FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ________________ to _____________
Commission file Number 0-13091
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WASHINGTON TRUST BANCORP, INC.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (401) 348-1200
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N/A
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Former name, former address and former fiscal year, if changed since
last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the close of May 5, 1995.
Class Outstanding at May 5, 1995
------------------------------ --------------------------
Common stock, $.0625 par value 2,825,313 Shares
Page 1
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995
CONTENTS
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Page No.
PART I. ITEM 1. Financial Information --------
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Consolidated Balance Sheets
March 31, 1995, March 31, 1994, and December 31, 1994 3
Consolidated Statements of Income
Three Months Ended March 31, 1995 and 1994 4
Consolidated Statements of Changes in Shareholders' Equity
Three Months Ended March 31, 1995 and 1994 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994 6
Condensed Notes to Consolidated Financial Statements 7
PART I. ITEM 2.
- ----------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. Other Information 19
- ---------------------------
Signatures 20
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-2-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, March 31, December 31,
ASSETS 1995 1994 1994
- ------ ---------- ---------- ----------
Cash and due from banks $ 12,973,602 $ 14,614,253 $ 15,172,421
Federal funds sold 8,952,785 906,713 3,232,489
Securities available for sale, at market value;
cost $28,923,719, $33,461,122 and $31,846,965
at March 31, 1995 and 1994, and December 31,
1994, respectively 34,565,969 39,379,482 36,516,115
Mortgage loans held for sale 330,352 79,532 203,750
Investment securities, at cost; market value
$49,961,126, $51,743,604 and $49,395,262 at
March 31, 1995 and 1994, and December 31,
1994, respectively 51,781,957 52,228,024 52,496,616
Loans 395,695,934 368,855,841 393,926,200
Less reserve for possible loan losses 8,742,225 9,219,536 9,327,942
----------- ----------- -----------
Net loans 386,953,709 359,636,305 384,598,258
Premises and equipment, net 14,802,228 14,360,066 14,779,903
Accrued interest receivable 3,561,387 3,008,680 3,232,211
Other real estate owned, net 1,993,859 3,531,049 2,007,212
Other assets 3,501,586 2,319,200 3,440,988
----------- ----------- -----------
Total assets $ 519,417,434 $ 490,063,304 $ 515,679,963
=========== =========== ===========
LIABILITIES
Demand deposits $ 47,737,913 $ 43,044,884 $ 53,373,386
Savings deposits 176,031,059 193,042,414 192,653,937
Time deposits 219,122,728 178,243,954 194,703,819
----------- ----------- -----------
Total deposits 442,891,700 414,331,252 440,731,142
Dividends payable 621,514 468,497 564,686
Securities sold under agreement to repurchase -- 3,745,000 --
Federal Home Loan Bank advances 22,076,707 23,551,500 23,522,343
Accrued expenses and other liabilities 6,219,227 5,221,485 5,078,808
----------- ----------- -----------
Total liabilities 471,809,148 447,317,734 469,896,979
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock of $.0625 par value; authorized
10,000,000 shares; issued 2,880,000 shares 180,000 120,000 180,000
Paid-in capital 2,874,005 2,852,642 2,869,135
Retained earnings 41,831,095 37,054,202 40,613,979
Unrealized gain on securities available for sale, net of tax 3,385,350 3,551,018 2,801,490
Treasury stock, at cost; 54,940 shares at
March 31, 1995, 69,047 shares at March 31, 1994
and 56,570 shares at December 31, 1994 (662,164) (832,292) (681,620)
----------- ----------- -----------
Total shareholders' equity 47,608,286 42,745,570 45,782,984
----------- ----------- -----------
Total liabilities and shareholders' equity $ 519,417,434 $ 490,063,304 $ 515,679,963
=========== =========== ===========
See accompanying notes to consolidated financial statements.
