Therefore, this Statement eliminated the use of the pooling-of-interests
method for accounting for business combinations. The provisions of SFAS 141
apply to all business combinations initiated after June 30, 2001, and also apply
to all business combinations accounted for using the purchase method for which
the date of acquisition is July 1, 2001 or later.
Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This Statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. This Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. The provisions of this Statement were required to be
applied starting with fiscal years beginning after December 15, 2001.
The adoption of the foregoing pronouncements did not have a material impact on
the Corporation's financial statements with respect to any business combinations
that occurred prior to 2002. SFAS Nos. 141 and 142 were applied to the
acquisition of First Financial Corp., which was completed on April 16, 2002. See
Note 3 to the Consolidated Financial Statements for discussion of the First
Financial Corp. acquisition.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement supersedes FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." This Statement established a single
accounting model to be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, broadened the presentation
of discontinued operations to include more disposal transactions, and resolved
significant implementation issues related to SFAS No. 121. The provisions of
this Statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
The provisions of this Statement are to be applied prospectively. The adoption
of this pronouncement did not have a material impact on the Corporation's
financial statements.
(3) Acquisition
On April 16, 2002, the Corporation completed the acquisition of First Financial
Corp., the parent company of First Bank and Trust Company, a Rhode
Island-chartered community bank. The results of First Financial Corp.'s
operations have been included in the Corporation's Consolidated Statements of
Income since that date. First Financial Corp. was headquartered in Providence,
Rhode Island and its subsidiary, First Bank and Trust Company, operated banking
offices in Providence, Cranston, Richmond and North Kingstown, Rhode Island. The
Corporation closed the Richmond and North Kingstown offices and consolidated
them into existing Subsidiary banking offices in May 2002. Pursuant to the
Agreement and Plan of Merger dated November 12, 2001, the acquisition was
effected by means of the merger of First Financial Corp. with and into the
Bancorp and the merger of First Bank and Trust Company with and into the
Subsidiary. The acquisition was accounted for as a purchase in accordance with
SFAS No. 141 "Business Combinations" and the provisions of SFAS No. 142
"Goodwill and Other Intangible Assets" were also applied.
The Bancorp issued 1,021,512 common shares and paid $19.4 million in cash to the
First Financial Corp. shareholders in connection with the acquisition. The total
purchase price of First Financial Corp. was $38.1 million. Shareholders of First
Financial common stock received 0.842 of a Bancorp share plus $16.00 in cash for
each share of First Financial common stock, with cash paid in lieu of fractional
shares.
The following table summarizes the fair values of the assets acquired and
liabilities assumed for First Financial Corp. at the date of acquisition. The
Corporation expects that some adjustments of the fair values assigned to the
assets acquired and liabilities assumed at April 16, 2002 may be subsequently
recorded, although such adjustments are not expected to be material. A
substantial portion of the First Financial Corp. investment portfolio was
liquidated prior to April 16, 2002.
(Dollars in thousands) April 16,
2002
- --------------------------------------------------------------------------------
Assets:
Cash and due from banks $43,034
Short-term investments 11,208
Investments 6,521
Federal Home Loan Bank stock 1,091
Net loans 113,703
Premises and equipment, net 2,539
Accrued interest receivable 474
Goodwill 21,866
Other assets 4,371
- --------------------------------------------------------------------------------
Total assets acquired $204,807
- --------------------------------------------------------------------------------
Liabilities:
Deposits $137,729
Federal Home Loan Bank advances 22,303
Other borrowings 2,854
Accrued expenses and other liabilities 3,867
- --------------------------------------------------------------------------------
Total liabilities acquired $166,753
- --------------------------------------------------------------------------------
Net assets acquired $38,054
- --------------------------------------------------------------------------------
(4) Securities
Securities available for sale are summarized as follows:
(Dollars in thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
September 30, 2002
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies $ 56,189 $ 2,996 $ - $ 59,185
Mortgage-backed securities 401,814 8,711 (280) 410,245
Corporate bonds 66,997 1,517 (1,826) 66,688
Corporate stocks 20,021 3,901 (1,504) 22,418
- ---------------------------------------------------------------------------------------------------------------------
Total 545,021 17,125 (3,610) 558,536
- ---------------------------------------------------------------------------------------------------------------------
December 31, 2001
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies 64,368 2,348 (1) 66,715
Mortgage-backed securities 296,729 4,411 (1,090) 300,050
Corporate bonds 64,934 1,130 (1,915) 64,149
Corporate stocks 17,752 5,938 (648) 23,042
- ---------------------------------------------------------------------------------------------------------------------
Total $443,783 $13,827 $(3,654) $453,956
- ---------------------------------------------------------------------------------------------------------------------
<FN>
For the nine months ended September 30, 2002, proceeds from sales of securities
available for sale amounted to $28.9 million while net realized gains on
securities amounted to $620 thousand. This included $923 thousand in gains on
sales of securities offset by $303 thousand in loss write-downs on certain
equity securities deemed to be other than temporarily impaired based on an
analysis of the financial condition and operating outlook of the issuers.
</FN>
Securities held to maturity are summarized as follows:
(Dollars in thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
September 30, 2002
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies $ 3,000 $55 $ - $ 3,055
Mortgage-backed securities 194,650 7,004 - 201,654
States and political subdivisions 19,069 1,021 - 20,090
- ---------------------------------------------------------------------------------------------------------------------
Total 216,719 8,080 - 224,799
- ---------------------------------------------------------------------------------------------------------------------
December 31, 2001
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies 8,311 307 - 8,618
Mortgage-backed securities 146,702 1,753 (48) 148,407
States and political subdivisions 20,092 485 (7) 20,570
- ---------------------------------------------------------------------------------------------------------------------
Total $175,105 $2,545 $(55) $177,595
- ---------------------------------------------------------------------------------------------------------------------
<FN>
There were no sales of securities held to maturity during the nine months ended
September 30, 2002.
</FN>
Securities available for sale and held to maturity with a fair value of $444.4
million and $394.4 million were pledged in compliance with state regulations
concerning trust powers and to secure Treasury Tax and Loan deposits,
borrowings, and public deposits at September 30, 2002 and December 31, 2001,
respectively. In addition, securities available for sale and held to maturity
with a fair value of $29.1 million and $28.4 million were collateralized for the
discount window at the Federal Reserve Bank at September 30, 2002 and December
31, 2001, respectively. There were no borrowings with the Federal Reserve Bank
at either date.
