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 JUNE 30, 2004 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ______ to ______.
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[X]Yes [ ]No
The number of shares of common stock of the registrant outstanding as of July
31, 2004 was 13,236,649.
FORM 10-Q
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
For The Quarter Ended June 30, 2004
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
Consolidated Statements of Income
Three and Six Months Ended June 30, 2004 and 2003
Consolidated Statements of Changes in Shareholders' Equity
Six Months Ended June 30, 2004 and 2003
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2004 and 2003
Condensed Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
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 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
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 (as hereinafter defined) 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 loan demand, reductions in deposit levels necessitating increased
borrowing to fund loans and investments, changes in loan default and charge-off
rates, changes in the size and nature of the Corporation's competition, changes
in legislation or regulation and accounting principles, policies and guidelines
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)
June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
Assets:
Cash and due from banks $46,261 $40,710
Federal funds sold and other short-term investments 9,320 20,400
Mortgage loans held for sale 990 2,486
Securities:
Available for sale, at fair value; amortized cost
$767,674 in 2004 and $663,529 in 2003 769,328 673,845
Held to maturity, at cost; fair value $134,860
in 2004 and $169,401 in 2003 133,670 165,576
- ---------------------------------------------------------------- ---------------
Total securities 902,998 839,421
Federal Home Loan Bank stock, at cost 34,373 31,464
Loans 1,101,039 960,981
Less allowance for loan losses 16,208 15,914
- --------------------------------------------------------------------------------
Net loans 1,084,831 945,067
Premises and equipment, net 24,805 24,941
Accrued interest receivable 8,411 7,911
Goodwill 22,591 22,591
Identifiable intangible assets 1,631 1,953
Other assets 42,779 36,863
- --------------------------------------------------------------------------------
Total assets $2,178,990 $1,973,807
- --------------------------------------------------------------------------------
Liabilities:
Deposits:
Demand $200,923 $194,144
Savings 566,976 493,878
Time 574,004 518,119
- --------------------------------------------------------------------------------
Total deposits 1,341,903 1,206,141
Dividends payable 2,250 2,113
Federal Home Loan Bank advances 676,336 607,104
Other borrowings 2,947 2,311
Accrued expenses and other liabilities 17,012 18,083
- --------------------------------------------------------------------------------
Total liabilities 2,040,448 1,835,752
- --------------------------------------------------------------------------------
Shareholders' Equity:
Common stock of $.0625 par value; authorized
30 million shares; issued 13,236,649 shares
in 2004 and 13,204,024 in 2003 827 825
Paid-in capital 30,317 29,868
Retained earnings 106,994 101,492
Unamortized employee restricted stock (11) (22)
Accumulated other comprehensive income 609 6,101
Treasury stock, at cost; 8,719 shares in 2004
and 9,463 in 2003 (194) (209)
- --------------------------------------------------------------------------------
Total shareholders' equity 138,542 138,055
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,178,990 $1,973,807
- --------------------------------------------------------------------------------
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 amounts)
(Unaudited)
Three Months Six Months
Periods ended June 30, 2004 2003 2004 2003
- -------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $14,287 $12,853 $27,928 $25,499
Interest on securities 8,107 8,333 16,362 16,888
Dividends on corporate stock and
Federal Home Loan Bank stock 506 531 980 1,018
Interest on federal funds sold and
other short-term investments 20 39 40 76
- -------------------------------------------------------------------------------------------------------
Total interest income 22,920 21,756 45,310 43,481
- -------------------------------------------------------------------------------------------------------
Interest expense:
Savings deposits 894 880 1,623 1,830
Time deposits 4,130 3,799 8,148 7,733
Federal Home Loan Bank advances 4,789 4,777 9,334 9,670
Other 15 18 30 37
- -------------------------------------------------------------------------------------------------------
Total interest expense 9,828 9,474 19,135 19,270
- -------------------------------------------------------------------------------------------------------
Net interest income 13,092 12,282 26,175 24,211
Provision for loan losses 120 160 240 260
- -------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,972 12,122 25,935 23,951
- -------------------------------------------------------------------------------------------------------
Noninterest income:
Trust and investment management 3,320 2,744 6,375 5,277
Service charges on deposit accounts 1,192 1,348 2,362 2,448
Merchant processing fees 1,095 862 1,692 1,319
Net gains on loan sales 560 1,441 909 2,679
Income from bank-owned life insurance 295 263 594 547
Net realized (losses) gains on securities (240) 400 (240) 630
Other income 702 297 1,172 488
- -------------------------------------------------------------------------------------------------------
Total noninterest income 6,924 7,355 12,864 13,388
- -------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 7,218 6,619 14,195 13,153
Net occupancy 796 736 1,612 1,498
Equipment 788 837 1,558 1,674
Merchant processing costs 882 683 1,348 1,045
Advertising and promotion 538 542 1,004 812
Outsourced services 467 325 843 696
Legal, audit and professional fees 245 281 503 586
Debt prepayment penalties - 941 - 941
Amortization of intangibles 161 179 322 359
Other 1,450 1,705 2,840 3,062
- -------------------------------------------------------------------------------------------------------
Total noninterest expense 12,545 12,848 24,225 23,826
- -------------------------------------------------------------------------------------------------------
Income before income taxes 7,351 6,629 14,574 13,513
Income tax expense 2,308 2,055 4,576 4,189
- -------------------------------------------------------------------------------------------------------
Net income $5,043 $4,574 $9,998 $9,324
- -------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - basic 13,216.1 13,089.4 13,209.4 13,074.4
Weighted average shares outstanding - diluted 13,517.0 13,304.9 13,515.2 13,265.2
Per share information:
Basic earnings per share $.38 $.35 $.76 $.71
Diluted earnings per share $.37 $.34 $.74 $.70
Cash dividends declared per share $.17 $.15 $.34 $.30
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)
Unamortized Accumulated
Employee Other
Common Paid-in Retained Restricted Comprehensive Treasury
Six months ended June 30, Stock Capital Earnings Stock Income Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2003 $818 $28,767 $90,717 $(24) $9,294 $(851) $128,721
Net income 9,324 9,324
Other comprehensive income, net of tax:
Net unrealized gains on securities 649 649
Reclassification adjustments (410) (410)
----------
Comprehensive income 9,563
Cash dividends declared (3,930) (3,930)
Amortization of employee restricted 8 8
stock
Shares issued 2 98 851 951
Shares repurchased (122) (122)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003 $820 $28,865 $96,111 $(16) $9,533 $(122) $135,191
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2004 $825 $29,868 $101,492 $(22) $6,101 $(209) $138,055
Net income 9,998 9,998
Other comprehensive income, net of tax:
Net unrealized losses on securities (5,801) (5,801)
Reclassification adjustments 156 156
Minimum pension liability adjustment 153 153
------------
Comprehensive income 4,506
Cash dividends declared (4,496) (4,496)
Amortization of employee restricted 11 11
stock
Shares issued 2 449 154 605
Shares repurchased (139) (139)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2004 $827 $30,317 $106,994 $(11) $609 $(194) $138,542
- ----------------------------------------------------------------------------------------------------------------------------------
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)
Six months ended June 30, 2004 2003
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $9,998 $9,324
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 240 260
Depreciation of premises and equipment 1,428 1,560
Amortization of premium in excess of accretion
of discount on debt securities 1,307 2,352
Net amortization of intangibles 322 359
Amortization of restricted stock 11 8
Net realized losses (gains) on securities 240 (630)
Net gains on loan sales (909) (2,679)
Earnings from bank-owned life insurance (594) (547)
Proceeds from sales of loans 30,899 107,256
Loans originated for sale (27,910) (111,759)
Increase in accrued interest receivable,
excluding purchased interest (314) (286)
(Increase) decrease in other assets (2,193) 904
(Decrease) increase in accrued expenses and
other liabilities (918) (701)
Other, net 526 237
- --------------------------------------------------------------------------------
Net cash provided by operating activities 12,133 5,658
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Securities available for sale:
Purchases (241,893) (273,701)
Proceeds from sales 760 42,858
Maturities and principal repayments 135,779 165,431
Securities held to maturity:
Purchases (3,366) (62,347)
Maturities and principal repayments 34,935 77,974
Purchase of Federal Home Loan Bank stock (2,909) (4,086)
Principal collected on loans under
loan originations (82,560) (20,012)
Purchases of loans, including purchased interest (58,638) (7,661)
Proceeds from sales of other real estate owned - 134
Purchases of premises and equipment (1,292) (2,667)
- --------------------------------------------------------------------------------
Net cash used in investing activities (219,184) (84,077)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 135,777 25,860
Net increase (decrease) in other borrowings 636 (1,670)
Proceeds from Federal Home Loan Bank advances 665,850 675,441
Repayment of Federal Home Loan Bank advances (596,538) (611,548)
Purchase of treasury stock (139) (122)
Proceeds from issuance of common stock 295 633
Cash dividends paid (4,359) (3,787)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 201,522 84,807
- --------------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (5,529) 6,388
Cash and cash equivalents at beginning of year 61,110 51,048
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $55,581 $57,436
- --------------------------------------------------------------------------------
Noncash Investing and Financing Activities:
Net transfers from loans to other real estate
owned (OREO) $ - $253
Loans charged off 241 122
Loans made to facilitate the sale of other real
estate owned - 322
Supplemental Disclosures:
Interest payments 18,975 19,587
Income tax payments 5,002 4,234
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
"Bank" or "Subsidiary") (together, the "Corporation") are in accordance with
accounting principles generally accepted in the United States of America and
conform to general practices of the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the balance sheet date and
revenues and expenses for the period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to change are
the determination of the allowance for loan losses, the review of goodwill and
other intangible assets for impairment, other-than-temporary impairment,
interest income recognition and tax estimates. 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 June 30, 2004 and
December 31, 2003, and the results of operations and cash flows for the interim
period presented.