- 3 -
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1995 1994
- ---------------------------- ---------- ----------
Interest income:
Interest and fees on loans $ 8,737,731 $7,246,159
Investment securities and securities
available for sale:
Interest 1,114,785 1,125,067
Dividends 190,601 194,079
Federal funds sold 101,283 50,614
---------- ---------
Total interest income 10,144,400 8,615,919
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Interest expense:
Savings deposits 994,100 1,070,141
Time deposits 2,498,335 1,917,840
Other 408,691 319,282
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Total interest expense 3,901,126 3,307,263
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Net interest income 6,243,274 5,308,656
Provision for loan losses 150,000 333,365
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Net interest income after provision for loan losses 6,093,274 4,975,291
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Noninterest income:
Trust income 777,823 801,520
Service charges on deposit accounts 470,287 383,357
Merchant processing fees 76,529 57,568
Gains on sales of securities available for sale -- 681,558
Gains (losses) on loan sales 21,989 (43,726)
Other income 254,446 185,050
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Total noninterest income 1,601,074 2,065,327
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Noninterest expense:
Salaries and employee benefits 2,590,921 2,459,221
Net occupancy 301,097 307,985
Equipment 309,445 292,036
Deposit taxes and assessments 308,117 298,356
Foreclosed property costs, net 53,328 108,846
Office supplies 129,603 181,040
Advertising and promotion 109,546 142,070
Credit and collection 122,443 169,401
Charitable contributions -- 699,897
Other 919,218 751,139
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Total noninterest expense 4,843,718 5,409,991
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Income before income taxes 2,850,630 1,630,627
Applicable income taxes 1,012,000 526,000
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Net income $ 1,838,630 $1,104,627
========== =========
Weighted average shares outstanding - fully diluted 2,879,382 2,859,041
Weighted average shares outstanding - primary 2,876,668 2,837,781
Earnings per share - fully diluted $ .64 $ .39
Earnings per share - primary $ .64 $ .39
Cash dividends declared per share $ .22 $ .16
See accompanying notes to consolidated financial statements.
- 4 -
Washington Trust Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
Three months ended March 31, 1995 1994
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Common Stock
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Balance at end of period $ 180,000 $ 120,000
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Paid-in Capital
- ---------------
Balance at beginning of year 2,869,135 2,822,908
Issuance of common stock for dividend
reinvestment and stock option plans 4,870 29,733
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Balance at end of period 2,874,005 2,852,641
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Retained Earnings
- -----------------
Balance at beginning of year 40,613,979 36,418,073
Net income 1,838,630 1,104,627
Cash dividends declared (621,514) (468,497)
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Balance at end of period 41,831,095 37,054,203
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Unrealized Gain on Securities Available for Sale
- ------------------------------------------------
Balance at beginning of year 2,801,490 --
Adoption of SFAS No. 115 -- 4,910,522
Change in unrealized gain on securities
available for sale, net of tax 583,860 (1,359,504)
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Balance at end of period 3,385,350 3,551,018
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Treasury Stock
- --------------
Balance at beginning of year (681,620) (898,056)
Issuance of common stock for dividend
reinvestment and stock option plans 19,456 65,764
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Balance at end of period (662,164) (832,292)
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Total Shareholders' Equity $47,608,286 $42,745,570
=================================================================================
See accompanying notes to consolidated financial statements.
-5-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended
March 31,
-------------------------
1995 1994
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Cash flows from operating activities:
Net income $ 1,838,630 1,104,627
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 150,000 333,365
Provision for valuation of other real estate owned 7,712 17,760
Depreciation of premises and equipment 325,000 330,182
Amortization of net deferred loan fees and costs (196,421) (159,258)
Gains on sales of securities available for sale -- (681,558)
Losses on sales of other real estate owned 1,914 6,731
Losses (gains) on loan sales (21,989) 43,726
Proceeds from sales of loans 1,949,853 9,201,632
Loans originated for sale (2,054,467) (5,615,391)
Increase in accrued interest receivable (329,176) (137,769)
Increase in other assets (449,838) (361,942)
Increase in accrued expenses and other liabilities 1,140,419 641,679
Other, net 22,322 56,320
---------- ----------
Net cash provided by operating activities 2,383,959 4,780,104
---------- ----------
Cash flows from investing activities:
Securities available for sale:
Purchases (88,200) (8,000)
Proceeds from sales of equity securities -- 3,449,897
Maturities 3,000,000 --
Investment securities:
Purchases -- (1,161,852)
Maturities and principal repayments 701,730 1,416,634
Loan originations in excess of principal
collected on loans (2,304,086) (11,730,619)
Proceeds from sales and other reductions
of other real estate owned 1,905 22,635
Purchases of premises and equipment (348,393) (335,117)
---------- ----------
Net cash provided by (used in) investing activities 962,956 (8,346,422)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits 2,160,558 (9,043,368)
Net increase in securities sold under
agreement to repurchase -- 3,745,000
Proceeds from Federal Home Loan Bank advances 12,564,839 3,051,500
Payments of Federal Home Loan Bank advances (14,010,475) --
Proceeds from issuance of commmon stock from treasury 24,326 95,497
Cash dividends paid (564,686) (411,473)
---------- ----------
Net cash provided by (used in) financing activities 174,562 (2,562,844)
---------- ----------
Net increase (decrease) in cash and cash equivalents 3,521,477 (6,129,162)
Cash and cash equivalents at beginning of period 18,404,910 21,650,128
---------- ----------
Cash and cash equivalents at end of period $ 21,926,387 15,520,966
========== ==========
Noncash Investing Activities:
Transfers from loans to other real estate owned $ 88,428 282,363
Loans charged off 807,274 266,772
Loans made to facilitate the sale of OREO 90,250 90,000
Change in unrealized gain on securities
available for sale, net of tax 583,860 3,551,018
Supplemental Disclosures:
Interest payments $ 1,859,443 1,789,504
Income tax payments 117,250 481,009
See accompanying notes to consolidated financial statements.