(5) Loan Portfolio
The following is a summary of loans:
(Dollars in thousands) September 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Commercial:
Mortgages (1) $185,917 $118,999
Construction and development (2) 14,862 1,930
Other (3) 178,282 139,704
- --------------------------------------------------------------------------------
Total commercial 379,061 260,633
Residential real estate:
Mortgages (4) 236,883 223,681
Homeowner construction 11,295 11,678
- --------------------------------------------------------------------------------
Total residential real estate 248,178 235,359
Consumer 129,739 109,653
- --------------------------------------------------------------------------------
Total loans $756,978 $605,645
- --------------------------------------------------------------------------------
(1) Amortizing mortgages, primarily secured by income producing property
(2) Loans for construction of residential and commercial properties and
for land development
(3) Loans to businesses and individuals, a substantial portion of which are
fully or partially collateralized by real estate
(4) A substantial portion of these loans is used as qualified collateral for
FHLB borrowings (See Note 9 to the Consolidated Financial Statements for
additional discussion of FHLB borrowings)
(6) Allowance For Loan Losses
The following is an analysis of the allowance for loan losses:
(Dollars in thousands)
Three Months Nine Months
---------------------------------------------------
Periods ended September 30, 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------
Balance at beginning of period $15,466 $13,630 $13,593 $13,135
Allowance on acquired loans - - 1,829 -
Provision charged to expense 100 100 300 450
Recoveries of loans previously charged off 114 55 167 323
Loans charged off (20) (98) (229) (221)
- ----------------------------------------------------------------------------------------------------
Balance at end of period $15,660 $13,687 $15,660 $13,687
- ----------------------------------------------------------------------------------------------------
(7) Goodwill and other intangibles
The second quarter 2002 acquisition of First Financial Corp. resulted in the
recording of goodwill of $22.9 million. Included in this amount were $829
thousand of business combination costs (primarily legal, accounting and
investment advisor fees) capitalized in accordance with accounting principles
generally accepted in the United States of America. In accordance with the
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill
acquired in business combinations after June 30, 2001 will not be amortized.
At September 30, 2002 and December 31, 2001, the Corporation had other
intangible assets with carrying values of $2.9 million and $669 thousand,
respectively. In conjunction with the 2002 First Financial Corp. acquisition,
the Corporation recorded core deposit intangibles of $1.8 million with an
average useful life of ten years. Amortization expense associated with these
other intangible assets, amounted to $220 thousand and $32 thousand for the
third quarter of 2002 and 2001, respectively. Comparable amounts for the nine
months ended September 30, 2002 and 2001 were $441 thousand and $97 thousand,
respectively.
The changes in the carrying value of goodwill and other intangible assets for
the nine months ended September 30, 2002 are as follows:
(Dollars in thousands) Core Deposit Other Total
Goodwill Intangibles Intangibles Intangibles
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ - $ 669 $ - $ 669
Recorded during the period 22,869 1,801 852 25,522
Amortization expense - (323) (118) (441)
Impairment recognized - - - -
- ------------------------------------------------------------------------------------------------------------
Balance September 30, 2002 $22,869 $2,147 $734 $25,750
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Core Deposit Other Total
Estimated amortization expense Intangibles Intangibles Intangibles
- --------------------------------------------------------------------------------
2002 $410 $189 $599
2003 435 284 719
2004 359 284 643
2005 303 95 398
2006 261 - 261
The components of intangible assets are as follows:
(Dollars in thousands)
Gross Carrying Accumulated Net Carrying
Intangible assets Amount Amortization Amount
- --------------------------------------------------------------------------------
Core deposit intangibles $3,096 $ 949 $2,147
Other intangibles 852 118 734
- --------------------------------------------------------------------------------
Total $3,948 $1,067 $2,881
- --------------------------------------------------------------------------------
(8) Derivative Financial Instruments
The Corporation was party to a five-year interest rate floor contract with a
notional amount of $20 million that was to mature in February 2003. The floor
contract entitled the Corporation to receive payment from a counterparty if the
three-month LIBOR rate fell below 5.50%. The Corporation and the counterparty
agreed to an early termination date of May 7, 2002 and the Corporation received
a final payment from the counterparty of $606 thousand.
The Corporation recognized the fair value of this derivative as an asset on the
balance sheet and changes in fair value were recorded in current earnings. The
carrying value of the interest rate floor contract amounted to $739 thousand at
December 31, 2001. Included in interest income for the nine months ended
September 30, 2002 was $229 thousand of depreciation in value through the
termination date. Included in interest income for the three and nine months
ended September 30, 2001 was $373 thousand and $643 thousand of appreciation in
value of the interest rate floor contract, respectively.
The Corporation recognizes commitments to originate and commitments to sell
fixed rate mortgage loans as derivative financial instruments. Accordingly, the
Corporation recognizes the fair value of these commitments as an asset on the
balance sheet. At September 30, 2002 and December 31, 2001, the carrying value
of these commitments amounted to ($83) thousand and $86 thousand, respectively.
Changes in fair value are recorded in current earnings and amounted to $74
thousand and $83 thousand of depreciation in value for the three months ended
September 30, 2002 and 2001, respectively. Included in earnings for the nine
months ended September 30, 2002 and 2001, was $169 thousand and $59 thousand of
depreciation in value, respectively.
(9) Borrowings
Federal Home Loan Bank advances outstanding are summarized below:
(Dollars in thousands) September 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
FHLB advances $425,725 $431,490
- --------------------------------------------------------------------------------
In addition to outstanding advances, the Corporation also has access to an
unused line of credit amounting to $8.0 million at September 30, 2002 and
December 31, 2001. Under agreement with the FHLB, the Corporation is required to
maintain qualified collateral, free and clear of liens, pledges, or encumbrances
that, based on certain percentages of book and market values, has a value equal
to the aggregate amount of the line of credit and outstanding advances ("FHLB
borrowings"). The FHLB maintains a security interest in various assets of the
Corporation including, but not limited to, residential mortgages loans, U.S.
government or agency securities, U.S. government-sponsored agency securities and
amounts maintained on deposit at the FHLB. The Corporation maintained qualified
collateral in excess of the amount required to secure FHLB borrowings at
September 30, 2002 and December 31, 2001. Included in the collateral were
securities available for sale and held to maturity with a fair value of $423.5
million and $376.5 million that were specifically pledged to secure FHLB
borrowings at September 30, 2002 and December 31, 2001, respectively. Unless
there is an event of default under the agreement, the Corporation may use,
encumber or dispose any portion of the collateral in excess of the amount
required to secure FHLB borrowings, except for that collateral which has been
specifically pledged.