The consolidated financial statements include the accounts of the Bancorp and
the Bank. 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 ("SEC") 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, 2003. Certain prior period
amounts have been reclassified to conform to the current year classification.
Such reclassifications have no effect on previously reported net income or
shareholders' equity.
(2) New Accounting Pronouncements
On April 22, 2003, the Financial Accounting Standards Board ("FASB") decided to
require all companies to expense the value of employee stock options. At this
point, it has been tentatively decided in principle to measure employee
equity-based awards at their date of grant and to later decide the method for
determining the cost of employee stock options, as well as the extent to which a
final Statement on this matter will permit adjustments for actual forfeitures
and actual performance outcomes, which will affect the amount of compensation
cost recognized over the employee service period. On March 31, 2004, the FASB
issued Exposure Draft "Share-Based Payment, an amendment to FASB Statement No.
123 and 95". The draft of the proposed statement concluded that all companies
should expense the fair value of employee stock options using the modified
prospective grant-date measurement approach as defined in Statement of Financial
Accounting Standard ("SFAS") 123 "Accounting for Stock-Based Compensation".
Compensation cost would be recognized in the financial statement over the
requisite service period. A final statement is expected to be issued in the
fourth quarter of 2004, which could become effective in 2005. Until a new
Statement is issued, the provisions of SFAS No. 123 and SFAS No. 148 "Accounting
for Stock-Based Compensation - Transition and Disclosure, an amendment to FASB
Statement 123" remain in effect.
In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
requires additional disclosures to those in the original Statement 132 about the
assets, obligations, cash flows and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. Except as noted
below, this Statement is effective for financial statements with fiscal years
ending after December 15, 2003. The interim period disclosures required by this
Statement are effective for interim periods beginning after December 15, 2003.
Disclosure of estimated future benefit payments required by this Statement is
effective for fiscal years ending after June 15, 2004. The Corporation has
provided the disclosure required under SFAS No. 132 in Note 9 to the
Consolidated Financial Statements.
In December 2003, the FASB issued a revised Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin ("ARB") No. 51." This Interpretation addresses
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
consolidation by business enterprises of variable interest entities having
certain characteristics as detailed in the Interpretation. ARB No. 51 requires
that an enterprise's consolidated financial statements include subsidiaries in
which the enterprise has a controlling financial interest. The voting interest
approach is not effective in identifying controlling financial interests in
entities that are not controllable through voting interests or in which the
equity investors do not bear the residual economic risks. The objective of this
Interpretation is not to restrict the use of variable interest entities but to
improve financial reporting by enterprises involved with variable interest
entities. The application of this Interpretation is required in financial
statements of public entities that have interests in variable interest entities
or potential variable interest entities commonly referred to as special-purpose
entities for periods ending after December 15, 2003. Application by public
entities for all other types of entities is required in financial statements for
periods ending after March 15, 2004. The adoption of this Interpretation did not
have any impact on the Corporation's financial statements.
In March 2004, the SEC issued SEC Staff Accounting Bulletin ("SAB") No. 105 -
"Application of Accounting Principles to Loan Commitments" which summarizes the
views of the SEC regarding the application of GAAP to loan commitments accounted
for as derivatives. The guidance requires the measurement of the fair value of
the loan commitment to include only the differences between the guaranteed
interest rate and the market interest rate. SAB No. 105 prohibits recognizing
expected future cash flows related to the servicing of a loan. Servicing assets
are to be recognized only once the servicing asset has been contractually
separated from the underlying loan by sale or securitization of the loan with
servicing retained. SAB No. 105 was effective for loan commitments accounted for
as derivatives entered into after March 31, 2004. The adoption of this SAB did
not have a material impact on the Corporation's financial statements.
(3) Stock Based Compensation
The Corporation measures compensation cost for stock-based compensation plans
using the intrinsic value based method prescribed by Accounting Principles Board
("APB") Opinion No. 25. In addition, the Corporation discloses pro forma net
income and earnings per share computed using the fair value based method of
accounting for these plans as required by SFAS No. 123 and SFAS No. 148.
In determining the pro forma disclosures required by SFAS No. 123 and SFAS No.
148, the fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following table presents pro forma
net income and earnings per share assuming options granted were accounted for
using the fair value method prescribed by SFAS No. 123 and SFAS No. 148.
(Dollars in thousands, except per share amounts)
Three Months Six Months
------------------------------------------------
Periods ended June 30, 2004 2003 2004 2003
- --------------------------------------------------------------------------------
Net income As reported $5,043 $4,574 $9,998 $9,324
Less:
Total stock-based
compensation determined
under fair value method
for all awards, net of tax $(201) $(238) (485) (462)
- --------------------------------------------------------------------------------
Pro forma $4,842 $4,336 $9,513 $8,862
Basic earnings per share
As reported $.38 $.35 $.76 $.71
Pro forma $.37 $.33 $.72 $.68
Diluted earnings per share
As reported $.37 $.34 $.74 $.70
Pro forma $.36 $.33 $.70 $.67
There were 32,050 and 231,755 options granted during the six-month periods ended
June 30, 2004 and 2003, respectively.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Securities
Securities available for sale are summarized as follows:
(Dollars in thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
June 30, 2004
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies $131,530 $1,257 $(1,258) $131,529
Mortgage-backed securities 536,852 2,753 (9,278) 530,327
Corporate bonds 77,963 778 (354) 78,387
Corporate stocks 21,329 8,410 (654) 29,085
- ---------------------------------------------------------------------------------------------------------------------
Total 767,674 13,198 (11,544) 769,328
- ---------------------------------------------------------------------------------------------------------------------
December 31, 2003
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies 97,876 1,480 (262) 99,094
Mortgage-backed securities 464,138 3,964 (3,277) 464,825
Corporate bonds 79,175 1,487 (724) 79,938
Corporate stocks 22,340 8,262 (614) 29,988
- ---------------------------------------------------------------------------------------------------------------------
Total $663,529 $15,193 $(4,877) $673,845
- ---------------------------------------------------------------------------------------------------------------------
<FN>
For the six months ended June 30, 2004, proceeds from sales of securities
available for sale amounted to $760 thousand while net realized losses on these
sales amounted to $240 thousand.