-6-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1994
(1) BASIS OF PRESENTATION
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The accounting and reporting policies of Washington Trust Bancorp, Inc. (the
Corporation) are in accordance with generally accepted accounting principles and
conform to general practices within the banking industry. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting only of normally recurring accruals)
necessary to present fairly the Corporation's financial position as of
March 31, 1995 and 1994 and the results of operations and cash flows for the
interim periods presented.
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiary, The Washington Trust Company. All significant
intercompany balances and transactions have been eliminated. Certain amounts in
the 1994 consolidated financial statements have been reclassified to conform to
the current reporting format.
The unaudited consolidated financial statements of Washington Trust Bancorp,
Inc. presented herein have been prepared pursuant to the rules of the Securities
and Exchange Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1994, included in the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1994.
(2) IMPAIRED LOANS
- ------------------
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures". These statements establish accounting
standards for measuring impairment on loans for which it is probable that the
creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. SFAS No. 114 requires impairment to be measured on
a discounted cash flow method, or at the loan's observable market price, or at
the fair value of the collateral if the loan is collateral dependent. However,
impairment must be measured based on the fair value of the collateral if it is
determined that foreclosure is probable. SFAS No. 114 also narrows the
definition of in-substance foreclosures to include only those loans for which
the Corporation has taken possession of the collateral, but has not completed
legal foreclosure proceedings. Accordingly, loans classified as in-substance
foreclosure are treated as impaired loans rather than other real estate owned
(OREO) under these pronouncements.
Upon adoption of SFAS No. 114 and No. 118, the Corporation reclassified in-
substance foreclosed loans of $3,792,728 from OREO to loans, and a related
valuation reserve of $492,035 from OREO to the reserve for loan losses.
Comparable amounts reclassified as of March 31, 1994 were loans amounting to
$5,179,693 and a related valuation reserve of $389,485.
-7-
Impaired loans consist of all nonaccrual commercial loans. When a loan is
placed on nonaccrual status and identified as impaired, interest previously
accrued, but not collected is reversed against current period income, and
further recognition of accrued interest is suspended. Subsequent cash receipts
on impaired loans are applied to the outstanding principal balance of the loan,
or recognized as interest income depending on management's assessment of the
ultimate collectibility of the loan.
At March 31, 1995, the recorded investment in impaired loans was $6,670,000,
including $4,672,000 which had a related allowance amounting to $920,000. The
balance of impaired loans which did not require an allowance was $1,998,000.
During the three months ended March 31, 1995, the average recorded investment in
impaired loans was $6,938,000. Also during this period, interest income
recognized on impaired loans amounted to approximately $92,000. Interest income
on impaired loans is recognized on a cash basis only.
(3) SECURITIES AVAILABLE FOR SALE
- ---------------------------------
Securities available for sale are those which the Corporation intends to use as
part of its asset/liability strategy or that may be sold as a result of changes
in market conditions, changes in prepayment risk, rate fluctuations, liquidity
or capital requirements.
Securities available for sale are summarized as follows:
Amortized Unrealized Unrealized Market
March 31, 1995 Cost Gains Losses Value
-------------- ---------- ---------- ---------- -----------
U.S. Treasury obligations $22,048,034 240,802 (359,816) $21,929,020
Corporate stocks 3,880,685 5,771,726 (10,462) 9,641,949
Federal Home Loan Bank stock 2,995,000 -- -- 2,995,000
----------- ---------- --------- ----------
$28,923,719 6,012,528 (370,278) $34,565,969
=========== ========== ========= ===========
Amortized Unrealized Unrealized Market
March 31, 1994 Cost Gains Losses Value
-------------- ---------- ---------- --------- -----------
U.S. Treasury obligations $25,105,567 550,944 (158,516) $25,497,995
Corporate debt securities 1,000,000 -- -- 1,000,000
Corporate stocks 5,374,755 5,609,121 (83,189) 10,900,687
Federal Home Loan Bank stock 1,980,800 -- -- 1,980,800
----------- ---------- --------- ----------
$33,461,122 6,160,065 (241,705) $39,379,482
=========== ========== ========= ===========
Included in corporate stocks at March 31, 1995 and 1994 were $500,000 and $2.0
million, respectively, of auction rate preferred stocks. These are preferred
stock instruments whose dividend rate is reset by auction every 49 days to a
market rate which results in a market value of par.
U.S. Treasury obligations with a carrying value of $2,993,770 and $3,026,560
were pledged to secure public deposits and for other purposes at March 31, 1995
and 1994, respectively. U.S. Treasury obligations with a carrying value of
$3,660,790 were pledged as collateral against securities sold under agreements
to repurchase at March 31, 1994.