The following is a summary of other borrowings:
(Dollars in thousands) September 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Treasury, Tax and Loan demand note balance $6,763 $1,583
Other 928 504
- --------------------------------------------------------------------------------
Other borrowings $7,691 $2,087
- --------------------------------------------------------------------------------
(10) Litigation
In June 1999 a lawsuit was filed against First Bank and Trust Company ("First
Bank") in Providence County (Rhode Island) Superior Court by Read & Lundy, Inc.
and its principal, Cliff McFarland (collectively, "the plaintiffs"). The
Washington Trust Company was substituted as defendant in June 2002 following the
acquisition of First Financial Corp., the parent company of First Bank. The
original complaint alleged claims for breach of contract, tortious interference
with contractual relations, and civil conspiracy arising out of First Bank's
1996 loan to a third party company. Plaintiffs allege that the loan to the third
party enabled that company to compete unlawfully with Read & Lundy and thereby
diminished Read & Lundy's profitability. The complaint was amended in December
2001 to add a claim for violation of the Rhode Island Trade Secrets Act.
The plaintiffs had previously filed a suit in the same court in 1996 against the
third party company and its founder. Washington Trust is not a party to this
suit. In September 2001, judgment was entered against the third party company
and its founder in favor of the plaintiffs for approximately $1.55 million in
compensatory and punitive damages, including pre-judgment interest.
Plaintiffs contend that Washington Trust as an alleged co-conspirator of the
third party company is liable for this entire amount, none of which has been
collected from the third party company. Plaintiffs are also seeking additional
compensatory damages and other costs allegedly arising after the third party
trial. Including interest, it is estimated that the amount of the claim against
Washington Trust is approximately $2 million.
Management believes, based on its review with counsel of the development of this
matter to date, that Washington Trust has asserted meritorious defenses in this
litigation. The discovery phase of the case is nearing completion and Washington
Trust has filed a motion for summary judgment on all counts. A ruling on this
motion is expected in November 2002. A trial date has been set for January 2003.
Because of the uncertainties surrounding the outcome of the litigation no
assurance can be given that the litigation will be resolved in favor of
Washington Trust. Management and legal counsel are unable to estimate the amount
of loss, if any, that may be incurred with respect to this litigation.
Consequently, no loss provision has been recorded.
A second claim ancillary to this litigation was brought by the plaintiffs in
March 2002. Washington Trust has also been substituted for First Bank in these
proceedings. In this matter, plaintiffs brought a motion seeking enforcement of
a prejudgment writ of attachment obtained in 1997 by the plaintiffs against
funds held by First Bank as collateral for the loan to the third party company.
In 1999, First Bank had applied these funds as an offset to that loan. In August
2002, judgment against Washington Trust was rendered on this motion requiring
Washington Trust to make the funds available for attachment by the plaintiffs.
This judgment is under appeal to the Rhode Island Supreme Court. As of September
30, 2002, Washington Trust has recorded a liability for the judgment award of
$273 thousand in connection with this matter. As a pre-acquisition contingency,
the offset to the liability has been recognized as a portion of the purchase
price of First Financial Corp.
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.
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Washington Trust Bancorp, Inc.:
We have reviewed the consolidated balance sheet of Washington Trust Bancorp,
Inc. and subsidiary (the "Corporation") as of September 30, 2002, and the
related consolidated statements of income for the three-month and nine-month
periods ended September 30, 2002 and 2001, changes in shareholders' equity and
cash flows for the nine-month periods ended September 30, 2002 and 2001. These
consolidated financial statements are the responsibility of the Corporation's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Washington Trust Bancorp, Inc. and subsidiary as of December 31, 2001, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated January 15, 2002, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the consolidated balance sheet as of December 31, 2001, is fairly stated, in all
material respects.
KPMG LLP
Providence, Rhode Island
November 13, 2002
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains certain statements that may be considered "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We
may also make written or oral forward-looking statements in other documents we
file with the Securities and Exchange Commission, in our annual reports to
shareholders, in press releases and other written materials, and in oral
statements made by our officers, directors or employees. You can identify
forward-looking statements by the use of the words "believe," "expect,"
"anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and
other expressions which predict or indicate future events and trends and which
do not relate to historical matters. You should not rely on forward-looking
statements, because they involve known and unknown risks, uncertainties and
other factors, some of which are beyond the control of the Corporation. These
risks, uncertainties and other factors may cause the actual results, performance
or achievements of the Corporation to be materially different from the
anticipated future results, performance or achievements expressed or implied by
the forward-looking statements.
Some of the factors that might cause these differences include the following:
changes in general national or regional economic conditions, changes in interest
rates, reductions in the market value of trust and investment management assets
under management, reductions in deposit levels necessitating increased borrowing
to fund loans and investments, changes in the size and nature of the
Corporation's competition, changes in loan default and charge-off rates and
changes in the assumptions used in making such forward-looking statements. In
addition, the factors described under "Risk Factors" in Item 1 of the Bancorp's
Annual Report on Form 10-K for the year ended December 31, 2001 may result in
these differences. You should carefully review all of these factors, and you
should be aware that there may be other factors that could cause these
differences. These forward-looking statements were based on information, plans
and estimates at the date of this report, and we do not promise to update any
forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes.
Acquisition
On April 16, 2002, the Corporation completed the acquisition of First Financial
Corp., the parent company of First Bank and Trust Company, a Rhode
Island-chartered community bank, headquartered in Providence, Rhode Island.
First Bank and Trust Company operated banking offices in Providence, Cranston,
Richmond and North Kingstown, Rhode Island. The Richmond and North Kingstown
offices were closed and consolidated into existing Subsidiary banking offices in
May 2002. The Bancorp issued 1,021,512 common shares and paid $19.4 million in
cash to First Financial Corp. shareholders in connection with the acquisition.