</FN>
Securities held to maturity are summarized as follows:
(Dollars in thousands) Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
June 30, 2004
Mortgage-backed securities $116,908 $2,062 $(1,188) $117,782
States and political subdivisions 16,762 417 (101) 17,078
- ---------------------------------------------------------------------------------------------------------------------
Total 133,670 2,479 (1,289) 134,860
- ---------------------------------------------------------------------------------------------------------------------
December 31, 2003
U.S. Treasury obligations and obligations
of U.S. government-sponsored agencies 8,000 13 - 8,013
Mortgage-backed securities 143,162 3,256 (118) 146,300
States and political subdivisions 14,414 674 - 15,088
- ---------------------------------------------------------------------------------------------------------------------
Total $165,576 $3,943 $(118) $169,401
- ---------------------------------------------------------------------------------------------------------------------
<FN>
There were no sales of securities held to maturity during the six months ended
June 30, 2004.
</FN>
Securities available for sale and held to maturity with a fair value of $569.3
million and $548.4 million were pledged in compliance with state regulations
concerning trust powers and to secure Treasury Tax and Loan deposits, borrowings
and certain public deposits at June 30, 2004 and December 31, 2003,
respectively. In addition, securities available for sale and held to maturity
with a fair value of $24.0 million and $23.0 million were collateralized for the
discount window at the Federal Reserve Bank at June 30, 2004 and December 31,
2003, respectively. There were no borrowings with the Federal Reserve Bank at
either date.
At June 30, 2004 and December 31, 2003, certain securities available for sale
with a fair value of $2.5 million and $2.8 million, respectively, represented
amounts held in rabbi trusts for nonqualified retirement plans.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes, for all securities in an unrealized loss
position at June 30, 2004, the aggregate fair value and gross unrealized loss by
length of time those securities have been continuously in an unrealized loss
position.
Less than 12 Months 12 Months or Longer Total
-----------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
At June 30, 2004 Value Losses Value Losses Value Losses
- -------------------------------------------------------------------------------------------------------------
U.S. Treasury obligations and
obligations of U.S.
government-sponsored agencies $63,060 $939 $11,681 $319 $74,741 $1,258
Mortgage-backed securities 390,133 8,088 67,676 2,378 457,809 10,466
States and political
subdivisions 2,757 101 - - 2,757 101
Corporate bonds 10,852 85 17,504 269 28,356 354
- -------------------------------------------------------------------------------------------------------------
Subtotal, debt securities 466,802 9,213 96,861 2,966 563,663 12,179
Corporate stocks 3,936 139 3,045 515 6,981 654
- ----------------------------------------------------------------------- -------------------------------------
Total temporarily impaired $470,738 $9,352 $99,906 $3,481 $570,644 $12,833
securities
- -------------------------------------------------------------------------------------------------------------
For those debt securities whose amortized cost exceeds fair value, the primary
cause is related to interest rates. The majority of debt securities reported in
an unrealized loss position at June 30, 2004 were purchased during 2003 and the
first half of 2004, during which interest rates were at or near historical lows.
The relative increase in interest rates since the time of purchase has resulted
in a decline in market value for these debt securities. Other contributing
factors for debt securities reported in an unrealized loss position at June 30,
2004 include widening of investment spreads on certain variable rate asset
classes, which have resulted in relative declines in market value compared to
amortized cost. Management believes that the nature and duration of impairment
on its debt security holdings are primarily a function of interest rate
movements and changes in investment spreads, and does not consider full
repayment of principal on the reported debt obligations to be at risk. The debt
securities in an unrealized loss position at June 30, 2004 consisted of 102 debt
security holdings. The largest loss percentage of any single holding was 6.25%
of its amortized cost.
Causes of conditions whereby the fair value of corporate stock equity securities
is less than cost include both the general decline in equity markets over the
past several years, timing of purchases, and changes in valuation specific to
individual industries or issuers. The relationship between the level of market
interest rates and the dividend rates paid on individual equity securities may
also be a contributing factor. The nature and duration of impairment on the
equity securities holdings are considered to be a function of general financial
market movements and industry conditions. The equity securities in an unrealized
loss position at June 30, 2004 consisted of 15 holdings of financial and
commercial entities. The largest loss percentage position of any single holding
was 19.89% of its cost.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Loan Portfolio
The following is a summary of loans:
(Dollars in thousands) June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
Commercial:
Mortgages (A) $239,651 $227,334
Construction and development (B) 20,376 12,486
Other (C) 188,314 168,657
- --------------------------------------------------------------------------------
Total commercial 448,341 408,477
Residential real estate:
Mortgages (D) 433,976 375,706
Homeowner construction 17,079 14,149
- --------------------------------------------------------------------------------
Total residential real estate 451,055 389,855
Consumer
Home equity lines 134,299 116,458
Other (E) 67,344 46,191
- --------------------------------------------------------------------------------
Total consumer 201,643 162,649
- --------------------------------------------------------------------------------
Total loans (F) $1,101,039 $960,981
- --------------------------------------------------------------------------------
(A) Amortizing mortgages, primarily secured by income producing property.
(B) Loans for construction of residential and commercial properties and for land
development.
(C) Loans to businesses and individuals, a substantial portion of which are
fully or partially collateralized by real estate.
(D) A substantial portion of these loans is used as qualified collateral for
FHLB borrowings (See Note 8 for additional discussion of FHLB borrowings).
(E) Fixed rate home equity loans and other consumer installment loans.
(F) Net of unearned income and unamortized loan origination fees, net of costs
totaling $575 thousand and $687 thousand at June 30, 2004 and December 31,
2003, respectively. Includes $676 thousand and $685 thousand of net
purchased premiums at June 30, 2004 and December 31, 2003, respectively.
(6) Allowance For Loan Losses
The following is an analysis of the allowance for loan losses:
(Dollars in thousands)
Three Months Six Months
-----------------------------------------------
Periods ended June 30, 2004 2003 2004 2003
- --------------------------------------------------------------------------------
Balance at beginning of period $16,174 $15,495 $15,914 $15,487
Provision charged to expense 120 160 240 260
Recoveries of loans
previously charged off 87 108 295 117
Loans charged off (173) (21) (241) (122)
- --------------------------------------------------------------------------------
Balance at end of period $16,208 $15,742 $16,208 $15,742
- --------------------------------------------------------------------------------
(7) Goodwill and other intangibles
The 2002 acquisition of First Financial Corp. resulted in the recording of
goodwill of $22.6 million. Goodwill and intangible assets are reviewed for
impairment, based on their fair values, at least annually.
At June 30, 2004 and December 31, 2003, the carrying value of other intangible
assets amounted to $1.6 million and $2.0 million, respectively. In conjunction
with the 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
$322 thousand and $359 thousand for the first half of 2004 and 2003,
respectively.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The changes in the carrying value of goodwill and other intangible assets for
the six months ended June 30, 2004 are as follows:
(Dollars in thousands) Core Deposit Other Total
Goodwill Intangibles Intangible Intangibles
- --------------------------------------------------------------------------------
Balance at December 31, 2003 $22,591 $1,574 $379 $24,544
Amortization expense - (180) (142) (322)
Impairment recognized - - - -
- --------------------------------------------------------------------------------
Balance at June 30, 2004 $22,591 $1,394 $237 $24,222
- --------------------------------------------------------------------------------
Estimated annual amortization expense is as follows:
(Dollars in thousands)
Core Deposit Other Total
Estimated amortization expense Intangibles Intangibles Intangibles
- --------------------------------------------------------------------------------
July 1 through December 31, 2004 $179 $142 $321
2005 303 95 398
2006 261 - 261
2007 140 - 140
2008 120 - 120
The components of intangible assets as of June 30, 2004 are as follows:
(Dollars in thousands)
Gross Carrying Accumulated Net Carrying
Intangible assets Amount Amortization Amount
- --------------------------------------------------------------------------------
Core deposit intangibles $2,997 $(1,603) $1,394
Other intangibles 852 (615) 237
- --------------------------------------------------------------------------------
Total $3,849 $(2,218) $1,631
- --------------------------------------------------------------------------------
(8) Borrowings
Federal Home Loan Bank ("FHLB") advances outstanding are summarized below:
(Dollars in thousands) June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
FHLB advances $676,336 $607,104
- --------------------------------------------------------------------------------
In addition to outstanding advances, the Corporation also has access to an
unused line of credit amounting to $8.0 million at June 30, 2004 and December
31, 2003. 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 collateralize the line of credit
and outstanding advances at June 30, 2004 and December 31, 2003. Included in the
collateral were securities available for sale and held to maturity with a fair
value of $521.6 million and $526.0 million that were specifically pledged to
secure FHLB borrowings at June 30, 2004 and December 31, 2003, respectively.