-8-
There were no sales of corporate stocks for the quarter ended March 31, 1995.
For the quarter ended March 31, 1994, proceeds from sales of corporate stocks
and gains realized on these sales amounted to $3,449,897 and $681,558,
respectively. No losses were realized on these sales. Realized gains from
sales of corporate stocks were determined using the average cost method.
(4) INVESTMENT SECURITIES
- -------------------------
Those debt securities that the Corporation has the ability and intent to hold
until maturity are classified as investment securities. Debt securities held in
the investment portfolio are carried at cost, adjusted for amortization of
premium and accretion of discount.
The amortized cost and market values of investment securities are summarized
as follows:
Carrying Unrealized Unrealized Market
March 31, 1995 Value Gains Losses Value
-------------- ---------- ---------- ---------- -----------
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $20,411,979 -- (1,217,889) $19,194,090
Mortgage-backed securities 21,359,718 -- (468,415) 20,891,303
States and political subdivisions 10,010,260 19,330 (153,857) 9,875,733
----------- ---------- --------- -----------
$51,781,957 19,330 (1,840,161) $49,961,126
=========== ========== ========= ===========
Carrying Unrealized Unrealized Market
March 31, 1994 Value Gains Losses Value
-------------- ---------- ---------- ---------- -----------
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $19,419,051 11,816 (353,593) $19,077,274
Mortgage-backed securities 24,094,454 64,665 (140,413) 24,018,706
States and political subdivisions 8,714,519 42,231 (109,126) 8,647,624
----------- ---------- --------- -----------
$52,228,024 118,712 (603,132) $51,743,604
=========== ========== ========= ===========
Investment securities with a carrying value of $1,399,501 and $999,683 were
pledged to secure public deposits and for other purposes at March 31, 1995 and
1994, respectively.
There were no sales or transfers of investment securities during the quarters
ended March 31, 1995 and 1994.
-9-
(5) LOAN PORTFOLIO
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The following is a summary of loans:
March 31,
-------------------------
1995 1994
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Residential real estate:
Mortgages $172,465,660 $159,422,264
Homeowner construction 5,561,805 5,512,610
----------- -----------
Total residential real estate 178,027,465 164,934,874
----------- -----------
Commercial:
Mortgages 56,004,297 52,508,040
Construction and development 13,641,295 9,905,562
Other 101,705,852 105,241,466
----------- -----------
Total commercial 171,351,444 167,655,068
----------- -----------
Installment 46,317,025 36,265,899
----------- -----------
$395,695,934 $368,855,841
=========== ===========
(6) RESERVE FOR POSSIBLE LOAN LOSSES
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The following is an analysis of the reserve for possible loan losses:
Three months ended
March 31,
----------------------
1995 1994
--------- ---------
Balance at beginning of period $9,327,942 $9,089,775
Provision charged to expense 150,000 333,365
Recoveries 71,557 63,168
Loans charged off (807,274) (266,772)
--------- ---------
Balance at end of period $8,742,225 $9,219,536
========= =========
Prior period amounts presented have been restated as a result of the
implementation of SFAS No. 114 and No. 118. See Note 2 to the Consolidated
Financial Statements for additional discussion.
(7) NONACCRUAL LOAN POLICY
- --------------------------
Loans, with the exception of credit card loans and certain residential mortgage
loans, are placed on nonaccrual status and interest recognition is suspended
when such loans are 90 days or more overdue with respect to principal and/or
interest. Interest previously accrued, but not collected on such loans is
reversed against current period income. Cash receipts on nonaccrual loans are
applied to the outstanding principal balance of the loan, or recognized as
interest income depending on management's assessment of the ultimate
-10-
collectibility of the loan. Loans are removed from nonaccrual status when they
have been current as to principal and interest for a period of time, the
borrower has demonstrated an ability to comply with the repayment terms, and
when, in management's option, the loans are considered to be fully collectible.
Effective January 1, 1995, residential mortgages are placed on nonaccrual status
when they are 90 days or more overdue, unless in management's judgment the value
of the underlying collateral is sufficient to preclude any loss of principal and
interest. Previously, all residential mortgages were placed on nonaccrual
status when they became 90 days past due. The effect of this change on the
results of operations was insignificant.
(8) INTEREST RATE RISK MANAGEMENT POLICY
- ----------------------------------------
The Corporation uses interest rate swaps and interest rate floor contracts as
part of its interest rate risk management strategy. Swaps are agreements in
which the Corporation and another party agree to exchange interest payments on a
notional principal amount. A floor is a purchased contract that entitles the
Corporation to receive payment from a counterparty if a rate index falls below a
contractual rate. The amount of the payment is the difference between the
contractual floor rate and the rate index multiplied by the notional principal
amount of the contract. If the contractual rate does not fall below the floor
rate, no payment is received. The credit risk associated with these types of
transactions is risk of default by the counterparty. To minimize this risk, the
Corporation enters into interest rate contracts only with creditworthy
counterparties. The notional amounts of these agreements do not represent
amounts exchanged by the parties and, thus, are not a measure of the
Corporation's potential loss exposure.