The total purchase price of First Financial Corp. was $38.1 million. The
Corporation has recorded $22.9 million of goodwill and $1.8 million of core
deposit intangibles in connection with this acquisition. In addition, the
Corporation incurred special charges relating to the acquisition of $605
thousand ($417 thousand, net of tax). See Note 3 to the Consolidated Financial
Statements for additional information concerning the acquisition.
The Corporation's financial statements for the three and nine month periods
ended September 30, 2002 reflect the acquisition of First Financial Corp., which
closed on April 16, 2002. The acquisition was accounted for under the purchase
method of accounting, therefore, periods prior to April 16, 2002 have not been
restated. As a result, combined operations are presented only from April 16,
2002, and operations for the three and nine month periods ended September 30,
2001 do not include operating results of First Financial Corp.
Results of Operations
The Corporation reported net income of $4.5 million, or $.34 per diluted share,
for the three months ended September 30, 2002. Net income for third quarter of
2001 amounted to $4.8 million, or $.40 per diluted share. Excluding the third
quarter 2001 insurance recovery of $553 thousand after tax, operating net income
for the three months ended September 30, 2002 was up 5.2% on a dollar basis and
down 2.9% on a diluted per share basis from the $4.3 million, or $.35 per
diluted share, reported for the third quarter of 2001.
For the quarter ended September 30, 2002, the Corporation's rates of return on
average assets and average equity for both net income and operating income were
1.09% and 14.47%, respectively. Rates of return on average assets and average
equity for the third quarter of 2001 were 1.45% and 20.16%, respectively. On an
operating basis, the Corporation's return on average assets and average equity
for the third quarter of 2001 were 1.29% and 17.86%, respectively.
Net income for the nine months ended September 30, 2002 amounted to $12.3
million, or $.96 per diluted share, compared to $8.8 million, or $.72 per
diluted share for the same period in 2001. Operating net income for the first
nine months of 2002 amounted to $12.7 million, or $.99 per diluted share, up
9.6% on a dollar basis and 4.2% on a diluted per share basis from the $11.6
million, or $.95 per diluted share reported in 2001. Operating earnings exclude
2002 acquisition costs of $417 thousand after tax ($.03 per share) and a 2001
litigation settlement, net of insurance recovery, of $2.8 million after tax
($.23 per share).
For the nine months ended September 30, 2002, the Corporation's rates of return
on average assets and average equity were 1.08% and 14.33%, respectively. The
rates of return on average assets and average equity for the nine months ended
September 30, 2001 were .91% and 12.64%, respectively. On an operating basis,
the Corporation's return on average assets and average equity for the first nine
months of 2002 were 1.11% and 14.82%. Comparable amounts for the 2001 period, on
an operating basis, were 1.20% and 16.64%, respectively.
Net interest income (the difference between interest earned on loans and
investments and interest paid on deposits and other borrowings) for the third
quarter of 2002 increased by 14.2% to $11.9 million from the third quarter of
2001, largely due to the acquisition of First Financial Corp. on April 16, 2002.
Net interest income for the nine months ended September 30, 2002 amounted to
$32.9 million, up 12.3% from the $29.3 million earned in the corresponding 2001
period. Although net interest income has increased, the net interest margin for
the third quarter of 2002 was 3.16%, down from 3.38% in the third quarter of
2001 and has been affected by the significant decline in market interest rates.
The decrease in the net interest margin reflects a decline in yields on loans
and securities offset somewhat by lower funding costs of interest-bearing
deposits and FHLB advances. Comparable amounts for the nine months ended
September 30, 2002 and 2001 were 3.18% and 3.32%, respectively. The Corporation
expects that these conditions affecting net interest income will continue for
the near term. (See additional discussion under the caption "Net Interest
Income.")
The Corporation's provision for loan losses amounted to $100 thousand in the
third quarter of 2002 and the third quarter of 2001. For the nine months ended
September 30, 2002 and 2001, the provision for loan losses amounted to $300
thousand and $450 thousand, respectively. The year to date 2002 provision
decreased compared to the last year due to management's belief that the
allowance for loan losses is at a reasonable level based on its current
evaluation. The allowance for loan losses is management's best estimate of the
probable loan losses incurred as of the balance sheet date. The allowance for
loan losses increased from $13.6 million at December 31, 2001 to $15.7 million
at September 30, 2002 due to the $1.8 million allowance on acquired loans and
the year to date 2002 provision and recoveries, net of charge-offs. The
Corporation's ratio of the allowance for loan losses to total loans decreased
from 2.24% at December 31, 2001 to 2.07% at September 30, 2002. The decline in
this ratio resulted from the $1.8 million increase in the allowance on the
$115.5 million of loans acquired in the second quarter of 2002.
Other noninterest income (noninterest income excluding net realized gains
(losses) on securities) amounted to $6.1 million for the quarter ended September
30, 2002, up by 7.6% from the $5.7 million reported for the third quarter of
2001. For the nine months ended September 30, 2002, other noninterest income
amounted to $16.4 million, up from the comparable 2001 amount of $15.8 million.
The growth in noninterest income was mainly attributable to increases in gains
on loan sales and merchant processing fees, offset in part by lower trust and
investment management income. For the nine months ended September 30, 2002,
gains on loan sales totaled $1.5 million, up 28.1% from the comparable 2001
period. As a result of the decline in interest rates, the Corporation has
experienced heavy residential mortgage activity, predominately refinancing,
which increased the amount of loans sold into the secondary market. The
Corporation expects this activity to continue through the fourth quarter of
2002, however this level of activity may not be sustainable in future periods.
Merchant processing fees for the nine months ended September 30, 2002 amounted
to $2.4 million, up by 16.8% from the $2.1 million reported for the same period
a year ago. Increases in merchant transaction volume and the addition of new
merchant accounts in 2002, are primarily responsible for the increase in
merchant processing fees. Trust and investment management income totaled $7.7
million for the nine months ended September 30, 2002, down 2.9% from the
corresponding 2001 period, reflecting the financial market declines. The market
value of trust and investment management assets under administration amounted to
$1.5 billion and $1.6 billion at September 30, 2002 and December 31, 2001,
respectively.
