FORM 10-Q
UNITED STATES
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, 1996
---------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------------------------------------------
Commission file Number 0-13091
----------------------------------------------------------
WASHINGTON TRUST BANCORP, INC.
(Exact name of registrant as specified in its charter)
RHODE ISLAND 05-0404671
- -------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 BROAD STREET, WESTERLY, RHODE ISLAND 02891
- -------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (401) 348-1200
--------------
NOT APPLICABLE
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 the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 1, 1996.
Class Outstanding at November 1, 1996
- -------------------------------- --------------------------------
Common stock, $.0625 par value 4,359,780 Shares
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
CONTENTS
Page No.
PART I. ITEM 1. Financial Information
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 6
Condensed Notes to Consolidated Financial Statements 7
PART I. ITEM 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. Other Information 17
Signatures 18
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
- ------------------------------------------------------------------------------- ------------------ ------------------
ASSETS
Cash and due from banks $18,920,846 $15,051,777
Federal funds sold 37,426 13,598,869
Mortgage loans held for sale -- 456,152
Securities available for sale, at fair value;
cost $138,373,398 and $78,249,075 at September 30, 1996
and December 31, 1995, respectively 145,015,995 85,552,335
Securities held to maturity, at cost; fair value
$28,301,456 and $29,432,819 at September 30, 1996
and December 31, 1995, respectively 28,263,434 28,872,991
Federal Home Loan Bank stock, at cost 7,185,900 2,995,000
Loans 406,893,375 386,458,892
Less allowance for loan losses 8,430,182 7,784,516
- ------------------------------------------------------------------------------- ------------------ ------------------
Net loans 398,463,193 378,674,376
Premises and equipment, net 16,822,002 14,646,157
Accrued interest receivable 4,308,885 3,539,305
Other real estate owned, net 1,411,359 1,705,147
Other assets 2,985,440 2,567,195
- ------------------------------------------------------------------------------- ------------------ ------------------
Total assets $623,414,480 $547,659,304
- ------------------------------------------------------------------------------- ------------------ ------------------
LIABILITIES
Demand deposits $66,931,057 $59,470,321
Savings deposits 174,593,547 177,891,247
Time deposits 229,462,099 230,492,444
- ------------------------------------------------------------------------------- ------------------ ------------------
Total deposits 470,986,703 467,854,012
Dividends payable 784,444 686,189
Short term borrowings 10,212,000 --
Federal Home Loan Bank advances 78,658,517 20,951,266
Accrued expenses and other liabilities 5,519,517 5,231,339
- ------------------------------------------------------------------------------- ------------------ ------------------
Total liabilities 566,161,181 494,722,806
- ------------------------------------------------------------------------------- ------------------ ------------------
SHAREHOLDERS' EQUITY
Common stock of $.0625 par value; authorized 10,000,000 shares; issued 4,351,454
shares at September 30,
1996 and 4,320,000 shares at December 31, 1995 271,966 180,000
Paid in capital 3,352,538 3,010,795
Retained earnings 49,759,125 45,690,676
Unrealized gains on securities available for sale, net of tax 3,985,566 4,381,958
Treasury stock, at cost; 4,698 shares at September 30, 1996 and
40,695 shares at December 31, 1995 (115,896) (326,931)
- ------------------------------------------------------------------------------- ------------------ ------------------
Total shareholders' equity 57,253,299 52,936,498
- ------------------------------------------------------------------------------- ------------------ ------------------
Total liabilities and shareholders' equity $623,414,480 $547,659,304
- ------------------------------------------------------------------------------- ------------------ ------------------
See accompanying notes to consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
- --------------------------------------------------------- --------------- -------------- ------------------- ------------
Interest Income:
Interest and fees on loans $9,149,276 $9,008,831 $26,963,456 $26,683,113
Interest from securities:
Interest 2,313,500 1,224,064 5,334,968 3,450,502
Dividends 329,668 260,251 1,032,511 644,365
Federal funds sold and securities purchased
under agreements to resell 39,944 281,664 180,024 575,618
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Total interest income 11,832,388 10,774,810 33,510,959 31,353,598
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Interest expense:
Savings deposits 965,344 993,927 2,880,697 2,949,327
Time deposits 3,117,174 3,123,944 9,294,254 8,616,790
Other 960,264 274,886 1,810,727 1,025,161
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Total interest expense 5,042,782 4,392,757 13,985,678 12,591,278
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Net interest income 6,789,606 6,382,053 19,525,281 18,762,320
Provision for loan losses 300,000 275,000 900,000 725,000
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Net interest income after provision for loan losses 6,489,606 6,107,053 18,625,281 18,037,320
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Noninterest income:
Trust income 904,135 808,735 2,796,555 2,433,790
Service charges on deposit accounts 552,778 491,763 1,599,605 1,448,328
Merchant processing fees 405,383 367,015 643,356 558,633
Gains on sales of securities 117,689 111,198 266,026 280,408
Gains (losses) on loan sales 65,693 (193,143) 140,734 (145,068)
Other income 256,450 214,744 749,390 678,671
