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 September 30, 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
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(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 November 3, 1995.
Class Outstanding at November 3, 1995
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Common stock, $.0625 par value 2,846,283 Shares
Page 1
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995
CONTENTS
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Page No.
PART I. ITEM 1. Financial Information --------
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Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994 6
Condensed Notes to Consolidated Financial Statements 7
PART I. ITEM 2.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. Other Information 20
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Signatures 21
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-2-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1995 1994
Cash and due from banks $ 14,216,990 $ 15,172,421
Federal funds sold and securities purchased
under agreements to resell 19,423,506 3,232,489
Securities available for sale, at market value;
cost $40,808,179 and $28,940,165 at September 30,
1995 and December 31, 1994, respectively 48,100,308 33,609,315
Mortgage loans held for sale 851,475 203,750
Investment securities, at cost; market value
$55,684,635 and $49,395,262 at September 30,
1995 and December 31, 1994, respectively 56,209,498 52,496,616
Federal Home Loan Bank stock, at cost 2,995,000 2,906,800
Loans 387,207,071 393,926,200
Less reserve for possible loan losses 8,339,675 9,327,942
----------- -----------
Net loans 378,867,396 384,598,258
Premises and equipment, net 14,676,138 14,779,903
Accrued interest receivable 3,925,675 3,232,211
Other real estate owned, net 1,789,674 2,007,212
Other assets 3,457,478 3,440,988
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Total assets $ 544,513,138 $ 515,679,963
=========== ===========
LIABILITIES
Demand deposits $ 60,830,228 $ 53,373,386
Savings deposits 178,976,880 192,653,937
Time deposits 230,192,214 194,703,819
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Total deposits 469,999,322 440,731,142
Dividends payable 681,251 564,686
Federal Home Loan Bank advances 16,961,976 23,522,343
Accrued expenses and other liabilities 5,525,316 5,078,808
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Total liabilities 493,167,865 469,896,979
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SHAREHOLDERS' EQUITY
Common stock of $.0625 par value; authorized
10,000,000 shares; issued 2,880,000 shares 180,000 180,000
Paid-in capital 2,959,994 2,869,135
Retained earnings 44,311,317 40,613,979
Unrealized gain on securities available for sale, net of tax 4,375,279 2,801,490
Treasury stock, at cost; 39,954 shares at
September 30, 1995 and 56,570 shares at
December 31, 1994 (481,317) (681,620)
----------- -----------
Total shareholders' equity 51,345,273 45,782,984
----------- -----------
Total liabilities and shareholders' equity $ 544,513,138 $ 515,679,963
=========== ===========
See accompanying notes to consolidated financial statements.
- 3 -
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months
Periods ended September 30, 1995 1994 1995 1994
Interest income:
Interest and fees on loans $ 9,008,831 $ 7,948,985 $26,683,113 $22,744,533
Investment securities and securities
available for sale:
Interest 1,224,064 1,136,308 3,450,502 3,398,450
Dividends 260,251 172,259 644,365 543,091
Federal funds sold and securities purchased
under agreements to resell 281,664 99,412 575,618 192,330
---------- --------- ---------- ----------
Total interest income 10,774,810 9,356,964 31,353,598 26,878,404
---------- --------- ---------- ----------
Interest expense:
Savings deposits 993,927 1,104,627 2,949,327 3,225,449
Time deposits 3,123,944 1,974,678 8,616,790 5,779,828
Other 274,886 325,417 1,025,161 1,036,068
---------- --------- ---------- ----------
Total interest expense 4,392,757 3,404,722 12,591,278 10,041,345
---------- --------- ---------- ----------
Net interest income 6,382,053 5,952,242 18,762,320 16,837,059
Provision for loan losses 275,000 252,089 725,000 955,436
---------- --------- ---------- ----------
Net interest income after provision for loan losses 6,107,053 5,700,153 18,037,320 15,881,623
---------- --------- ---------- ----------
Noninterest income:
Trust income 808,735 880,659 2,433,790 2,482,222
Service charges on deposit accounts 491,763 408,265 1,448,328 1,203,900
Merchant processing fees 367,015 326,115 558,633 478,356
Gains on sales of securities available for sale 111,198 -- 280,408 681,558
Gains (losses) on loan sales (193,143) 13,276 (145,068) (18,541)
Other income 214,744 193,424 678,671 556,110
---------- --------- ---------- ----------
Total noninterest income 1,800,312 1,821,739 5,254,762 5,383,605
---------- --------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 2,588,549 2,557,631 7,748,633 7,415,630
Net occupancy 324,673 313,090 903,059 916,833
Equipment 315,748 300,599 936,428 903,496
Deposit taxes and assessments 40,036 295,726 659,002 893,649
Foreclosed property costs, net 48,648 80,719 224,396 106,204
Office supplies 85,802 177,227 360,732 507,587
Advertising and promotion 148,052 64,923 418,379 327,095
Credit and collection 65,226 106,404 312,586 397,201
Charitable contributions 40,000 -- 80,000 699,897
Other 1,138,810 1,011,339 2,970,807 2,575,914
---------- --------- ---------- ----------