In the quarter ended September 30, 2002, the Corporation recognized net realized
losses on securities amounting to $52 thousand. This included $251 thousand in
gains on sales of securities offset by $303 thousand in loss write-downs on
certain equity securities deemed to be other than temporarily impaired based on
an analysis of the financial condition and operating outlook of the issuers. For
the nine months ended September 30, 2002, net realized gains on securities
totaled $620 thousand, compared to $408 thousand for the same period in 2001.
For the quarter ended September 30, 2002, total operating noninterest expense
amounted to $11.3 million, up by $1.5 million from the comparable 2001 amount
(exclusive of the third quarter 2001 litigation settlement insurance recovery of
$775 thousand). Included in total operating noninterest expense in the third
quarter of 2002 are approximately $500 thousand in costs associated with a
special consulting project. In the fourth quarter of 2002, the Corporation
expects to incur and record additional costs of approximately $250 thousand
related to this matter. The Corporation does not consider the amounts incurred
in connection with this project to be recurring costs. For the nine months ended
September 30, 2002, total operating noninterest expense amounted to $31.4
million, an increase of 10.0% from the same period a year ago (exclusive of
second quarter 2002 acquisition-related expenses of $605 thousand and the 2001
litigation settlement, net of insurance recovery, of $4.0 million). This
increase was primarily due to normal growth and higher operating costs resulting
from the acquisition of First Financial Corp. Salaries and benefit expense, the
largest component of total noninterest expense, amounted to $17.6 million for
the nine months ended September 30, 2002, up by 12.4% from the $15.7 million
reported for the comparable period in 2001.
Income tax expense amounted to $5.4 million and $3.8 million for the nine months
ended September 30, 2002 and 2001, respectively. The Corporation's effective tax
rate for the first nine months of 2002 was 30.7%, compared to 30.0% for the
corresponding 2001 period. The increase in the effective tax rate was primarily
due to the effect of the 2001 litigation settlement on the 2001 effective tax
rate.
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 nine months ended September 30, 2002 amounted to
$33.7 million, up $3.6 million, or 12.0%, from the same 2001 period. For the
nine months ended September 30, 2002, average interest-earning assets amounted
to $1.418 billion, up $204.4 million, or 16.8%, over the comparable 2001 amount
due to growth in securities and loans. Deposit growth and Federal Home Loan Bank
("FHLB") advances funded the growth in securities and loans.
The net interest margins (FTE net interest income as a percentage of average
interest-earning assets) for the nine months ended September 30, 2002 and 2001
were 3.18% and 3.32%, respectively. The interest rate spread decreased slightly
to 2.76% for the nine months ended September 30, 2002. The yield on total
interest-earnings assets declined 122 basis points to 6.22%, while the cost of
interest-bearing liabilities decreased 121 basis points to 3.46%. The
significant decline in market interest rates has adversely affected the net
interest margin. The decrease in the net interest margin reflects a decline in
yields on loans and securities offset somewhat by lower funding costs of
interest-bearing deposits and FHLB advances. The Corporation expects that these
conditions affecting net interest income will continue for the near term.
Total average securities rose $124.6 million, or 20.5%, over the comparable
prior year period mainly due to purchases of taxable debt securities. The FTE
rate of return on securities was 5.33% for the nine months ended September 30,
2002, compared to 6.36% for the same 2001 period. The decrease in yields on
securities reflects a combination of lower yields on variable rate securities
tied to short-term interest rates and lower marginal rates on investment
purchases in 2002 relative to the prior year.
The yield on average total loans amounted to 7.18% for the nine months ended
September 30, 2002, down 136 basis points from 8.54% for the comparable 2001
period. This decline is primarily due to lower marginal yields on floating and
adjustable rate loans for the first nine months of 2002 as compared to the prior
year period and a decline in yields on new loan originations. Average loans for
the nine months ended September 30, 2002 rose $79.8 million over the prior year
and amounted to $687.2 million. Average commercial loans rose 31.0% to $328.4
million while the yield on commercial loans declined 186 basis points to 7.67%.
Included in interest income on commercial loans for the nine months ended
September 30, 2002, was $229 thousand of depreciation in value of the interest
rate floor contract through the termination of the contract in May 2002 (see
additional discussion in Note 8 "Derivative Financial Instruments").
Appreciation in the value of the interest rate contract for the nine months
ended September 30, 2001 amounted to $643 thousand. Average consumer loans rose
13.7% over the prior year and amounted to $117.9 million. The yield on consumer
loans decreased 210 basis points from the prior year to 6.05%, mainly due to a
decline in yield on home equity lines. Average residential real estate loans
amounted to $240.9 million, down 4.8% from the prior year level. This decrease
was primarily a result of heavy residential mortgage refinancing activity,
spurred by a low interest rate environment, which increased the amount of loans
sold into the secondary market. The yield on residential real estate loans
decreased 66 basis points from the prior year period, amounting to 7.06%.
Average interest-bearing liabilities increased 16.4% to $1.25 billion at
September 30, 2002. Due to lower rates paid on both borrowed funds and deposits,
the Corporation's total cost of funds on interest-bearing liabilities amounted
to 3.46% for the nine months ended September 30, 2002, down from 4.67% for the
comparable 2001 period. Average savings deposits for the nine months ended
September 30, 2002 increased $95.9 million, or 34.1%, to $377.5 million from the
comparable 2001 amount. The rate paid on savings deposits for the first nine
months of 2002 was 1.39%, compared to 1.92% for the same 2001 period. Average
time deposits increased $84.3 million to $443.7 million with a decrease of 164
basis points in the rate paid. For the nine months ended September 30, 2002,
average demand deposits, an interest-free funding source, were up by $35.3
million, or 32.2%, from the same prior year period. Average FHLB advances for
the nine months ended September 30, 2002 amounted to $424.8 million, down from
the comparable 2001 amount of $430.0 million. The average rate paid on FHLB
advances for the nine months ended September 30, 2002 was 4.94%, a decrease of
88 basis points from the prior year rate.
Average Balances / Net Interest Margin - Fully Taxable Equivalent Basis (FTE)
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. Loans held for sale, 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. Customer overdrafts are excluded from amounts presented for
loans. Average balances for securities are presented at cost, with any
unrealized gains and losses of securities available for sale included in
noninterest-earning assets.