Interest rate risk contracts outstanding at March 31, 1995 are summarized in the
following table:
Description Notional amount Terms
- ----------- --------------- -----
Interest rate swap $10,000,000 Pay 3-month LIBOR; resetting quarterly
Receive 6.1% fixed
Expiration date: May, 1996
Floor contract $20,000,000 Receive payment if LIBOR falls below
6.1875%
Expiration date: February, 2000
Floor contract $30,000,000 Receive payment if Prime falls below
9.0%
Expiration date: February, 2000
The purpose of the swap agreement is to convert the fixed rate paid on certain
time deposits to a quarterly-resetting rate. The purpose of the floor contracts
is to offset the risk of future reductions in interest earned on certain
floating rate loans. For swaps and floors that are designated as hedge
transactions, the net differential paid or received on the swap, the
amortization of the floor premium and any payment received under the floor
contract is accounted for as an adjustment to the yield of the balance sheet
asset or liability that is hedged.
-11-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Quarterly Results of Operations
- -------------------------------
Net income for the three months ended March 31, 1995 amounted to $1,838,630,
66.4% higher than the $1,104,627 net income recorded in the first quarter of
1994. Earnings per share for the quarter ended March 31, 1995 amounted to $.64,
up 64.1% from $.39 per share earned in the quarter ended March 31, 1994.
The increase in net income in 1995 is primarily attributable to the increase in
net interest income of approximately $935,000. This increase reflects the
widening of the interest rate spread which began in 1994. (See additional
discussion under the caption "Net Interest Income".)
The provision for loan losses amounted to $150,000 for the three months ended
March 31, 1995, down from $333,365 in the first quarter of 1994.
Total noninterest income for the three months ended March 31, 1995 amounted to
$1.6 million, compared to $2.1 million, for the three months ended March 31,
1994. The 1994 amount included gains on sales of securities available for sale
of $681,558. These securities gains were taken in connection with a
nonrecurring contribution expense of approximately $700,000 recorded in the
first quarter of 1994 for the establishment of a charitable trust. There were
no sales of securities in the first quarter of 1995. Noninterest income
excluding securities gains as well as gains and losses on loan sales rose 10.6%
over the prior year due to fee increases and higher transaction volume.
Total noninterest expense for the quarter ended March 31, 1995 amounted to
$4.8 million, up 2.8% over the 1994 period excluding the nonrecurring
contribution expense of approximately $700,000 associated with the establishment
of a charitable trust.
Included in salaries and benefits in the first quarter of 1994 is the adoption
of SFAS No. 112, "Employers' Accounting for Postemployment Benefits". The
effect of the adoption was not material to the Corporation's financial position
or results of operations. Excluding the effect of the adoption of SFAS No. 112,
salaries and employee benefits rose 10.9% in 1995 over the prior year quarter.
The increase is attributable to normal salary adjustments and increased staffing
levels.
Foreclosed property costs were reduced by 51.0% from the prior year quarter and
amounted to $53,328 for the three months ended March 31, 1995. This decrease is
primarily attributable to fewer number of properties owned.
Financial Condition and Liquidity
- ---------------------------------
Total assets amounted to $519.4 million at March 31, 1995, 6.0% higher than the
March 31, 1994 amount. Average assets totalled $516.7 million for the quarter
ended March 31, 1995, up 5.2% from average assets of $491.3 million during the
quarter ended March 31, 1994.
Securities Available for Sale - During the three months ended March 31, 1995,
the net unrealized gain on corporate stocks increased $565,854, reflecting an
improvement in general equity market conditions. In addition, the net
-12-
unrealized loss on U.S. Treasury obligations was reduced by $407,246 during the
first quarter. This was primarily attributable to the decline in short and
medium-term interest rates since December 31, 1994. Approximately 88% of the
Corporation's U.S. Treasury portfolio available for sale matures within 3 years.
Investment Securities - The carrying value of investment securities amounted to
$51.8 million at March 31, 1995, down slightly from $52.2 million in the prior
year. The net unrealized loss on investment securities amounted to $1.8 million
at March 31, 1995, compared to $484,000 at March 31, 1994. The March 31, 1995
amount represents an improvement of $1.3 million from the net unrealized loss of
$3.1 million at December 31, 1994. This improvement was attributable to the
decline in short- and medium-term interest rates during the first quarter of
1995. The Corporation has the ability and intent to hold investment securities
to maturity and therefore does not expect to realize these losses.