Total noninterest expense 4,795,544 4,907,658 14,614,022 14,743,506
---------- --------- ---------- ----------
Income before income taxes 3,111,821 2,614,234 8,678,060 6,521,722
Applicable income taxes 1,079,000 844,000 3,056,000 2,103,000
---------- --------- ---------- ----------
Net income $ 2,032,821 $ 1,770,234 $ 5,622,060 $ 4,418,722
========== ========= ========== ==========
Weighted average shares outstanding - primary 2,922,855 2,890,790 2,898,750 2,864,835
Weighted average shares outstanding - fully diluted 2,922,824 2,893,509 2,918,155 2,889,828
Earnings per share - primary $ .70 $ .61 $1.94 $1.54
Earnings per share - fully diluted $ .70 $ .61 $1.93 $1.53
Cash dividends declared per share $ .24 $ .20 $ .68 $ .53
See accompanying notes to consolidated financial statements.
- 4 -
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended September 30, 1995 1994
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Common Stock
Balance at beginning of year $ 180,000 $ 120,000
3-for-2 stock split in the form of a
50% stock dividend -- 60,000
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Balance at end of period 180,000 180,000
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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 90,859 77,083
3-for-2 stock split in the form of a
50% stock dividend -- (60,000)
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Balance at end of period 2,959,994 2,839,991
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Retained Earnings
Balance at beginning of year 40,613,979 36,418,073
Net income 5,622,060 4,418,722
Cash dividends declared (1,924,722) (1,504,048)
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Balance at end of period 44,311,317 39,332,747
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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 1,573,789 (1,714,716)
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Balance at end of period 4,375,279 3,195,806
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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 200,303 156,194
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Balance at end of period (481,317) (741,862)
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Total Shareholders' Equity $51,345,273 $44,806,682
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See accompanying notes to consolidated financial statements.
-5-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
-------------------------
1995 1994
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Cash flows from operating activities:
Net income $ 5,622,060 4,418,722
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 725,000 955,436
Provision for valuation of other real estate owned 62,999 153,151
Depreciation of premises and equipment 997,176 999,962
Amortization of net deferred loan fees and costs (471,351) (589,745)
Gains on sales of securities available for sale (280,408) (681,558)
Losses (gains) on sales of other real estate owned 34,268 (287,094)
Losses on loan sales 145,068 18,541
Proceeds from sales of loans 12,396,410 12,824,764
Loans originated for sale (12,959,203) (9,133,806)
Increase in accrued interest receivable (693,464) (322,858)
Increase in other assets (1,065,680) (394,800)
Increase (decrease) in accrued expenses
and other liabilities 446,508 (338,743)
Other, net 61,702 146,877
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Net cash provided by operating activities 5,021,085 7,768,849
---------- ----------
Cash flows from investing activities:
Securities available for sale:
Purchases (19,085,354) (4,500,313)
Proceeds from sales of equity securities 2,464,969 6,449,897
Maturities 5,000,000 --
Investment securities:
Purchases (7,980,165) (6,738,381)
Maturities and principal repayments 4,227,979 7,260,281
Investment in Federal Home Loan Bank stock (88,200) (934,000)
Loan originations (over) under principal
collected on loans 5,337,870 (26,552,508)
Proceeds from sales and other reductions
of other real estate owned 57,459 566,418
Purchases of premises and equipment (910,875) (1,248,831)
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Net cash used in investing activities (10,976,317) (25,697,437)
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Cash flows from financing activities:
Net increase in deposits 29,268,180 16,137,693
Proceeds from Federal Home Loan Bank advances 12,564,839 11,051,500
Payments of Federal Home Loan Bank advances (19,125,206) (12,019,106)
Proceeds from issuance of commmon stock from treasury 291,162 233,277
Cash dividends paid (1,808,157) (1,351,785)
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Net cash provided by financing activities 21,190,818 14,051,579
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Net increase (decrease) in cash and cash equivalents 15,235,586 (3,877,009)
Cash and cash equivalents at beginning of period 18,404,910 21,650,128
---------- ----------
Cash and cash equivalents at end of period $ 33,640,496 17,773,119
========== ==========
Noncash Investing Activities:
Transfers from loans to other real estate owned $ 233,328 1,046,601
Loans charged off 2,168,958 1,107,760
Loans made to facilitate the sale of OREO 304,550 1,089,048
Change in unrealized gain on securities
available for sale, net of tax 1,573,789 3,195,806
Supplemental Disclosures:
Interest payments $ 5,529,806 5,548,249
Income tax payments 2,511,250 2,322,787
See accompanying notes to consolidated financial statements.