Nine months ended September 30, 2002 2001
- -------------------------------------------- ------------------------------------ ----------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- ---------------------------------------- ------------- ----------- ----------- -------------- ----------- ----------
Assets:
Residential real estate loans $240,858 $12,710 7.06% $253,132 $14,607 7.72%
Commercial and other loans 328,408 18,839 7.67% 250,598 17,859 9.53%
Consumer loans 117,905 5,337 6.05% 103,663 6,315 8.15%
- --------------------------------------------------------------------------------------------------------------------
Total loans 687,171 36,886 7.18% 607,393 38,781 8.54%
Federal funds sold and other
short-term investments 14,188 171 1.61% 15,210 517 4.54%
Taxable debt securities 654,018 26,211 5.36% 531,603 25,117 6.32%
Nontaxable debt securities 19,790 961 6.49% 22,258 1,100 6.61%
Corporate stocks and FHLB stock 43,214 1,782 5.51% 37,535 2,065 7.36%
- --------------------------------------------------------------------------------------------------------------------
Total securities 731,210 29,125 5.33% 606,606 28,799 6.36%
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,418,381 66,011 6.22% 1,213,999 67,580 7.44%
- --------------------------------------------------------------------------------------------------------------------
Non interest-earning assets 102,861 70,958
- --------------------------------------------------------------------------------------------------------------------
Total assets $1,521,242 $1,284,957
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Savings deposits $377,464 $3,926 1.39% $281,545 $4,054 1.92%
Time deposits 443,690 12,624 3.80% 359,414 14,621 5.44%
FHLB advances 424,828 15,692 4.94% 429,996 18,724 5.82%
Other 3,639 65 2.36% 2,215 76 4.61%
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,249,621 32,307 3.46% 1,073,170 37,475 4.67%
Demand deposits 144,965 109,677
Non interest-bearing liabilities 12,440 9,304
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 1,407,026 1,192,151
Total shareholders' equity 114,216 92,806
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,521,242 $1,284,957
- --------------------------------------------------------------------------------------------------------------------
Net interest income $33,705 $30,105
- --------------------------------------------------------------------------------------------------------------------
Net interest spread 2.76% 2.77%
- --------------------------------------------------------------------------------------------------------------------
Net interest margin 3.18% 3.32%
- --------------------------------------------------------------------------------------------------------------------
Interest income amounts presented in the preceding table include the following
adjustments for taxable equivalency:
(Dollars in thousands)
Nine months ended September 30, 2002 2001
- --------------------------------------------------------------------------------
Commercial and other loans $124 $115
Nontaxable debt securities 336 384
Corporate stocks 302 275
Financial Condition and Liquidity
Total assets rose from $1.362 billion at December 31, 2001 to $1.684 billion at
September 30, 2002. This increase was primarily attributable to the second
quarter 2002 purchase of First Financial Corp. and purchases of investment
securities. Average assets totaled $1.521 billion for the nine months ended
September 30, 2002, up 18.4% over the comparable 2001 period.
Securities Available for Sale - The carrying value of securities available for
sale at September 30, 2002 amounted to $558.5 million, an increase of 23.0% from
the December 31, 2001 balance of $454.0 million. This increase was mainly due to
purchases of mortgage-backed securities. The net unrealized gains on securities
available for sale amounted to $13.5 million at September 30, 2002 and $10.2
million at December 31, 2001.
Securities Held to Maturity - Primarily as a result of purchases of
mortgage-backed securities, the carrying value of securities held to maturity
rose 23.8% from $175.1 million at December 31, 2001 to $216.7 million at
September 30, 2002. The net unrealized gain on securities held to maturity
amounted to $8.1 million at September 30, 2002, compared to $2.5 million at
December 31, 2001. This increase was attributable to the effects of decreases in
medium and long-term interest rates that have occurred in 2002.
Loans - At September 30, 2002, total loans amounted to $757.0 million, up by
$151.4 million from the December 31, 2001 balance of $605.6 million. This
increase was primarily a result of the second quarter 2002 acquisition of First
Financial Corp. Residential real estate loans were also impacted by the
refinancing of fixed rate residential loans being sold into the secondary
market. As of September 30, 2002, average residential real estate loans have
decreased by $12.3 million from the prior year level. Total residential real
estate loans amounted to $248.2 million at September 30, 2002, up by $12.8
million, or 5.4%, from the December 31, 2001 balance of $235.4 million.
Commercial loans increased $118.5 million from December 31, 2001 to $379.1
million at September 30, 2002. Total consumer loans amounted to $129.7 million
at September 30, 2002, an increase of $20.1 million from December 31, 2001 due
mainly to growth in home equity lines.
Deposits - Total deposits amounted to $1.109 billion at September 30, 2002, up
$292.5 million or 35.8% from December 31, 2001. Included in this amount are
$137.7 million of deposits acquired from First Financial Corp. Savings deposits
amounted to $454.4 million at September 30, 2002, an increase of $137.5 million,
or 43.4%, from December 31, 2001. Time deposits increased $114.6 million from
December 31, 2001 and amounted to $479.7 million at September 30, 2002. Demand
deposits amounted to $175.2 million at September 30, 2002, up $40.4 million from
the December 31, 2001 balance. Excluding the amounts acquired, the most
significant area of deposit growth in 2002 was in savings accounts.
Borrowings - The Corporation utilizes advances from the Federal Home Loan Bank
as well as other borrowings as part of its overall funding strategy. FHLB
advances were used to meet short-term liquidity needs and to purchase
securities. FHLB advances amounted to $425.7 million at September 30, 2002,
compared to $431.5 million at December 31, 2001. In addition, other borrowings
outstanding at September 30, 2002 amounted to $7.7 million, up from the December
31, 2001 balance of $2.1 million. The increase in other borrowings was primarily
due to a higher Treasury, Tax and Loan demand note balance.
For the nine months ended September 30, 2002, net cash provided by operations
amounted to $9.4 million, the majority of which was generated by net income. Net
cash used in investing activities amounted to $140.4 million and was primarily
used to purchase securities. Included in net cash used in investing activities
for the nine months ended September 30, 2002 was $34.5 million of cash acquired,
net of payment made for the acquisition of First Financial Corp. A substantial
portion of the First Financial Corp. investment portfolio was liquidated prior
to the date of acquisition. Net cash provided by financing activities was $124.4
million, the majority of which was derived from deposits. (See Consolidated
Statements of Cash Flows for additional information.)