Loans - Total loans amounted to $395.7 million at March 31, 1995, 7.3% higher
than the prior year balance. The majority of the increase occurred in the
residential real estate and installment loan portfolios. Residential mortgage
loans totalled $172.5 million, an increase of $13.0 million, or 8.2%, from the
March 31, 1994 amount. Installment loans amounted to $46.3 million at March 31,
1995, up $10.1 million, or 27.7% from the year-earlier balance. This increase
was primarily due to the increase in home equity loans, which were the subject
of a concentrated marketing campaign during 1994.
Total commercial loans increased moderately from the first quarter of 1994, and
remained relatively unchanged from the December 31, 1994 amount. Although
overall demand for commercial loans was weak in the first quarter of 1995,
commercial construction loans rose 12.8% from the balance at December 31, 1994.
Deposits and Other Borrowings - Total deposits amounted to $442.9 million at
March 31, 1995, up 6.9% from $414.3 million at March 31, 1994. Depositors have
reacted to rising time deposit interest rates by shifting deposits into longer-
term accounts. Accordingly, time deposits at March 31, 1995 were up by $40.9
million, or 22.9%, over the prior year amount. Conversely, savings deposits
were reduced by $17.0 million, or 8.8%, from the March 31, 1994 amount. Time
deposits comprised 49.5% of total deposits at March 31, 1995, compared to 43.0%
of total deposits at March 31, 1994.
The Corporation utilizes Federal Home Loan Bank (FHLB) advances as a funding
source. FHLB advances amounted to $22.1 million at March 31, 1995, with
maturities generally less than five years. The average cost of FHLB advances
for the first quarter of 1995 was 6.06%. There were no other short-term
borrowings outstanding at March 31, 1995.
For the three months ended March 31, 1995, net cash provided by operations
amounted to $2.4 million, the majority of which was generated by net income.
Cash flows from investing activities amounted to $963,000. Proceeds from
maturities of debt securities and principal repayments from mortgage-backed
securities amounted to $3.7 million and were used in part to fund loan demand.
-13-
Asset Quality
- -------------
Nonperforming assets are summarized in the following table:
(Dollars in thousands) 03/31/95 03/31/94 12/31/94
-------- -------- --------
Nonaccrual loans 90 days or more past due $ 6,055 $ 9,949 $ 7,183
Nonaccrual loans less than 90 days past due 3,938 4,980 3,729
-------- -------- --------
Total nonperforming loans 9,993 14,929 10,912
-------- -------- --------
Other real estate owned:
Properties acquired through foreclosure 2,553 4,647 2,578
Valuation allowance (559) (1,116) (571)
-------- -------- --------
Total other real estate owned 1,994 3,531 2,007
-------- -------- --------
Total nonperforming assets $11,987 $18,460 $12,919
======== ======== ========
Nonperforming loans as a % of total loans 2.5% 4.0% 2.8%
Nonperforming assets as a % of total assets 2.3% 3.8% 2.5%
Reserve for loan losses to nonperforming loans 87.5% 61.8% 85.5%
The following is an analysis of nonperforming loans by loan category:
(In thousands) 03/31/95 03/31/94 12/31/94
-------- -------- --------
Residential mortgages $2,699 $5,392 $3,681
Commercial:
Mortgages 1,617 2,310 1,700
Construction and development 689 666 689
Other (1) 4,364 5,707 4,191
Installment 624 854 651
-------- -------- --------
Total nonperforming loans $9,993 $14,929 $10,912
======== ======== ========
<FN>
(1) Loans to businesses and individuals, a substantial portion of which is
fully or partially collateralized by real estate.
Not included in the analysis of nonperforming assets above are approximately
$262,000 of loans greater than 90 days past due, and still accruing. These
loans consist primarily of residential mortgages which are considered well-
collateralized and therefore are deemed to have no loss exposure.
As discussed in Note 2 to the Consolidated Financial Statements, the Corporation
implemented SFAS No. 114 and No. 118 as of January 1, 1995. Amounts for periods
prior to the adoption have been restated. The effect of the implementation of
these pronouncements was a reclassification of loans previously accounted for as
in-substance foreclosures to loans in the amount of $3.8 million. Additionally,
$492,000 of related OREO valuation reserve was reclassified to the reserve for
possible loan losses.
-14-
The balance of other real estate owned is comprised of the following types of
properties (in thousands):
03/31/95 03/31/94 12/31/94
-------- -------- --------
Commercial real estate $ 752 $ 2,279 $ 752
Residential real estate 433 459 457
Construction and development 401 793 401
Land 967 1,116 968
------ ------- ------
2,553 4,647 2,578
Valuation allowance (559) (1,116) (571)
------ ------- ------
Total other real estate owned $1,994 $ 3,531 $2,007
====== ======= ======
An analysis of the activity relating to other real estate owned follows (in
thousands):
03/31/95 03/31/94
-------- --------
Balance at beginning of year $ 2,578 $ 4,568
Transfers from loans, net 88 293
Sales and other reductions (113) (188)
Other, net -- (26)
------- -------
2,553 4,647
Valuation allowance (559) (1,116)
------- -------
Balance at end of period $ 1,994 $ 3,531
======= =======
During the three months ended March 31, 1995, and 1994 the Corporation sold
property with a carrying value of approximately $100,000 and $120,000,
respectively.