-6-
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 consolidated financial statements present fairly
the Corporation's financial position as of September 30, 1995 and December 31,
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) RECENT ACCOUNTING DEVELOPMENTS
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In May 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 122, "Accounting for Mortgage Servicing Rights" (SFAS No. 122). This
statement requires that the rights to service mortgage loans for others be
recognized as an asset, including rights acquired through both purchases and
originations. SFAS No. 122 also requires that capitalized mortgage servicing
rights be assessed for impairment based on the fair value of the rights. The
statement is effective for fiscal years ending after December 15, 1995. The
adoption of this pronouncement is not expected to have a material impact on the
Corporation's financial condition or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective for fiscal years beginning after December 15,
1995. The statement establishes financial accounting and reporting standards
for stock-based compensation plans. SFAS No. 123 encourages, but does not
require, a fair value based method of accounting for stock-based compensation
plans. The statement allows an entity to continue to measure compensation cost
for those plans using the intrinsic value based method prescribed by APB Opinion
No. 25. For those entities electing to use the intrinsic value based method,
SFAS No. 123 requires pro forma disclosures of net income and earnings per share
computed as if the fair value based method had been applied. The Corporation
intends to continue to account for stock-based compensation costs under APB
Opinion No. 25, and will provide the additional required disclosures relating to
1995 and 1996 stock options in its 1996 Annual Report.
The FASB has recently announced that it will allow companies to reassess the
appropriateness of their current securities classifications under FASB No. 115.
According to the draft announcement, transfers between "held to maturity" and
"available for sale" classifications would continue to be made at fair value in
accordance with FASB No. 115. Any transfers made in connection with this
announcement would be required to be made after issuance of the final
guidelines, which are expected to be issued on November 15, 1995, but prior to
December 31, 1995.
This change allows for securities currently classified as "held to maturity" to
be reclassified to "available for sale" without marking the entire held to
maturity portfolio to fair value.
Washington Trust may consider the reclassification of a portion of its held to
maturity portfolio to the available for sale category prior to December 31,
1995.
(3) SECURITIES AVAILABLE FOR SALE
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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
September 30, 1995 Cost Gains Losses Value
------------------ ---------- ---------- ---------- -----------
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $30,151,700 373,158 (89,840) $30,435,018
Corporate stocks 10,656,479 7,017,306 (8,495) 17,665,290
----------- ---------- --------- ----------
$40,808,179 7,390,464 (98,335) $48,100,308
=========== ========== ========= ===========
Amortized Unrealized Unrealized Market
December 31, 1994 Cost Gains Losses Value
----------------- ---------- ---------- --------- -----------
U.S. Treasury obligations $25,059,480 181,660 (707,920) $24,533,220
Corporate stocks 3,880,685 5,215,167 (19,757) 9,076,095
----------- ---------- --------- ----------
$28,940,165 5,396,827 (727,677) $33,609,315
=========== ========== ========= ===========
Included in corporate stocks at September 30, 1995 and December 31, 1994 were
$7.0 million and $500,000, 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 $3,136,318 and $2,999,133
were pledged to secure public deposits and for other purposes at September 30,
1995 and December 31, 1994, respectively.