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Total noninterest income 2,302,128 1,800,312 6,195,666 5,254,762
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Noninterest expense:
Salaries and employee benefits 2,879,537 2,588,549 8,361,495 7,748,633
Net occupancy 309,651 324,673 944,691 903,059
Equipment 387,690 315,748 1,124,302 936,428
Deposit taxes and assessments 68,500 40,036 205,500 659,002
Foreclosed property costs, net (16,457) 48,648 142,064 224,396
Office supplies 136,227 85,802 379,816 360,732
Advertising and promotion 161,214 148,052 379,768 418,379
Credit and collection 106,202 65,226 320,015 312,586
Other 1,240,643 1,178,810 3,330,796 3,050,807
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Total noninterest expense 5,273,207 4,795,544 15,188,447 14,614,022
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Income before income taxes 3,518,527 3,111,821 9,632,500 8,678,060
Applicable income taxes 1,198,000 1,079,000 3,276,000 3,056,000
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Net income $2,320,527 $2,032,821 $6,356,500 $5,622,060
- --------------------------------------------------------- --------------- -------------- ---------------- ---------------
Weighted average shares outstanding - primary 4,503,519 4,384,283 4,459,812 4,348,125
Weighted average shares outstanding - fully diluted 4,513,578 4,384,236 4,485,803 4,377,233
Earnings per share - primary $.52 $.46 $1.43 $1.29
Earnings per share - fully diluted $.51 $.46 $1.42 $1.28
Cash dividends declared per share $.18 $.16 $.53 $.45
See accompanying notes to consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended September 30, 1996 1995
- ------------------------------------------------------------------------------------------ ---------------- ----------------
COMMON STOCK
Balance at beginning of year $180,000 $180,000
Issuance of common stock for stock option plan 1,310 --
3-for-2 stock split in the form of a stock dividend 90,656 --
- ------------------------------------------------------------------------------------------ ---------------- ----------------
Balance at end of period 271,966 180,000
- ------------------------------------------------------------------------------------------ ---------------- ----------------
PAID-IN CAPITAL
Balance at beginning of year 3,010,795 2,869,135
Issuance of common stock for stock option plan 432,399 90,859
3-for-2 stock split in the form of a stock dividend (90,656) --
- ------------------------------------------------------------------------------------------ ----------------- ---------------
Balance at end of period 3,352,538 2,959,994
- ------------------------------------------------------------------------------------------ ---------------- ----------------
RETAINED EARNINGS
Balance at beginning of year 45,690,676 40,613,979
Net income 6,356,500 5,622,060
Cash dividends declared (2,288,051) (1,924,722)
- ------------------------------------------------------------------------------------------ ---------------- ----------------
Balance at end of period 49,759,125 44,311,317
- ------------------------------------------------------------------------------------------ ---------------- ----------------
UNREALIZED GAINS ON SECURITIES AVAILABLE FOR SALE
Balance at beginning of year 4,381,958 2,801,490
Change in unrealized gain on securities available for sale, net of tax (396,392) 1,573,789
- ------------------------------------------------------------------------------------------ ---------------- ----------------
Balance at end of period 3,985,566 4,375,279
- ------------------------------------------------------------------------------------------ ---------------- ----------------
TREASURY STOCK
Balance at beginning of year (326,931) (681,620)
Purchase of treasury stock (240,500) --
Issuance of common stock for stock option plan 451,535 200,303
- ------------------------------------------------------------------------------------------ ---------------- ----------------
Balance at end of period (115,896) (481,317)
- ------------------------------------------------------------------------------------------ ---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY $57,253,299 $51,345,273
- ------------------------------------------------------------------------------------------ ---------------- ----------------
See accompanying notes to consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
1996 1995
- -------------------------------------------------------------------------------------- ------------------- --------------------
Cash flows from operating activities:
Net income $6,356,500 $5,622,060
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses 900,000 725,000
Provision for valuation of other real estate owned 278,180 62,999
Depreciation of premises and equipment 1,060,360 997,176
Amortization of net deferred loan fees and costs (107,062) (471,351)
Gains on sales of securities (266,026) (280,408)
Losses (gains) on sales of other real estate owned (292,815) 34,268
Losses (gains) on loan sales (140,734) 145,068
Proceeds from sales of loans 12,349,885 12,396,410
Loans originated for sale (11,860,824) (12,959,203)
Increase in accrued interest receivable (769,580) (693,464)
Increase in other assets (46,373) (1,065,680)
Increase in accrued expenses and other liabilities 288,178 446,508
Other, net 155,606 61,702
- -------------------------------------------------------------------------------------- ------------------- --------------------
Net cash provided by operating activities 7,905,295 5,021,085
- -------------------------------------------------------------------------------------- ------------------- --------------------
Cash flows from investing activities: Securities available for sale:
Purchases (93,759,460) (19,085,354)
Proceeds from sales of securities 18,562,653 2,464,969
Maturities 15,196,223 5,000,000
Investment securities:
Purchases (3,687,757) (7,980,165)
Maturities and principal repayments 4,249,832 4,227,979