The following is an analysis of the OREO valuation allowance (in thousands):
For the three months ended March 31, 1995 1994
- ------------------------------------ ------ ------
Balance at beginning of period $ 571 $1,156
Provision charged to expense 8 18
Sales and other reductions (20) (68)
Other, net -- 10
------ ------
Balance at end of period $ 559 $1,116
====== ======
Prior year amounts have been restated to reflect the implementation of SFAS
No. 114. The effect of the implementation of this pronouncement on January
1, 1995 was a reclassification of in-substance foreclosures of $3,792,728
from OREO to loans, and a related reclassification of $492,035 in OREO
valuation reserve to the reserve for possible loan losses.
-15-
Capital Resources
- -----------------
Total equity capital amounted to $47.6 million or 9.2% of total assets at March
31, 1995. This compares to $42.7 million or 8.7% at March 31, 1994 and $45.8 or
8.9% at December 31, 1994. The $1.8 million increase from year-end is primarily
attributable to an increase in unrealized gains on securities available for sale
of $584,000 and $1.2 million resulting from earnings retention.
The Corporation's total risk-adjusted capital ratio amounted to 14.10% at March
31, 1995. Banks are required to maintain a minimum capital to risk-adjusted
asset ratio of 8%. The Corporation's leverage ratio amounted to 8.58% at March
31, 1995, well above the regulatory requirement of 3% for banking organizations
with strong earnings, liquidity and asset quality who do not anticipate
significant growth and who have well-diversified risk.
Dividends payable at March 31, 1995 amounted to $621,514, representing $.22 per
share payable on April 17, 1995, an increase of 37.5% over the $.16 per share
paid in the first quarter of 1994.
The source of funds for dividends paid by the Corporation is dividends received
from its subsidiary bank. The subsidiary bank is a regulated enterprise, and as
such its ability to pay dividends to the parent is subject to regulatory review
and restriction.
Net Interest Income
- -------------------
(The accompanying schedule on page 18 should be read in conjunction with this
discussion.)
Fully taxable equivalent (FTE) net interest income for the three months ended
March 31, 1995 amounted to $6.4 million, up 18.4% over the corresponding 1994
period. Increases in asset yields, combined with a slower rate of increase in
rates paid on liabilities, were responsible for the majority of the improvement
over the prior year. Balance sheet growth generated through loan originations
also contributed to increased net interest income. This improvement was
reflected in wider net interest spreads and margins. The FTE interest rate
spread (the average rate of return on interest-earning assets less the average
cost of interest-bearing funds) amounted to 4.78% for the first quarter of 1995,
up from 4.35% for the first quarter of 1994. The net interest margin (net
interest income as a percentage of average interest-earning assets) amounted to
5.31% and 4.75% for the three months ended March 31, 1995 and 1994,
respectively.
The FTE rate of return on interest-earning assets was 8.53% for the three months
ended March 31, 1995, compared to 7.65% in the corresponding 1994 period. Most
of the improvement is attributable to increased rates earned on loans. The
yield earned on total loans amounted to 8.88% and 8.02% for the three months
ended March 31, 1995 and 1994, respectively. Increases in the prime rate during
1994 significantly enhanced commercial loan yields, which rose from 7.77% for
the first quarter of 1994 to 9.27% for the first quarter of 1995. Yields on
residential real estate and installment loans also increased, although less
substantially. The loan portfolio benefited from rising rates as adjustable
rate mortgages (ARMs) repriced upward because of interest rate increases that
occurred in 1994. In the event that interest rates stabilize or decrease during
1995, this trend of rate increases for periodically repricing loans will not
continue.
-16-
Strong loan origination volumes during 1994 also contributed to higher interest
income in 1995. Loan demand has been soft, however, during the first quarter of
1995 as a result of rising rates and competition. Total average loans amounted
to $394.6 million for the first quarter of 1995, up 8.9% from $362.3 million for
the prior year quarter.
The yields on taxable and nontaxable securities were up over the prior year, due
primarily to short and medium-term rate increases that occurred during 1994.
Average securities were down 5.8% from the prior year due in part to increased
loan demand during 1994.