For the nine months ended September 30, 1995, proceeds from sales of corporate
stocks and gains realized on these sales amounted to $2,464,969 and $280,408,
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
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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
September 30, 1995 Value Gains Losses Value
------------------ ---------- ---------- ---------- -----------
U.S. Treasury obligations
and obligations of U.S.
government and
government-sponsored agencies $20,409,898 20,495 (685,338) $19,745,055
Mortgage-backed securities 23,651,232 311,100 (180,825) 23,781,507
States and political subdivisions 12,148,368 48,725 (39,020) 12,158,073
----------- ---------- --------- -----------
$56,209,498 380,320 (905,183) $55,684,635
=========== ========== ========= ===========
Carrying Unrealized Unrealized Market
December 31, 1994 Value Gains Losses Value
----------------- ---------- ---------- ---------- -----------
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $20,413,017 -- (1,714,040) $18,698,977
Mortgage-backed securities 21,696,508 -- (1,160,590) 20,535,918
States and political subdivisions 10,387,091 9,385 (236,109) 10,160,367
----------- ---------- --------- -----------
$52,496,616 9,385 (3,110,739) $49,395,262
=========== ========== ========= ===========
Investment securities with a carrying value of $1,399,638 and $999,828 were
pledged to secure public deposits and for other purposes at September 30, 1995
and December 31, 1994, respectively.
There were no sales or transfers of investment securities during the nine months
ended September 30, 1995.
(5) LOAN PORTFOLIO
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The following is a summary of loans:
September 30, December 31,
1995 1994
----------- -----------
Residential real estate:
Mortgages $169,358,624 $170,366,731
Homeowner construction 2,702,808 6,933,793
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Total residential real estate 172,061,432 177,300,524
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Commercial:
Mortgages 60,149,124 56,014,628
Construction and development 5,925,061 12,089,966
Other 96,832,493 103,334,837
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Total commercial 162,906,678 171,439,431
----------- -----------
Installment 52,238,961 45,186,245
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$387,207,071 $393,926,200
=========== ===========
Amounts presented for December 31, 1994 have been restated as a result of the
implementation of SFAS No. 114 and No. 118.
(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 Nine months ended
September 30, September 30,
--------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Balance at beginning of period $8,630,876 $9,146,419 $9,327,942 $9,089,775
Provision charged to expense 275,000 252,089 725,000 955,436
Recoveries 269,704 87,349 455,691 220,434
Loans charged off (835,905) (327,972) (2,168,958) (1,107,760)
--------- --------- --------- ---------
Balance at end of period $8,339,675 $9,157,885 $8,339,675 $9,157,885
========= ========= ========= =========
Prior period amounts presented have been restated as a result of the
implementation of SFAS No. 114 and No. 118.
(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
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 and the loans are in the process of collection. 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 highly rated
counterparties that management believes to be creditworthy. 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 September 30, 1995 are summarized in
the following table:
Notional
Description amount Terms
- ----------- ----------- -----
Interest rate swaps $10,000,000 Pay 3-month LIBOR; resetting quarterly
Receive 6.1% fixed
Expiration date: May, 1996
Floor contracts $30,000,000 Receive payment if prime rate falls below 9%
Expiration date: February, 2000
Floor contract $20,000,000 Receive payment if 3-month LIBOR falls
below 6.1875%; resetting quarterly
Expiration date: February, 2000
The purpose of the swap agreements 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. Amounts paid or received related to outstanding contracts
that are used to manage interest rate risk and the amortization of the cost of
the floor contracts are recognized in earnings as an adjustment to the related
interest income or expense over the life of the contracts.
At September 30, 1995, the Corporation was receiving a fixed rate of 6.1% on the
swap agreements, while the weighted average rate paid by the Corporation on
these agreements was 5.875%. The Corporation receives payment under the floor
contracts when the prime rate falls below 9.0% and when the 3-month LIBOR rate
at the quarterly resetting dates is below 6.1875%. At September 30, 1995, the
prime rate and 3-month LIBOR rate applicable to the outstanding floor contracts
was 8.75% and 5.9375%, respectively.
The Corporation has not terminated any interest rate contracts and there are no
unamortized deferred gains or losses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - Quarters Ended September 30, 1995 and 1994
- ------------------------------------------------------------------
Net income for the three months ended September 30, 1995 amounted to $2,032,821,
up 14.8% over the $1,770,234 of net income recorded in the same quarter of 1994.
Earnings per share for the quarter ended September 30, 1995 amounted to $.70,
14.8% higher than the $.61 per share earned in the quarter ended September 30,
1994.
Net interest income for the three months ended September 30, 1995 increased
$430,000, or 7.2%, over the prior year quarter. This increase was primarily
attributable to the growth in interest-earning assets that was partially offset
by a decrease in the interest rate spread. The difference between the average
balances of interest-earning assets and interest-bearing liabilities was $10.2
million higher for the third quarter of 1995 than for the same 1994 quarter.