Unless there is an event of default under the agreement, the Corporation may
use, encumber or dispose of any portion of the collateral in excess of the
amount required to secure FHLB borrowings, except for that collateral which has
been specifically pledged.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a summary of other borrowings:
(Dollars in thousands) June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
Treasury, Tax and Loan demand note balance $2,305 $1,567
Other 642 744
- --------------------------------------------------------------------------------
Other borrowings $2,947 $2,311
- --------------------------------------------------------------------------------
(9) Defined Benefit Pension Plans
The Corporation's noncontributory tax-qualified defined benefit pension plan
covers substantially all employees. Benefits are based on an employee's years of
service and highest 3-year compensation. The plan is funded on a current basis,
in compliance with the requirements of the Employee Retirement Income Security
Act of 1974, as amended. The Corporation has non-qualified retirement plans to
provide supplemental retirement benefits to certain employees, as defined in the
plans.
The actuarial assumptions used for the non-qualified retirement plans are the
same as those used for the Corporation's tax-qualified pension plan. The
non-qualified retirement plans provide for the designation of assets in rabbi
trusts. At June 30, 2004 and December 31, 2003, securities available for sale
and other assets designated for this purpose with a carrying value of $3.1
million and $3.2 million, respectively, are included in the Corporation's
Consolidated Balance Sheet.
Components of Net Periodic Benefit Costs:
(Dollars in thousands) Qualified Non-Qualified
Pension Plan Retirement Plans
- --------------------------------------------------------------------------------
Six months ended June 30, 2004 2003 2004 2003
- --------------------------------------------------------------------------------
Service cost $796 $637 $144 $92
Interest cost 684 613 196 185
Expected return on plan assets (782) (708) - -
Amortization of transition asset (3) (3) - -
Amortization of prior service cost 15 16 40 56
Recognized net actuarial loss 18 - 31 14
- --------------------------------------------------------------------------------
Net periodic benefit cost $728 $555 $411 $347
- --------------------------------------------------------------------------------
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assumptions:
The measurement date and weighted-average assumptions used to determine net
periodic benefit cost for the six months ended June 30, 2004 and 2003 were as
follows:
Qualified Pension Plan Non Qualified Retirement Plans
- --------------------------------------------------------------------------------
2004 2003 2004 2003
- --------------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
Measurement date 2003 2002 2003 2002
Discount rate 6.10% 6.75% 6.10% 6.75%
Expected long-term
return on plan assets 8.25% 8.00% - -
Rate of compensation
increase 4.25% 4.25% 4.25% 4.25%
Employer Contributions:
The Corporation previously disclosed in its financial statements for the year
ended December 31, 2003 that it expected to contribute $1.5 million to its
qualified pension plan and $314 thousand in benefit payments to its
non-qualified retirement plans in 2004. As of June 30, 2004, $1.5 million of
contributions have been made to the qualified pension plan and $158 thousand in
benefit payments have been made to the non-qualified retirement plans. The
Corporation presently anticipates contributing an additional $163 thousand in
benefit payments to the non-qualified retirement plans in 2004 for a total of
$321 thousand.
(10) Financial Instruments With Off-Balance Sheet Risk and Derivative Financial
Instruments
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to manage the Corporation's exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit, financial guarantees, and commitments to originate and
commitments to sell fixed rate mortgage loans. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the Consolidated Balance Sheets. The contract or notional amounts of these
instruments reflect the extent of involvement the Corporation has in particular
classes of financial instruments. The Corporation uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. The contractual and notional amounts of financial instruments
with off-balance sheet risk are as follows:
(Dollars in thousands) June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit:
Commercial loans $70,253 $78,555
Home equity lines 133,398 109,182
Other loans 17,979 14,965
Standby letters of credit 10,017 9,448
Financial instruments whose notional amounts
exceed the amount of credit risk:
Forward loan commitments:
Commitments to originate fixed rate mortgage
loans to be sold 2,557 1,328
Commitments to sell fixed rate mortgage loans 1,562 3,340
Commitments to Extend Credit
Commitments to extend credit are agreements to lend to a customer as long as
there are no violations of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each borrower's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained is based on
management's credit evaluation of the borrower.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Standby Letters of Credit
Standby letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Under the standby letters of credit, the Corporation is
required to make payments to the beneficiary of the letters of credit upon
request by the beneficiary contingent upon the customer's failure to perform
under the terms of the underlying contract with the beneficiary. Standby letters
of credit extend up to five years. At June 30, 2004 and December 31, 2003, there
was no liability to beneficiaries resulting from standby letters of credit.
At June 30, 2004, a substantial portion of the standby letters of credit were
supported by pledged collateral. The collateral obtained is determined based on
management's credit evaluation of the customer. Should the Corporation be
required to make payments to the beneficiary, repayment from the customer to the
Corporation is required.
Forward Loan Commitments
Commitments to originate and commitments to sell fixed rate mortgage loans are
derivative financial instruments. Accordingly, the Corporation recognizes the
fair value of these commitments as an asset on the balance sheet. At June 30,
2004 and December 31, 2003, the carrying value of these commitments amounted to
$(4) thousand and $(15) thousand, respectively, and was reported in other
assets. Changes in the fair value were recorded in current earnings and amounted
to income of $12 thousand and $108 thousand for the six months ended June 30,
2004 and 2003, respectively.
(11) Litigation
On June 22, 2004 a suit was filed by Galilee Hotel Associates, LLC ("plaintiff")
in the United States Bankruptcy Court District of Rhode Island against Bank
Rhode Island, The Washington Trust Company, Kahn, Litwin, Renza & Co. Ltd. and
Thomas Furey. The suit alleges that the actions of the defendants contributed to
and culminated in the bankruptcy filing of the plaintiff. The plaintiff had
applied to The Washington Trust Company in 2003 for a commercial real estate
loan in the amount of $3.5 million. No loan was made by Washington Trust in
connection with that application. The most significant count against Washington
Trust alleges breach of the covenant of good faith and fair dealing and seeks
damages in the amount of at least $3.5 million. Other counts against Washington
Trust are contained in the suit relating to allegations and claims that are not
material. Washington Trust believes the claims against it have no merit and is
vigorously opposing the suit. No loss provision for this lawsuit has been
recorded.
The Corporation is involved in various other claims and legal proceedings
arising out of the ordinary course of business. Management is of the opinion,
based on its review with counsel of the development of such matters to date,
that the ultimate disposition of such matters will not materially affect the
consolidated financial position or results of operations of the Corporation.
With respect to the unaudited consolidated financial statements of Washington
Trust Bancorp, Inc. and Subsidiaries at June 30, 2004 and for the six months
ended June 30, 2004 and 2003, KPMG LLP has made a review (based on the standards
of the Public Accounting Company Oversight Board) and not an audit, set forth in
their separate report dated August 6, 2004 appearing below. That report does not
express an opinion on the interim unaudited consolidated financial information.
KPMG LLP has not carried out any significant or additional audit tests beyond
those which would have been necessary if their report had not been included.
Accordingly, such report is not a "report" or "part of the Registration
Statement" within the meaning of Sections 7 and 11 of the Securities Act of 1933
and the liability provisions of Section 11 of such Act do not apply.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 June 30, 2004, the related
consolidated statements of income for the three-month and six-month periods
ended June 30, 2004 and 2003, and the related consolidated statements of changes
in shareholders' equity and cash flows for the six months ended June 30, 2004
and 2003. These consolidated financial statements are the responsibility of the
Corporation's management.