Rates paid on interest-bearing liabilities also rose from 1994 levels, although
at a slower rate. The overall cost of funds on interest-bearing liabilities
rose from 3.30% for the three months ended March 31, 1994, to 3.75% for the
comparable 1995 period. Rates paid on time deposits and borrowed funds
increased, while rates paid on savings deposits were virtually unchanged. This
differential in rates has caused a shift of balances out of savings deposits
into higher-priced time deposits. Total average time deposits grew $26.8
million from the first quarter of 1994 to the first quarter of 1995, while total
average savings deposits declined by $14.8 million over the same period. As
this trend continues, and as maturing time deposits are renewed at higher rates,
the overall cost of funds is expected to increase.
Average demand deposits for the three months ended March 31, 1995 rose 13% over
the prior year level. This increase affected the net interest margin favorably
because these deposits are noninterest-bearing.
Average Federal Home Loan Bank (FHLB) advances for the first quarter of 1995
amounted to $26.3 million, up from $22.1 million at March 31, 1994. The
additional advances were used in part to fund loan demand during a period of
seasonal deposit outflow. The average rates of interest paid on FHLB advances
were 6.06% and 5.58% for the three months ended March 31, 1995 and 1994,
respectively.
The Corporation supplements its interest rate risk management strategies with
off-balance sheet transactions. At March 31, 1995 the notional principal
amount of interest rate contracts amounted to $60 million and included $10
million in interest rate swaps and $50 million in interest rate floor
contracts which were purchased during the first quarter of 1995. The effect
of these interest rate contracts on net interest income for the quarter ended
March 31, 1995 was not material. (See Note 8 to the Consolidated Financial
Statements for additional discussion.)
-17-
Average Balances/Net Interest Margin (Fully Taxable Equivalent Basis)
---------------------------------------------------------------------
The following table presents average balance and interest rate information. Tax exempt income is
converted to a fully taxable equivalent basis by assuming a 34% federal income tax rate adjusted for
applicable state income taxes net of the related federal tax benefit. For dividends on corporate
stocks, the 70% federal dividends received deduction is also used in the calculation of tax equivalency.
Nonaccrual and renegotiated loans, as well as interest earned on these loans (to the extent recognized
in the Consolidated Condensed Statements of Income), are included in amounts presented for loans.
Three months ended March 31, 1995 1994
---------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------
Interest-earning assets:
Residential real estate $178,265 3,686 8.27% $163,232 3,236 7.93%
Commercial and other 171,209 3,968 9.27% 164,499 3,194 7.77%
Installment loans 45,154 1,107 9.80% 34,530 837 9.69%
---------------------------------------------------------------------------------------------------------
Total loans 394,628 8,761 8.88% 362,261 7,267 8.02%
Federal funds sold 7,081 101 5.72% 7,116 51 2.85%
Taxable securities 72,341 1,296 7.17% 79,607 1,294 6.51%
Nontaxable securities 10,170 171 6.74% 7,973 124 6.21%
---------------------------------------------------------------------------------------------------------
Total interest-earning assets 484,220 10,329 8.53% 456,957 8,736 7.65%
Non interest-earning assets 32,498 34,359
---------------------------------------------------------------------------------------------------------
Total assets $516,718 $491,316
=========================================================================================================
Interest-bearing liabilities:
Savings deposits $181,912 994 2.19% $196,662 1,070 2.18%
Time deposits 207,525 2,498 4.82% 180,684 1,918 4.25%
FHLB advances 26,319 399 6.06% 22,125 309 5.58%
Other 674 10 5.83% 1,063 10 3.94%
---------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 416,430 3,901 3.75% 400,534 3,307 3.30%
Non interest-bearing liabilities 53,130 47,022
---------------------------------------------------------------------------------------------------------
Total liabilities 469,560 447,556
Total shareholders' equity 47,158 43,760
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $516,718 $491,316
=========================================================================================================
Net interest income / interest rate spread $6,428 4.78% $5,429 4.35%
=========================================================================================================
Net interest margin 5.31% 4.75%
=========================================================================================================
<FN>
Interest income amounts presented in the table above include the following adjustments for taxable equivalency
(in thousands):
March 31, 1995 March 31, 1994
------------------ ------------------
Commercial and other loans $ 23 $ 20
Nontaxable debt securities 114 44
Corporate stocks 49 56
-18-
PART II
OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
- ------ -----------------
None
Item 2. Changes in Securities
- ------ ---------------------
None
Item 3. Defaults upon Senior Securities
- ------ -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None
Item 5. Other Information
- ------ -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
None
-19-
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON TRUST BANCORP, INC.
------------------------------
(Registrant)
May 15, 1995 By: Joseph J. Kirby
--------------------------------
Joseph J. Kirby
President (principal executive officer)
May 15, 1995 By: Joseph H. Potter
--------------------------------
Joseph H. Potter
Executive Vice President
May 15, 1995 By: David V. Devault
--------------------------------
David V. Devault
Vice President and Chief Financial Officer
(principal financial officer)
-20-