(See additional discussion under the caption "Net Interest Income".)
The provision for loan losses amounted to $275,000 for the third quarter of
1995, up from $252,089 for the third quarter of 1994.
Total noninterest income for the three months ended September 30, 1995 amounted
to $1.8 million, down slightly from the same 1994 period. The 1995 amount
includes gains on sales of securities available for sale of $111,198. There
were no sales of securities in the third quarter of 1994. Also included in the
1995 amount are net losses on sales of loans of $193,143. During the third
quarter of 1995, the Corporation sold a pool of loans with a book value of
approximately $3.3 million, most of which were nonperforming. A loss of
approximately $200,000 was recorded on this sale. Noninterest income excluding
securities gains and gains and losses on loan sales rose 4.1% over the prior
year quarter due to fee increases and higher transaction volume.
Total noninterest expense for the quarter ended September 30, 1995 amounted to
$4.8 million, down slightly from the 1994 amount of $4.9 million. During the
third quarter of 1995 the FDIC reduced rates paid by banks for deposit insurance
premiums. This reduction lowered the Corporation's quarterly FDIC premium
expense by approximately $206,000. In addition, a reduction in the third
quarter expense of $68,000 was recorded to reflect the reduction in rates
retroactive to June 1, 1995.
Results of Operations - Nine Months Ended September 30, 1995 and 1994
- ---------------------------------------------------------------------
Net income for the nine months ended September 30, 1995 amounted to $5,622,060
or 27.2% higher than the $4,418,722 net income recorded in the comparable 1994
period. Fully diluted earnings per share for the nine months ended September
30, 1995 amounted to $1.93 compared to $1.53 per share on net income for the
comparable 1994 period.
The increase in net income in 1995 is primarily attributable to the increase in
net interest income of approximately $1.9 million. This increase reflects
higher average loans outstanding in 1995 due to strong loan growth in 1994. The
prime rate increases which occurred in 1994 also contributed to the increase in
net interest income in 1995 as periodic repricing loans that were scheduled to
reprice in 1995 adjusted upward. (See additional discussion under the caption
"Net Interest Income".)
For the nine months ended September 30, 1995 and 1994, the provision for loan
losses was $725,000 and $955,436, respectively.
Total noninterest income for the nine months ended September 30, 1995 amounted
to $5.3 million, down slightly from the $5.4 million recorded for the same 1994
period. Included in these amounts are gains on sales of securities available
for sale of $280,408 in 1995 and $681,558 in 1994. The 1994 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. For the nine months ended September 30,
1995, the Corporation recorded net losses on sales of loans of $145,068.
Included in this amount is a loss of approximately $200,000 recorded on the
third quarter sale of a pool of loans with a book value of approximately $3.3
million, most of which were nonperforming. Noninterest income excluding
securities gains and net losses on loan sales rose 8.4% over the prior year due
to fee increases and higher transaction volume.
Included in salaries and benefits in 1994 is the effect of the first quarter
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 6.2% in 1995 over the prior year.
This increase is primarily attributable to normal salary adjustments and
increased staffing levels.
Deposit taxes and assessments were approximately $235,000 lower for the nine
months ended September 30, 1995 than for the comparable 1994 period. During the
third quarter of 1995, the FDIC reduced rates paid by banks for deposit
insurance premiums. This reduction, retroactive to June 1, 1995, reduced the
Corporation's 1995 expense by approximately $274,000 through the third quarter
of 1995.
Net foreclosed property costs amounted to $224,396 and $106,204 for the nine
months ended September 30, 1995 and 1994, respectively. The increase is due to
a higher amount of net gains realized on sales of other real estate owned in the
1994 period.
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 the applicable federal income tax rate
adjusted for applicable state income taxes net of the related federal tax benefit. For dividends on
corporate stocks, the 70% federal dividends received deduction is also used in the calculation of
tax equivalency. Nonaccrual and renegotiated loans, as well as interest earned on these loans (to the
extent recognized in the Consolidated Statements of Income), are included in amounts presented for
loans.