We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the consolidated
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 U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards established by the
Public Company Accounting Oversight Board (United States), the consolidated
balance sheet of Washington Trust Bancorp, Inc. and Subsidiary as of December
31, 2003, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 27, 2004, 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, 2003,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
KPMG LLP
Providence, Rhode Island
August 6, 2004
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
This report contains statements that are "forward-looking statements." We may
also make written or oral forward-looking statements in other documents we file
with the SEC, 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 assets under
management, reductions in loan demand, reductions in deposit levels
necessitating increased borrowing to fund loans and investments, changes in loan
defaults and charge-off rates, changes in the size and nature of the
Corporation's competition, changes in legislation or regulation and accounting
principles, policies and guidelines 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, 2003 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.
Overview
The Bancorp provides a broad range of banking and financial services through its
subsidiary, the Bank. The Bank's primary source of income is net interest
income. The Bank's lending business includes commercial, residential mortgage
and consumer loans. The Bank's loan portfolio is concentrated among borrowers in
southern New England, primarily in Rhode Island, and, to a lesser extent, in
Connecticut and Massachusetts. The Bank also offers a full range of retail and
commercial deposit products through its seventeen banking offices located in
Rhode Island and southeastern Connecticut. Noninterest income is an important
source of revenue for Washington Trust. Primary sources of noninterest income
are trust and investment management revenues, servicing of deposit accounts, net
gains on loan sales and merchant credit card processing. Revenue from trust and
investment management services continues to be the largest component of
noninterest income.
The Bank faces strong competition from branches of major Rhode Island and
regional commercial banks, local branches of certain Connecticut banks, as well
as various credit unions, savings institutions and, to some extent, finance
companies. The principal methods of competition are through interest rates,
financing terms and other customer conveniences. Among the external factors
affecting Washington Trust's operating results are market rates of interest, the
condition of the financial markets, and both national and regional economic
conditions.
Results of Operations
The Corporation reported quarterly net income of $5.0 million for the second
quarter ended June 30, 2004, an increase of 10.3% over net income of $4.6
million for the second quarter of 2003. On a diluted earnings per share basis,
the Corporation earned $.37 for the second quarter of 2004, up from $.34 for the
same quarter last year. The returns on average assets and average equity for the
three months ended June 30, 2004 were 0.96% and 14.46%, respectively, compared
to 1.01% and 13.57%, respectively, for the three months ended June 30, 2003.
Last year, the Corporation's operating results for the second quarter were
favorably impacted by gains on loan sales totaling $1.4 million, compared to
$560 thousand in the second quarter of 2004. In addition, net income for the
second quarter last year included a charge of $941 thousand (pre-tax) incurred
on the early payoff of certain FHLB borrowings totaling $23 million. This debt
restructuring has resulted in interest expense savings of approximately $510
thousand on an annualized basis over the remaining term of the prepaid debt.
For the first six months of 2004, net income amounted to $10.0 million, up 7.2%
over $9.3 million in the first half of 2003. On a diluted earnings per share
basis, the Corporation earned $.74 for the first half of 2004, up 5.7% over $.70
for the same period a year ago. The returns on average assets and average equity
for the six months ended June 30, 2004 were 0.98% and 14.18%, respectively,
compared to 1.04% and 14.06%, respectively, for the six months ended June 30,
2003.
Net interest income (the difference between interest earned on loans and
investments and interest paid on deposits and other borrowings) for the second
quarter of 2004 amounted to $13.1 million, up 6.6% from $12.3 million for the
same quarter a year ago. The net interest margin for the second quarter of 2004
was 2.72%, down from 2.87% in the first quarter of 2004 and 2.96% in the second
quarter of 2003. The decrease in the net interest margin from the first quarter
of 2004 is largely attributable to lower marginal yields on new loans in
comparison to overall portfolio yields and, to a lesser extent, to an increase
in premium amortization on mortgage-backed securities earlier in the second
quarter. For the six months ended June 30, 2004, net interest income amounted to
$26.2 million, up 8.1% from the amount reported for the corresponding 2003
period. The net interest margin for the first half of 2004 amounted to 2.80%,
down 17 basis points from the 2.97% reported for the same period a year ago,
reflecting a decline in yields on loans and securities offset somewhat by lower
funding costs of FHLB advances and interest-bearing deposits. (See additional
discussion under the caption "Net Interest Income.")
The Corporation's provision for loan losses for the second quarters of 2004 and
2003 amounted to $120 thousand and $160 thousand, respectively. The 2004
year-to-date provision totaled $240 thousand, compared to last year's amount of
$260 thousand. 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 $15.9 million at December 31, 2003 to $16.2
million at June 30, 2004 due to the year to date 2004 provision and recoveries,
net of charge-offs. The Corporation's ratio of the allowance for loan losses to
total loans decreased from 1.66% at December 31, 2003 to 1.47% at June 30, 2004,
primarily due to the growth in the loan portfolio as well as the continuation of
favorable loss experience. Total loan charge-offs for the first six months of
2004 were $241 thousand, or .02%, of average loans outstanding. Total recoveries
for the same period amounted to $295 thousand.
Other noninterest income (noninterest income excluding net realized gains and
losses on securities) totaled $7.2 million for the second quarter of 2004,
compared to $7.0 million for the same quarter a year ago. For the first half of
2004, noninterest income amounted to $13.1 million, up $346 thousand, or 2.7%,
over the comparable 2003 amount.
Trust and investment management revenues increased $1.1 million, or 20.8%, in
the first half of 2004 compared to the same period in 2003. Trust assets under
administration amounted to $1.784 billion at June 30, 2004, compared to $1.742
billion at December 31, 2003 and $1.576 billion at June 30, 2003.
Net gains on loan sales for the six months ended June 30, 2004 amounted to $909
thousand, down from $2.7 million for the same period in 2003. Total second
quarter 2004 net gains on loan sales were $560 thousand, down from $1.4 million
for the same quarter a year ago. These decreases reflect a significant decline
in fixed rate mortgage origination and sales activity. The Corporation has
experienced a further decline in fixed rate mortgage origination activity
beginning in the latter part of the second quarter. Meanwhile, the level of
adjustable rate mortgages originated by Washington Trust has increased; these
loans are retained in the Corporation's loan portfolio. Also included in loan
sale gains are gains resulting from the sale of the guaranteed portion of SBA
loans. Total such gains for the six months ended 2004 were $390 thousand, up
from $181 thousand for the same period in 2003. Included in other noninterest
income for the second quarter of 2004 was $280 thousand recovered as a result of
a favorable litigation decision.
In the first six months of 2004, the Corporation recognized net realized losses
on securities amounting to $240 thousand. For the six months ended June 30,
2003, net realized gains on securities totaled $630 thousand, including
approximately $400 thousand in gains resulting from the Corporation's
contribution of appreciated equity securities to the Corporation's charitable
foundation. The cost of this 2003 contribution amounted to approximately $433
thousand and was included in other noninterest expense for the six months ended
June 30, 2003. The Corporation expects to make an annual contribution to its
charitable foundation in the third quarter of 2004.
Exclusive of the second quarter 2003 pre-tax debt prepayment penalty charge of
$941 thousand, noninterest expenses for the second quarter of 2004 increased
$638 thousand, or 5.4%, from the same period a year ago. Noninterest expenses
amounted to $24.2 million for the first half of 2004, up 5.9% from the
corresponding period in 2003 (exclusive of the debt prepayment penalty charge)
with the largest increase in personnel related costs. Salaries and benefits, the
largest component of total noninterest expense, amounted to $14.2 million for
the six months ended June 30, 2004, compared to the $13.2 million reported for
the first six months of 2003. In addition, included in noninterest expenses for
the six months ended June 30, 2004 were costs associated with the conversion of
certain technology systems amounting to $275 thousand, of which $140 thousand
were included in the second quarter of 2004.
Income tax expense amounted to $4.6 million and $4.2 million for the six months
ended June 30, 2004 and 2003, respectively. The Corporation's effective tax rate
for the first six months of 2004 was 31.4%, compared to 31.0% for the
corresponding 2003 period.