Nonperforming Assets
Nonperforming assets are summarized in the following table:
(Dollars in thousands) September 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Nonaccrual loans 90 days or more past due $2,297 $2,195
Nonaccrual loans less than 90 days past due 1,995 1,632
- --------------------------------------------------------------------------------
Total nonaccrual loans 4,292 3,827
Other real estate owned 12 30
- --------------------------------------------------------------------------------
Total nonperforming assets $4,304 $3,857
- --------------------------------------------------------------------------------
Nonaccrual loans as a percentage of total loans .57% .63%
Nonperforming assets as a percentage of total assets .26% .28%
Allowance for loan losses to nonaccrual loans 364.86% 355.20%
Allowance for loan losses to total loans 2.07% 2.24%
Impaired loans consist of all nonaccrual commercial loans. At September 30,
2002, the recorded investment in impaired loans was $2.3 million, which had a
related allowance amounting to $96 thousand. During the nine months ended
September 30, 2002, the average recorded investment in impaired loans was $2.2
million. Also during this period, interest income recognized on impaired loans
amounted to approximately $76 thousand. Interest income on impaired loans is
recognized on a cash basis only.
The following is an analysis of nonaccrual loans by loan category:
(Dollars in thousands) September 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Residential real estate $1,171 $1,161
Commercial:
Mortgages 986 1,472
Other 1,321 509
Consumer 814 685
- --------------------------------------------------------------------------------
Total nonaccrual loans $4,292 $3,827
- --------------------------------------------------------------------------------
Capital Resources
Total equity capital increased $27.4 million, or 28.0%, during the first nine
months of 2002 and amounted to $125.3 million. This increase was principally
attributable to common stock issued in connection with the acquisition of First
Financial Corp. (See the Consolidated Statements of Changes in Shareholders'
Equity and Note 3 to the Consolidated Financial Statements for additional
information.)
The ratio of total equity to total assets amounted to 7.4% at September 30,
2002, compared to 7.2% at December 31, 2001. Book value per share as of
September 30, 2002 and December 31, 2001 amounted to $9.62 and $8.15,
respectively.
At September 30, 2002, the Corporation's Tier 1 risk-based capital ratio was
10.22% and the total risk-adjusted capital ratio was 11.59%. The Corporation's
Tier 1 leverage ratio amounted to 5.69% at September 30, 2002. These ratios were
above the ratios required to be categorized as well-capitalized.
Dividends payable at September 30, 2002 amounted to $1.5 million, representing
$.14 per share payable on October 15, 2002, consistent with the dividend
declared in the first quarter of 2002. The source of funds for dividends paid by
the Bancorp is dividends received from its Subsidiary. The Subsidiary is a
regulated enterprise, and as such its ability to pay dividends to the parent is
subject to regulatory review and restriction.
Litigation
The Corporation is currently a party to a litigation matter that was originally
filed against First Bank and Trust Company. See Note 10 to the Consolidated
Financial Statements for a description of this matter.
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.
Recent Accounting Developments
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities and is
effective for financial statements issued for all fiscal years beginning after
June 15, 2002. The adoption of this pronouncement is not expected to have a
material impact on the Corporation's financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements, and SFAS No. 44, Accounting for Intangible Assets of
Motor Carriers. In addition, this Statement amends SFAS No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issues No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." Under Issue
94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at
the date of an entity's commitment to an exit plan. SFAS No. 146 requires that a
liability for cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. The adoption of this pronouncement is not
expected to have a material impact on the Corporation's financial statements.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9." Except for transactions between two or more mutual
enterprises, SFAS No. 147 removes acquisitions of financial institutions from
the scope of both SFAS No. 72, "Accounting for Certain Acquisitions of Banking
or Thrift Institutions," and Interpretation No. 9, "Applying APB Opinions Nos.
16 and 17 When a Savings and Loan Association or a Similar Institution Is
Acquired in a Business Combination Accounted for by the Purchase Method." SFAS
No. 147 requires that those transactions be accounted for in accordance with
SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and Other
Intangible Assets." In addition, this Statement amends SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," to include in its scope
long-term customer-relationship intangible assets of financial institutions. The
provisions of this Statement that relate to the application of the purchase
method of accounting are effective for acquisitions for which the date of
acquisition is on or after October 1, 2002. Other provisions of this Statement
are effective on October 1, 2002. The adoption of this pronouncement is not
expected to have a material impact on the Corporation's financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity and Liquidity
Interest rate risk is one of the major market risks faced by the Corporation.
The Corporation's objective is to manage assets and funding sources to produce
results that are consistent with its liquidity, capital adequacy, growth, risk
and profitability goals.
The Corporation manages interest rate risk using income simulation to measure
interest rate risk inherent in its on-balance sheet and off-balance sheet
financial instruments at a given point in time by showing the effect of interest
rate shifts on net interest income for future periods. The simulation results
are reviewed to determine whether the exposure of net interest income to changes
in interest rates remains within established tolerance levels and to develop
appropriate strategies to manage this exposure. The following table presents the
Corporation's estimated net interest income exposure as a percentage of net
interest income for the first 12-month period, the subsequent 12-month period
thereafter (months 13 - 24), and months 1-60, as of September 30, 2002. Interest
rates are assumed to shift upward by 200 basis points or downward by 100 basis
points. This asymmetric rate shift reflects the fact that interest rates are at
extremely low levels and the likelihood of a 200 basis point decline is
considered remote.
Months 1 - 12 Months 13-24 Months 1 - 60
-------------------------------------------------------------------------------
200 basis point increase in rates 4.51% 6.94% 8.05%
200 basis point decrease in rates -3.09% -7.14% -8.28%
Since this simulation assumes the Corporation's balance sheet will remain static
over the 60-month simulation horizon, the results do not reflect adjustments in
strategy that the Corporation could implement in response to rate shifts, and
should not be relied upon as a estimate of future net interest income.
For a complete discussion of interest rate sensitivity and liquidity, including
simulation assumptions, see the Corporation's Annual Report on Form 10-K for the
year ended December 31, 2001.