Nine months ended September 30, 1995 1994
---------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------------
Interest-earning assets:
Residential real estate $176,397 11,019 8.33% $169,156 9,935 7.83%
Commercial and other 170,141 12,142 9.52% 165,927 10,157 8.16%
Installment loans 47,599 3,585 10.04% 36,993 2,717 9.79%
---------------------------------------------------------------------------------------------------------
Total loans 394,137 26,746 9.05% 372,076 22,809 8.17%
Federal funds sold and securities
purchased under agreements to resell 13,241 575 5.80% 6,963 192 3.68%
Taxable securities 77,201 4,097 7.08% 77,378 3,837 6.61%
Nontaxable securities 10,608 523 6.57% 8,368 396 6.31%
---------------------------------------------------------------------------------------------------------
Total interest-earning assets 495,187 31,941 8.60% 464,785 27,234 7.81%
Non interest-earning assets 36,838 34,348
---------------------------------------------------------------------------------------------------------
Total assets $532,025 $499,133
=========================================================================================================
Interest-bearing liabilities:
Savings deposits $178,519 2,949 2.20% $196,481 3,225 2.19%
Time deposits 221,956 8,617 5.18% 181,896 5,780 4.24%
FHLB advances 21,790 1,006 6.15% 23,124 981 5.66%
Other 442 19 5.89% 1,821 55 4.01%
---------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 422,707 12,591 3.97% 403,322 10,041 3.32%
Non interest-bearing liabilities 60,534 51,811
---------------------------------------------------------------------------------------------------------
Total liabilities 483,241 455,133
Total shareholders' equity 48,784 44,000
---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $532,025 $499,133
=========================================================================================================
Net interest income / interest rate spread $19,350 4.63% $17,193 4.49%
=========================================================================================================
Net interest margin 5.21% 4.93%
=========================================================================================================
<FN>
Interest income amounts presented in the table above include the following adjustments for taxable equivalency
(in thousands):
September 30, 1995 September 30, 1994
------------------ ------------------
Commercial and other loans $ 63 $ 65
Nontaxable debt securities 337 140
Corporate stocks 187 151
Net Interest Income
- -------------------
(The accompanying schedule on page 14 should be read in conjunction with this
discussion.)
Fully taxable equivalent (FTE) net interest income for the nine months ended
September 30, 1995 amounted to $19.4 million, up 12.5% over the corresponding
1994 period. The increase in net interest income was attributable to higher
yields on assets, combined with a slower rate of increase in rates paid on
interest-bearing liabilities. Increased average loan and investment volumes
also contributed to higher net interest income. These changes were reflected in
improved 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 4.63% for the nine months ended September
30, 1995, up from 4.49% for the same 1994 period. The net interest margin (net
interest income as a percentage of average interest-earning assets) amounted to
5.21% and 4.93% for the nine months ended September 30, 1995 and 1994,
respectively.
The FTE yield on total loans amounted to 9.05% for the nine months ended
September 30, 1995, compared to 8.17% for the comparable 1994 period.
Loan yields for all categories of loans increased from 1994 to 1995.
Strong loan originations during 1994 contributed to higher net interest income
in 1995. Total average loans amounted to $394.1 million for the nine months
ended September 30, 1995, compared to $372.1 million for the year-earlier
period. Demand for commercial loans and residential real estate loans has
weakened in 1995. Demand for residential and commercial construction loans has
been particularly affected as evidenced by the declines from year-end balances.
Total commercial and residential real estate loans at September 30, 1995 were
down by 5.0% and 3.0%, respectively, from year-end balances. Additionally,
commercial loan balances have decreased due to the sale of a pool of mostly
nonperforming commercial loans.
The average balance of federal funds sold and securities purchased under
agreements to resell for the nine months ended September 30, 1995 were up
$6.3 million due to strong deposit growth and reduced loan demand. The rate
earned on these assets sold rose from 3.68% for the nine months ended
September 30, 1994 to 5.8% for the corresponding 1995 period.
Rates paid on interest-bearing liabilities also rose from 1994 levels. The
overall cost of funds on interest-bearing liabilities rose to 3.97% for the nine
months ended September 30, 1995, up from 3.32% for the same 1994 period. Rates
paid on time deposits and borrowed funds increased, while rates paid on savings
deposits were almost unchanged. This differential in rates paid created a shift
of balances out of savings deposits into higher-cost time deposits during early
1995. Average time deposits for the nine months ended September 30, 1995 rose
$40.1 million from the 1994 amount, while average savings deposits fell by $18.0
million over the same period.