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 six months ended June 30, 2004 amounted to $26.6
million, up 7.9% from the same period in 2003. This increase in net interest
income was due to an increase in average interest-earning assets. For the six
months ended June 30, 2004, average interest-earning assets amounted to $1.917
billion, up $237.6 million, or 14.2%, compared to the same period last year. The
net interest margins (FTE net interest income as a percentage of average
interest-earning assets) for the six months ended June 30, 2004 and 2003 were
2.80% and 2.97%, respectively. The decrease in the net interest margin reflects
a decline in yields on loans and securities offset somewhat by lower funding
costs of FHLB advances and interest-bearing deposits. The interest rate spread
decreased 13 basis points from the six months ended June 30, 2003 and amounted
to 2.54%. The yield on total interest-earnings assets declined 48 basis points
to 4.80%, while the cost of interest-bearing liabilities decreased 35 basis
points to 2.26%.
Average loans amounted to $1.016 billion for the six months ended June 30, 2004,
up $193.0 million, or 23.5%, from the same period in 2003. The yield on average
total loans amounted to 5.54% for the six months ended June 30, 2004, down 73
basis points from 6.27% for the comparable 2003 period. This decline is
primarily due to lower marginal yields on loans and investments as compared to
the prior year period and a decline in yields on new loan originations. Average
residential real estate loans amounted to $410.7 million for the six months
ended June 30, 2004, up $116.3 million, or 39.5%, from the same period a year
ago. The yield on residential real estate loans decreased 80 basis points from
the prior year period, amounting to 5.15% for the first half of 2004. Average
commercial loans rose $30.7 million, or 7.8%, to $423.5 million for the six
months ended June 30, 2004 while the yield on commercial loans declined 50 basis
points to 6.46%. Average consumer loans rose $46.1 million, or 34.0%, over the
same period a year ago and amounted to $181.6 million for the first half of
2004. The yield on consumer loans decreased 63 basis points from the prior year
period to 4.32% for the six months ended June 30, 2004.
Total average securities amounted to $901.1 million for the six months ended
June 30, 2004, an increase of $44.6 million, or 5.2%, over the comparable prior
year period mainly due to purchases of taxable debt securities. The FTE rate of
return on investments was 3.97% for the six months ended June 30, 2004, compared
to 4.33% for the same 2003 period. The decrease in yields on investments
reflects a combination of lower yields on variable rate securities tied to
short-term interest rates and lower marginal rates on reinvestment of cash flows
relative to the same period in the prior year.
Average interest-bearing liabilities for the six months ended June 30, 2004
increased $214.0 million, or 14.4%, to $1.704 billion. Due to lower rates paid
on both borrowed funds and deposits, the Corporation's total cost of funds on
interest-bearing liabilities amounted to 2.26% for the six months ended June 30,
2004, down from 2.61% for the comparable 2003 period.
Average savings deposits for the six months ended June 30, 2004 increased $54.3
million, or 11.7%, to $520.5 million from the comparable 2003 amount. The rate
paid on savings deposits for the first six months of 2004 was 0.63%, compared to
..79% for the same 2003 period. Average time deposits increased $55.9 million to
$536.4 million for the quarter ended June 30, 2004 with a decrease of 20 basis
points in the rate paid to 3.05%. For the six months ended June 30, 2004,
average demand deposits, an interest-free funding source, were $180.6 million up
by $19.5 million, or 12.1%, from the same prior year period. Average FHLB
advances for the six months ended June 30, 2004 amounted to $645.0 million, up
$104.0 million from the comparable 2003 amount of $541.0 million. The average
rate paid on FHLB advances for the six months ended June 30, 2004 was 2.91%,
down 69 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.
Tax-exempt income is converted to a fully taxable equivalent basis (FTE) using
the statutory federal income tax rate. For dividends on corporate stocks, the
70% federal dividends received deduction is also used in the calculation of tax
equivalency. Nonaccrual and renegotiated loans, as well as interest earned on
these loans (to the extent recognized in the Consolidated Statements of Income)
are included in amounts presented for loans.
Six months ended June 30, 2004 2003
- ------------------------------------------------------------------------------- -----------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------
Assets:
Residential real estate loans $410,686 $10,511 5.15% $294,391 $8,686 5.95%
Commercial and other loans 423,467 13,595 6.46% 392,774 13,564 6.96%
Consumer loans 181,559 3,898 4.32% 135,503 3,328 4.95%
- -------------------------------------------------------------------------------------------------------------------
Total loans 1,015,712 28,004 5.54% 822,668 25,578 6.27%
Federal funds sold and other
short-term investments 11,114 40 0.72% 15,198 75 1.00%
Taxable debt securities 819,405 16,048 3.94% 774,624 16,536 4.30%
Nontaxable debt securities 15,177 483 6.41% 16,796 542 6.51%
Corporate stocks and FHLB stock 55,438 1,204 4.37% 49,920 1,235 4.99%
- -------------------------------------------------------------------------------------------------------------------
Total securities 901,134 17,775 3.97% 856,538 18,388 4.33%
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,916,846 45,779 4.80% 1,679,206 43,966 5.28%
- -------------------------------------------------------------------------------------------------------------------
Cash and due from banks 36,254 32,023
Allowance for loan losses (16,113) (15,554)
Premises and equipment, net 24,975 25,332
Other 78,080 78,007
- -------------------------------------------------------------------------------------------------------------------
Total assets $2,040,042 $1,799,014
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Savings deposits $520,451 $1,623 0.63% $466,102 $1,830 .79%
Time deposits 536,398 8,148 3.05% 480,509 7,733 3.25%
FHLB advances 644,999 9,334 2.91% 540,975 9,670 3.60%
Other 2,079 30 2.89% 2,336 37 3.25%
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,703,927 19,135 2.26% 1,489,922 19,270 2.61%
Demand deposits 180,598 161,078
Other liabilities 14,464 15,342
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 1,898,989 1,666,342
Total shareholders' equity 141,053 132,672
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,040,042 $1,799,014
- -------------------------------------------------------------------------------------------------------------------
Net interest income $26,644 $24,696
- -------------------------------------------------------------------------------------------------------------------
Net interest spread 2.54% 2.67%
- -------------------------------------------------------------------------------------------------------------------
Net interest margin 2.80% 2.97%
- -------------------------------------------------------------------------------------------------------------------
Interest income amounts presented in the preceding table include the following
adjustments for taxable equivalency:
(Dollars in thousands)
Six months ended June 30, 2004 2003
- --------------------------------------------------------------------------------
Commercial and other loans $76 $79
Nontaxable debt securities 169 189
Corporate stocks 224 217
Financial Condition and Liquidity
Total assets amounted to $2.179 billion at June 30, 2004, up 10.4% from the
balance reported at December 31, 2003. For the first six months of 2004, average
assets totaled $2.040 billion, up 13.4% compared to the same period last year.
(See additional discussion under the caption "Net Interest Income.")
Securities Available for Sale - The carrying value of securities available for
sale at June 30, 2004 amounted to $769.3 million, an increase of $95.5 million,
or 14.2%, from the December 31, 2003 balance of $673.8 million. This increase
was mainly due to purchases of mortgage-backed securities and U.S. government
agency securities. The net unrealized gains on securities available for sale
amounted to $1.7 million at June 30, 2004, compared to $10.3 million at December
31, 2003. The decrease was primarily attributable to the expectation of rising
interest rates in the second quarter of 2004, resulting in lower market values
for the majority of debt security holdings.
Securities Held to Maturity - As a result of principal paydowns on
mortgage-backed securities and a called FHLB security, the carrying value of
securities held to maturity decreased $31.9 million from $165.6 million at
December 31, 2003 to $133.7 million at June 30, 2004. As previously mentioned,
the expectation of rising interest rates in the second quarter of 2004 resulted
in lower market values for the majority of debt security holdings. As a result,
the net unrealized gain on securities held to maturity amounted to $1.2 million
at June 30, 2004, down from $3.8 million at December 31, 2003.