The Corporation also monitors the potential change in market value of its
available for sale debt securities using both rate shifts of up to 400 basis
points and "value at risk" analysis. The purpose is to determine market value
exposure which may not be captured by income simulation, but which might result
in changes to the Corporation's capital position. Results are calculated using
industry-standard modeling analytics and securities data. The Corporation uses
the results to manage the effect of market value changes on the Corporation's
capital position. As of September 30, 2002, an immediate 200 basis point rise in
rates would result in a 2.1% decline in the value of the Corporation's available
for sale debt securities. Conversely, a 200 basis point fall in rates would
result in a 1.9% increase in the value of the Corporation's available for sale
debt securities. "Value at risk" analysis measures the theoretical maximum
market value loss over a given time period based on recent historical price
activity of different classes of securities. The anticipated maximum market
value reduction for the Corporation's available for sale securities portfolio at
September 30, 2002, including both debt and equity securities, was 3.0%,
assuming a one-year time horizon and a 5% probability of occurrence for "value
at risk" analysis.
On May 7, 2002, the Corporation terminated a five-year interest rate floor
contract with a notional amount of $20 million that was to mature in February
2003. The floor contract was intended to function as a hedge against reductions
in interest income realized from prime-based loans and entitled the Corporation
to receive payment from a counterparty if the three-month LIBOR rate fell below
5.50%. In connection with the early termination, the Corporation agreed to a
final payment from the counterparty of $606 thousand. The Corporation recognized
the fair value of this derivative as an asset on the balance sheet and changes
in fair value were recorded in current earnings.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by new Rule 13a-15 under the Securities Exchange Act of 1934, within
the 90 days prior to the date of this report, the Corporation carried out an
evaluation under the supervision and with the participation of the Corporation's
management, including the Corporation's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Corporation's disclosure controls and procedures. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Corporation's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Corporation in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. In connection with the new rules, we currently are
in the process of further reviewing and documenting our disclosure controls and
procedures, including our internal controls and procedures for financial
reporting, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our systems evolve with our business.
(b) Changes in internal controls.
None.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In June 1999 a lawsuit was filed against First Bank and Trust Company ("First
Bank") in Providence County (Rhode Island) Superior Court by Read & Lundy, Inc.
and its principal, Cliff McFarland (collectively, "the plaintiffs"). The
Washington Trust Company was substituted as defendant in June 2002 following the
acquisition of First Financial Corp., the parent company of First Bank. The
original complaint alleged claims for breach of contract, tortious interference
with contractual relations, and civil conspiracy arising out of First Bank's
1996 loan to a third party company. Plaintiffs allege that the loan to the third
party enabled that company to compete unlawfully with Read & Lundy and thereby
diminished Read & Lundy's profitability. The complaint was amended in December
2001 to add a claim for violation of the Rhode Island Trade Secrets Act.
The plaintiffs had previously filed a suit in the same court in 1996 against the
third party company and its founder. Washington Trust is not a party to this
suit. In September 2001, judgment was entered against the third party company
and its founder in favor of the plaintiffs for approximately $1.55 million in
compensatory and punitive damages, including pre-judgment interest.
Plaintiffs contend that Washington Trust as an alleged co-conspirator of the
third party company is liable for this entire amount, none of which has been
collected from the third party company. Plaintiffs are also seeking additional
compensatory damages and other costs allegedly arising after the third party
trial. Including interest, it is estimated that the amount of the claim against
Washington Trust is approximately $2 million.
Management believes, based on its review with counsel of the development of this
matter to date, that Washington Trust has asserted meritorious defenses in this
litigation. The discovery phase of the case is nearing completion and Washington
Trust has filed a motion for summary judgment on all counts. A ruling on this
motion is expected in November 2002. A trial date has been set for January 2003.
Because of the uncertainties surrounding the outcome of the litigation no
assurance can be given that the litigation will be resolved in favor of
Washington Trust. Management and legal counsel are unable to estimate the amount
of loss, if any, that may be incurred with respect to this litigation.
Consequently, no loss provision has been recorded.
A second claim ancillary to this litigation was brought by the plaintiffs in
March 2002. Washington Trust has also been substituted for First Bank in these
proceedings. In this matter, plaintiffs brought a motion seeking enforcement of
a prejudgment writ of attachment obtained in 1997 by the plaintiffs against
funds held by First Bank as collateral for the loan to the third party company.
In 1999, First Bank had applied these funds as an offset to that loan. In August
2002, judgment against Washington Trust was rendered on this motion requiring
Washington Trust to make the funds available for attachment by the plaintiffs.
This judgment is under appeal to the Rhode Island Supreme Court. As of September
30, 2002, Washington Trust has recorded a liability for the judgment award of
$273 thousand in connection with this matter.
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 6. Exhibits and Reports on Form 8-K
(a) Exhibit index
Exhibit No.
11 Statement re Computation of Per Share Earnings
(b) On August 13, 2002, a Form 8-K was filed in connection with the
filing of the Form 10-Q for the quarter ended June 30, 2002 which
reported that the Chief Executive Officer and Chief Financial
Officer of the Corporation each certified the filing, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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)
November 13, 2002 By: John C. Warren
------------------------------------------
John C. Warren
Chairman and Chief Executive Officer
(principal executive officer)
November 13, 2002 By: David V. Devault
------------------------------------------
David V. Devault
Executive Vice President, Treasurer
and Chief Financial Officer
(principal financial and accounting officer)
CERTIFICATIONS
I, John C. Warren, Chairman and Chief Executive Officer of Washington Trust
Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q, for the quarterly
period ended September 30, 2002, of Washington Trust Bancorp, Inc. (the
"Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiary, is made known to us by others with that
entity, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of the Registrant's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 By: John C. Warren
------------------------------------
John C. Warren
Chairman and Chief Executive Officer
(principal executive officer)
CERTIFICATIONS
I, David V. Devault, Executive Vice President, Treasurer and Chief Financial
Officer of Washington Trust Bancorp, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q, for the quarterly
period ended September 30, 2002, of Washington Trust Bancorp, Inc. (the
"Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiary, is made known to us by others with that
entity, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of the Registrant's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 By: David V. Devault
------------------------------------------
David V. Devault
Executive Vice President, Treasurer
and Chief Financial Officer
(principal financial and accounting officer)