For the quarter ended September 30, 1995, the Corporation's FTE interest rate
spread amounted to 4.57%, compared to 4.78% and 4.54% for the first and second
quarter of 1995, respectively. The decrease in the spread from the beginning of
the year was primarily due to both higher average time deposit balances and
increasing rates paid on those balances throughout 1995, as well as excess
liquidity resulting from deposit growth that was invested in short-term,
lower-yielding assets during this period of relatively weak loan demand.
The FTE rate of return on loans increased for each quarter during the nine
months ended September 30, 1995. Interest rates began to decline, however, in
the third quarter as a result of a 25 basis point reduction in the prime rate.
Accordingly, loan yields on prime-based loans are expected to decline as rates
earned on periodic repricing loans adjust downward.
The Corporation's cost of funds for the third quarter of 1995 was 4.11%, up from
3.75% and 4.05% during the first and second quarters, respectively. The rate
paid on time deposits has risen during each of these quarters, while rates paid
on savings deposits were largely unchanged over the same period.
Average Federal Home Loan Bank (FHLB) advances for the third quarter of 1995
amounted to $17.2 million, down from $21.9 million for the second quarter and
$26.3 million for the first quarter of 1995. This net reduction resulted from
increased liquidity created by strong seasonal deposit growth and limited loan
demand. The average rates of interest paid on FHLB advances were 6.29%, 6.16%
and 6.06% for the third, second and first quarters of 1995, respectively.
The Corporation supplements its interest rate risk management strategies with
off-balance sheet transactions. At September 30, 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
September 30, 1995 was not material. (See Note 8 to the Consolidated
Financial Statements for additional discussion.)
Financial Condition and Liquidity
- ---------------------------------
Total assets amounted to $544.5 million at September 30, 1995, 5.6% higher than
the December 31, 1994 amount of $515.7 million. Average assets totalled $532.0
million for the nine months ended September 30, 1995, up 6.6% over the
comparable 1994 period.
Securities Available for Sale - During the nine months ended September 30, 1995,
the net unrealized gain on corporate stocks increased approximately $1.8
million, reflecting an improvement in general equity market conditions. In
addition, there was a net increase in the market value of U.S. Treasury
obligations and obligations of U.S. government-sponsored agencies amounting to
$809,758 that has occurred since December 31, 1994. This turnaround is
primarily attributable to the decline in medium-term and long-term Treasury
rates that has occurred thus far in 1995.
Investment Securities - The carrying value of investment securities amounted to
$56.2 million at September 30, 1995, up from $52.5 million at December 31, 1994.
The net unrealized loss on investment securities amounted to approximately
$525,000 at September 30, 1995, compared to $3.1 million at December 31, 1994,
representing an improvement of $2.6 million during this nine-month period. This
improvement was attributable to the decline in medium-term and long-term
Treasury rates occurring in 1995.
Loans - Total loans amounted to $387.2 million at September 30, 1995, a decrease
of 1.7% from the December 31, 1994 balance of $393.9 million. While residential
real estate and commercial loans decreased 3.0% and 5.0%, respectively,
installment loans increased $7.1 million, or 15.6%, over the year-end 1994
amount. This increase was due to the increase in both home equity loans and
other consumer installment loans.
Deposits and Other Borrowings - Total deposits amounted to $470.0 million at
September 30, 1995, up 6.6% from $440.7 million at December 31, 1994.
Depositors reacted to rising time deposit interest rates by shifting deposits
into longer-term accounts during the first quarter of 1995. Accordingly, time
deposits at September 30, 1995 were up by $35.5 million, or 18.2%, over the 1994
year-end amount. Conversely, savings deposits were reduced by $13.7 million, or
7.1%, from the December 31, 1994 amount. Time deposits composed 49.0% of total
deposits at September 30, 1995, compared to 44.2% of total deposits at December
31, 1994.
The Corporation utilizes Federal Home Loan Bank (FHLB) advances as a funding
source. FHLB advances amounted to $17.0 million at September 30, 1995, with
maturities generally less than five years. There were no other short-term
borrowings outstanding at September 30, 1995.
For the nine months ended September 30, 1995, net cash provided by operations
amounted to $5.0 million, the majority of which was generated by net income.
Net cash used in investing activities amounted to $11.0 million and was
primarily used to purchase securities available for sale. The funding for cash
used in investing activities was generated from a net increase in deposits of
$29.3 million during the period. These funds were also used in part to fund a
net reduction in Federal Home Loan Bank advances outstanding of $6.6 million.