Loans - Total loans at June 30, 2004 were 14.6% higher than at December 31,
2003. Residential real estate loans amounted to $451.1 million at June 30, 2004,
up $61.2 million, or 15.7%, in the first six months of 2004, including an
increase of $30.6 million in residential mortgages purchased from other
institutions. Commercial and commercial real estate loans increased $39.9
million, or 9.8%, from the December 31, 2003 balance due to new business and
additional business with existing customers and amounted to $448.3 million at
June 30, 2004. Growth in consumer loans has been very favorable with an increase
of $39.0 million, or 24.0%, in the first six months of 2004 primarily due to
growth in home equity lines and home equity loans.
Deposits - Total deposits amounted to $1.342 billion at June 30, 2004, up $135.8
million, or 11.3%, from the December 31, 2003 balance. Savings deposits were up
$73.1 million, or 14.8%, in the first half of 2004, including $52.6 million in
money market deposits. Time deposits increased $55.9 million, or 10.8%, from the
December 31, 2004 balance, primarily due to increases of $35.1 million in
brokered certificates of deposit and $18.1 million in consumer accounts. The
Corporation utilizes brokered time deposits as a funding source, generally with
maturities in the three to five year range. Demand deposits increased $6.8
million, or 3.5% from the balance at December 31, 2003.
Borrowings - The Corporation utilizes advances from the FHLB as well as other
borrowings as part of its overall funding strategy. FHLB advances were used to
meet short-term liquidity needs, to purchase securities and to purchase loans
from other institutions. In the first six months of 2004, FHLB advances
increased $69.2 million to $676.3 million at June 30, 2004. Included in the June
30,2004 balance are $65.5 million of callable advances with call dates ranging
from August 2004 through November 2007. Other borrowings outstanding at June 30,
2004 amounted to $2.9 million, down $636 thousand from the December 31, 2003
balance.
For the six months ended June 30, 2004, net cash provided by operations amounted
to $12.1 million, the majority of which was generated by net income. Proceeds
from sales of loans in the first six months of 2004 amounted to $30.9 million,
while loans originated for sale amounted to $27.9 million. Net cash used in
investing activities amounted to $219.2 million and was primarily used to
purchase securities. Net cash provided by financing activities was $201.5
million, due to growth in deposits and increases in FHLB advances. (See
Consolidated Statements of Cash Flows for additional information.)
Nonperforming Assets
Nonperforming assets are summarized in the following table:
(Dollars in thousands) June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
Nonaccrual loans 90 days or more past due $1,469 $1,721
Nonaccrual loans less than 90 days past due 3,518 1,022
- --------------------------------------------------------------------------------
Total nonaccrual loans 4,987 2,743
Other real estate owned, net 8 11
- --------------------------------------------------------------------------------
Total nonperforming assets $4,995 $2,754
- --------------------------------------------------------------------------------
Nonaccrual loans as a percentage of total loans .45% .29%
Nonperforming assets as a percentage of total assets .23% .14%
Allowance for loan losses to nonaccrual loans 325.01% 580.17%
Allowance for loan losses to total loans 1.47% 1.66%
Nonperforming assets amounted to $5.0 million, or .23% of total assets, at June
30, 2004, up from $2.7 million, or .14%, at December 31, 2003. This increase was
largely due to a single $2.1 million commercial lending relationship classified
as nonaccrual during the second quarter of 2004, a significant portion of which
is collateralized by real estate.
There were no accruing loans 90 days or more past due at June 30, 2004 or
December 31, 2003.
Impaired loans consist of all nonaccrual commercial loans. At June 30, 2004, the
recorded investment in impaired loans was $3.8 million, which had a related
allowance amounting to $624 thousand. Also during the six month period ended
June 30, 2004, interest income recognized on impaired loans amounted to
approximately $208 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) June 30, December 31,
2004 2003
- --------------------------------------------------------------------------------
Residential real estate $927 $946
Commercial:
Mortgages 2,701 342
Other 1,123 1,236
Consumer 236 219
- --------------------------------------------------------------------------------
Total nonaccrual loans $4,987 $2,743
- --------------------------------------------------------------------------------
Capital Resources
Total equity capital increased $487 thousand during the six months ended June
30, 2004 and amounted to $138.5 million. The changes in shareholders' equity in
the first half of 2004 included net income of $10.0 million offset by $5.8
million net unrealized losses on securities available for sale and $4.5 million
in dividends to shareholders. In addition, stock option exercises increased
shareholders' equity by $605 thousand in the first half of 2004. (See the
Consolidated Statement of Changes in Shareholders' Equity for additional
information.)
The ratio of total equity to total assets amounted to 6.36% at June 30, 2004,
compared to 6.99% at December 31, 2003. Book value per share as of June 30, 2004
and December 31, 2003 amounted to $10.47 and $10.46, respectively.
At June 30, 2004, the Corporation's Tier 1 risk-based capital ratio was 9.41%
and the total risk-adjusted capital ratio was 10.95%. The Corporation's Tier 1
leverage ratio amounted to 5.51% at June 30, 2004. These ratios were above the
ratios required to be categorized as well-capitalized.
Dividends payable at June 30, 2004 amounted to $2.3 million, representing $.17
per share payable on July 15, 2004, consistent with the dividend declared in the
first quarter of 2004. The source of funds for dividends paid by the Bancorp is
dividends received from the Bank. The Bank is a regulated enterprise, and as
such its ability to pay dividends to the Bancorp is subject to regulatory review
and restriction.
Off-Balance Sheet Arrangement
See Note 10 of the Consolidated Financial Statements for additional information
regarding the Corporation's off-balance sheet arrangements.
Critical Accounting Policies
Accounting policies involving significant judgments and assumptions by
management, which have, or could have, a material impact on the carrying value
of certain assets and impact income, are considered critical accounting
policies. The Corporation's accounting and reporting policies comply with
accounting principles generally accepted in the United States and conform to
general practices within the banking industry. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions. The financial position and results
of operations can be affected by these estimates and assumptions, which are
important in understanding the reported results. Management has discussed the
development and the selection of critical accounting policies with the Audit
Committee of our board of directors. As discussed in our 2003 Annual Report on
Form 10-K, we have identified the allowance for loan losses, review of goodwill
and intangible assets for impairment, other-than-temporary impairment, interest
income recognition, and tax estimates as critical accounting policies. There
have been no significant changes in the methods or assumptions used in the
accounting policies that require material estimates and assumptions.
Recent Accounting Developments
See Note 2 of the Consolidated Financial Statements for additional information
regarding recent accounting developments affecting the Corporation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
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 Corporation's interest rate
risk modeling incorporates a wide range of interest rate scenarios, including
both parallel rate shifts and changes in the shape of the yield curve of varying
magnitudes in addition to those presented here. 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 June 30, 2004. Interest
rates are assumed to shift upward by 200 basis points or downward by 50 basis
points. This asymmetric rate shift reflects the fact that given the current
level of interest rates, the likelihood of a decline in interest rates in excess
of 50 basis points is considered unlikely.
Months 1 - 12 Months 13-24 Months 1 - 60
------------------------------------------------------------------------------
200 basis point increase in rates +2.0% -0.7% -0.6%
50 basis point decrease in rates -1.2% -1.8% -2.0%
At June 30, 2004, income simulation results assume that changes in core deposit
rates are linked to short-term market interest rates. The assumed relationship
and correlation between short-term interest rate changes and core deposit rate
changes used in income simulation may fluctuate over time based on the
Corporation's assessment of market conditions.
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 has subsequently implemented or could implement in
response to rate shifts, and should not be relied upon as an estimate of future
net interest income.