Asset Quality
- -------------
Nonperforming assets are summarized in the following table:
(Dollars in thousands) 09/30/95 12/31/94
-------- --------
Nonaccrual loans 90 days or more past due $4,502 $ 7,183
Nonaccrual loans less than 90 days past due 3,130 3,729
------- --------
Total nonperforming loans 7,632 10,912
------- --------
Other real estate owned:
Properties acquired through foreclosure 2,363 2,578
Valuation allowance (573) (571)
------- --------
Total other real estate owned 1,790 2,007
------- --------
Total nonperforming assets $9,422 $12,919
======= ========
Nonperforming loans as a % of total loans 1.8% 2.8%
Nonperforming assets as a % of total assets 1.7% 2.5%
Reserve for loan losses to nonperforming loans 109.3% 85.5%
Not included in the analysis of nonperforming assets at September 30, 1995 above
are approximately $196,000 of loans greater than 90 days past due, and still
accruing. These loans consist primarily of residential mortgages which are
considered well-collateralized and in the process of collection and therefore
are deemed to have no loss exposure.
The following is an analysis of nonperforming loans by loan category:
(In thousands) 09/30/95 12/31/94
-------- --------
Residential mortgages $2,332 $3,681
Commercial:
Mortgages 1,402 1,700
Construction and development 685 689
Other (1) 2,650 4,191
Installment 563 651
------- --------
Total nonperforming loans $7,632 $10,912
======= ========
(1) Loans to businesses and individuals, a substantial portion of which is fully
or partially collateralized by real estate.
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.
Impaired loans consist of all nonaccrual commercial loans. At September 30,
1995, the recorded investment in impaired loans was $4,737,000, including
$3,799,000 which had a related allowance amounting to $722,000. The balance of
impaired loans which did not require an allowance was $938,000. During the nine
months ended September 30, 1995, the average recorded investment in impaired
loans was $5,571,000. Also during this period, interest income recognized on
impaired loans amounted to approximately $203,000. Interest income on impaired
loans is recognized on a cash basis only.
During the third quarter of 1995, the Corporation sold a pool of loans with a
book value of approximately $3.3 million, approximately $2.5 million of which
were nonperforming loans. A loss of approximately $200,000 was recorded on this
sale. Additionally, the allowance for impaired loans was reduced by
approximately $280,000 as a result of the sale.
The balance of other real estate owned is comprised of the following types of
properties (in thousands):
09/30/95 12/31/94
-------- --------
Commercial real estate $ 752 $ 752
Residential real estate 298 457
Construction and development 302 401
Land 1,011 968
------ ------
2,363 2,578
Valuation allowance (573) (571)
------ ------
Total other real estate owned $1,790 $2,007
====== ======
An analysis of the activity relating to other real estate owned for the nine
months ended September 30, 1995 follows (in thousands):
Balance at beginning of year $ 2,578
Transfers from loans, net 233
Sales and other reductions (456)
Other 8
-------
2,363
Valuation allowance (573)
-------
Balance at end of period $ 1,790
=======
During the nine months ended September 30, 1995, the Corporation sold property
with a carrying value of approximately $415,000.
The following is an analysis of the OREO valuation allowance for the nine months
ended September 30, 1995 (in thousands):
Balance at beginning of period $ 571
Provision charged to expense 63
Sales and other reductions (61)
-----
Balance at end of period $ 573
=====
Capital Resources
- -----------------
Total equity capital amounted to $51.3 million, or 9.4% of total assets at
September 30, 1995. This compares to $45.8 million, or 8.9% at December 31,
1994. The $5.6 million increase in total equity from year-end is primarily
attributable to an increase in unrealized gains on securities available for sale
of $1.6 million and $3.7 million resulting from earnings retention.
The Corporation's total risk-adjusted capital ratio amounted to 14.82% at
September 30, 1995. Banks are required to maintain a minimum capital to risk-
adjusted asset ratio of 8%. The Corporation's leverage ratio amounted to 8.65%
at September 30, 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 September 30, 1995 amounted to $681,251, representing $.24
per share payable on October 16, 1995, an increase of 20% over the $.20 per
share paid in the third 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.
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
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON TRUST BANCORP, INC.
------------------------------
(Registrant)
November 13, 1995 By: Joseph J. Kirby
--------------------------------
Joseph J. Kirby
President (principal executive officer)
November 13, 1995 By: David V. Devault
--------------------------------
David V. Devault
Vice President and Chief Financial Officer
(principal financial officer)