The Corporation estimates that the negative exposure of net interest income to
falling rates results from the difficulty of reducing rates paid on core savings
deposits significantly below current levels. If rates were to fall and remain
low for a sustained period, core savings deposit rates would likely not fall as
fast as other market rates, while asset yields would decline as current asset
holdings mature or reprice. The pace of asset cash flows would also be likely to
increase in a falling rate environment due to more rapid mortgage-related
prepayments and redemption of callable securities. While the Corporation reviews
simulation assumptions to ensure that they are reasonable and current, income
simulation may not always prove to be an accurate indicator of interest rate
risk since the repricing, maturity and prepayment characteristics of financial
instruments may change to a different degree than estimated. Specifically,
mortgage-backed securities and mortgage loans involve a level of risk that
unforeseen changes in prepayment speeds may cause related cash flows to vary
significantly in differing rate environments. Such changes could increase or
decrease the amortization of premium or accretion of discounts related to such
instruments, thereby affecting interest income. Changes in prepayment speeds can
also affect the level of reinvestment risk associated with cash flow from these
instruments, as well as their market value. The sensitivity of core savings
deposits to fluctuations in interest rates could also differ from simulation
assumptions, and could result in changes in both liability mix and interest
expense that differ from those used to estimate interest rate risk exposure.
The Corporation also monitors the potential change in market value of its
available for sale debt securities using both rate shifts 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 June 30, 2004, an immediate 200 basis point rise in rates would result in
a 5.5% decline in the value of the Corporation's available for sale debt
securities. Conversely, a 100 basis point fall in rates would result in a 2.0%
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 June 30, 2004,
including both debt and equity securities, was 6.7%, assuming a one-year time
horizon and a 5% probability of occurrence for "value at risk" analysis.
On occasion, the Corporation has supplemented its interest rate risk management
strategies with off-balance sheet transactions. Such transactions are intended
to hedge specifically identified risks inherent in the Corporation's balance
sheet, and not to produce speculative profits. The Corporation has written
policy guidelines that designate limits on the notional value of off-balance
sheet transactions and require periodic evaluation of risks associated with
these transactions, including counterparty credit risk.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") 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 as of the end of the quarter ended June 30, 2004. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Corporation's disclosure controls and procedures are adequate
and designed 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. The Corporation
will continue to review and document its disclosure controls and procedures and
consider such changes in future evaluations of the effectiveness of such
controls and procedures, as it deems appropriate. There has been no change in
our internal control over financial reporting during the period ended June 30,
2004 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On June 22, 2004 a suit was filed by Galilee Hotel Associates, LLC ("plaintiff")
in the United States Bankruptcy Court District of Rhode Island against Bank
Rhode Island, The Washington Trust Company, Kahn, Litwin, Renza & Co. Ltd. and
Thomas Furey. The suit alleges that the actions of the defendants contributed to
and culminated in the bankruptcy filing of the plaintiff. The plaintiff had
applied to The Washington Trust Company in 2003 for a commercial real estate
loan in the amount of $3.5 million. No loan was made by Washington Trust in
connection with that application. The most significant count against Washington
Trust alleges breach of the covenant of good faith and fair dealing and seeks
damages in the amount of at least $3.5 million. Other counts against Washington
Trust are contained in the suit relating to allegations and claims that are not
material. Washington Trust believes the claims against it have no merit and is
vigorously opposing the suit. No loss provision for this lawsuit has been
recorded.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
The following table provides information as of and for the quarter ended June
30, 2004 regarding shares of common stock of the Corporation that were
repurchased under the Deferred Compensation Plan, the Stock Repurchase Plan, and
the Stock Incentive Plans.
Total number Maximum
of shares number of
Total purchased as shares that
number Average part of may yet be
of price publicly purchased
shares paid per announced under
purchased share plan(s) the plan(s)
- --------------------------------------------------------------------------------
Deferred Compensation Plan (A)
Balance at beginning of period 14,820
4/1/2004 to 4/30/2004 56 $25.44 56 14,764
5/1/2004 to 5/31/2004 160 25.95 160 14,604
6/1/2004 to 6/30/2004 40 25.58 40 14,564
- --------------------------------------------------------------------------------
Total Deferred Compensation Plan 256 $25.78 256 14,564
- --------------------------------------------------------------------------------
Stock Repurchase (B)
Balance at beginning of period 162,000
4/1/2004 to 4/30/2004 - - - 162,000
5/1/2004 to 5/31/2004 - - - 162,000
6/1/2004 to 6/30/2004 - - - 162,000
- --------------------------------------------------------------------------------
Total Stock Repurchase Pla - - - 162,000
- --------------------------------------------------------------------------------
Other (C)
Balance at beginning of period N/A
4/1/2004 to 4/30/2004 1,201 $27.07 1,201 N/A
5/1/2004 to 5/31/2004 - - - N/A
6/1/2004 to 6/30/2004 - - - N/A
- --------------------------------------------------------------------------------
Total Other 1,201 $27.07 1,201 N/A
- --------------------------------------------------------------------------------
Total Purchases of Equity
Securities 1,457 $26.85 1,457 176,564
- --------------------------------------------------------------------------------
(A) The Deferred Compensation Plan was established on January 1, 1999. A maximum
of 25,000 shares were authorized under the plan. This plan allows directors
and officers to defer a portion of their compensation. The deferred
compensation is contributed to a rabbi trust that invests the assets of the
trust into selected mutual funds as well as shares of the Bancorp's common
stock pursuant to the direction of the plan participants. All shares are
purchased in the open market.
(B) The Stock Repurchase Plan was established in September 2001. A maximum of
250,000 shares were authorized under the plan. The Bancorp plans to hold
the repurchased shares as treasury stock for general corporate purposes.
(C) Pursuant to the Corporation's stock incentive plans, employees may deliver
back shares of stock previously issued in payment of the exercise price of
stock options. While required to be reported in this table, such
transactions are not reported as share repurchases in the Consolidated
Statement of Changes in Shareholders' Equity.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on April 27, 2004.
(b) The results of matters voted upon are presented below:
i. Election of Directors to Serve Until 2007 Annual Meeting: Barry G.
Hittner, Katherine W. Hoxsie, Edward M. Mazze, Ph. D., Kathleen
McKeough, Joyce O. Resnikoff and John C. Warren were nominated and
duly elected to hold office as Directors of Washington Trust Bancorp,
Inc., each to serve a term of three years and until their successors
are duly elected and qualified, by the number of votes set forth
opposite each person's name as follows:
Abstentions
Votes Votes and Broker
Term In Favor Withheld Non-votes
---------------------------------------------------------------------
Barry G. Hittner 3 years 11,722,058 214,223 0
Katherine W. Hoxsie 3 years 11,730,707 205,574 0
Edward M. Mazze, Ph.D. 3 years 11,731,645 204,636 0
Kathleen McKeough 3 years 11,773,946 162,335 0
Joyce O. Resnikoff 3 years 11,723,329 212,952 0
John C. Warren 3 years 11,721,354 214,927 0
The following additional persons continued as Directors of
Washington Trust Bancorp, Inc. following the Annual Meeting:
Gary P. Bennett
Steven J. Crandall
Larry J. Hirsch, Esq.
Mary E. Kennard, Esq.
Victor J. Orsinger, II
H. Douglas Randall, III
Patrick J. Shanahan, Jr.
James P. Sullivan, CPA
Neil H. Thorp
John F. Treanor
ii. A proposal for the ratification of KPMG LLP to serve as independent
auditors of the Corporation for the current fiscal year ending
December 31, 2004 was passed by a vote of 11,655,267 shares in
favor, 246,940 shares against, with 34,074 abstentions and broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit index
Exhibit No.
11 Statement re Computation of Per Share Earnings
15 Letter re Unaudited Interim Financial Information
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32** Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
** These certifications are not "filed" for purposes of Section 18
of the Exchange Act or incorporated by reference into any filing
under the Securities Act of the Exchange Act.
(b) On April 15, 2004, a Form 8-K, which reported the Corporation's
earnings for the quarter ended March 31, 2004, was furnished to the
Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON TRUST BANCORP, INC.
(Registrant)
August 6, 2004 By: John C. Warren
-----------------------------------------------------
John C. Warren
Chairman and Chief Executive Officer
(principal executive officer)
August 6, 2004 By: David V. Devault
-----------------------------------------------------
David V. Devault
Executive Vice President, Treasurer
and Chief Financial Officer
(principal financial and accounting officer)