Investment in Federal Home Loan Bank stock (4,190,900) (88,200)
Loan originations (over) under principal collected on loans (20,927,180) 5,337,870
Proceeds from sales and other reductions of other real estate owned 700,570 57,459
Purchases of premises and equipment (3,248,540) (910,875)
- -------------------------------------------------------------------------------------- -------------------- --------------------
Net cash used in investing activities (87,104,559) (10,976,317)
- -------------------------------------------------------------------------------------- -------------------- --------------------
Cash flows from financing activities:
Net increase in deposits 3,132,691 29,268,180
Net increase in short term borrowings 10,212,000 --
Proceeds from Federal Home Loan Bank advances 111,394,000 12,564,839
Repayment of Federal Home Loan Bank advances (53,686,749) (19,125,206)
Purchases of treasury stock (240,500) --
Proceeds from issuance of common stock 885,244 291,162
Cash dividends paid (2,189,796) (1,808,157)
- -------------------------------------------------------------------------------------- ------------------- --------------------
Net cash provided by financing activities 69,506,890 21,190,818
- -------------------------------------------------------------------------------------- ------------------- --------------------
Net increase (decrease) in cash and cash equivalents (9,692,374) 15,235,586
Cash and cash equivalents at beginning of period 28,650,646 18,404,910
- -------------------------------------------------------------------------------------- ------------------- --------------------
Cash and cash equivalents at end of period $18,958,272 $33,640,496
- -------------------------------------------------------------------------------------- ------------------- --------------------
Noncash Investing Activities:
Transfers from loans to other real estate owned $1,048,764 $233,328
Loans charged off 925,514 2,168,958
Loans made to facilitate the sale of OREO 598,000 304,550
Change in unrealized gain on securities available for sale, net of tax (396,392) 1,573,789
Supplemental Disclosures:
Interest payments $6,078,780 $5,529,806
Income tax payments 3,082,088 2,511,250
See accompanying notes to consolidated financial statements.
WASHINGTON TRUST BANCORP, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(1) BASIS OF PRESENTATION
The accounting and reporting policies of Washington Trust Bancorp, Inc. (the
"Corporation") are in accordance with generally accepted accounting principles
and conform to general practices 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, 1996 and December 31,
1995 and the results of operations and cash flows for the interim periods
presented.
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiary, The Washington Trust Company. All significant
intercompany balances and transactions have been eliminated.
The unaudited consolidated financial statements of Washington Trust Bancorp,
Inc. presented herein have been prepared pursuant to the rules of the Securities
and Exchange Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1995, included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1995.
(2) SECURITIES AVAILABLE FOR SALE
Securities available for sale are summarized as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ------------------------------------------- ---------------- ---------------- ---------------- ------------------
September 30, 1996
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $50,671,442 308,461 (148,169) $50,831,734
Mortgage-backed securities 75,936,718 157,737 (596,245) 75,498,210
Corporate stocks 11,765,238 6,988,682 (67,869) 18,686,051
- ------------------------------------------------------------------------------------------------------------------
Total $138,373,398 7,454,880 (812,283) $145,015,995
- ------------------------------------------------------------------------------------------------------------------
December 31, 1995
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $37,346,696 549,035 (18,203) $37,877,528
Mortgage-backed securities 30,024,608 189,634 (187,345) 30,026,897
Corporate stocks 10,877,771 6,783,369 (13,230) 17,647,910
- -------------------------------------------------------------------------------------------------------------------
Total $78,249,075 7,522,038 (218,778) $85,552,335
- -------------------------------------------------------------------------------------------------------------------
Included in corporate stocks at December 31, 1995 were $7.0 million 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. There were no auction rate preferred stocks at September 30, 1996.
U.S. Treasury obligations with a fair value of $9,497,032 and $4,519,878 were
pledged to secure public deposits and for other purposes at September 30, 1996
and December 31, 1995, respectively.
For the nine months ended September 30, 1996, proceeds from sales of securities
available for sale amounted to $18,562,653. Realized gains and losses on these
sales were $477,936 and $211,910, respectively.
(3) SECURITIES HELD TO MATURITY
The amortized cost and fair value of securities held to maturity are summarized
as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ------------------------------------------ ---------------- ---------------- ---------------- ------------------
September 30, 1996
Mortgage-backed securities $12,582,948 80,584 (1,116) $12,662,416
States and political subdivisions 15,680,486 35,919 (77,365) 15,639,040
- -----------------------------------------------------------------------------------------------------------------
Total $28,263,434 116,503 (78,481) $28,301,456
- -----------------------------------------------------------------------------------------------------------------
December 31, 1995
Mortgage-backed securities $13,947,011 497,755 -- $14,444,766
States and political subdivisions 14,925,980 77,329 (15,256) 14,988,053
- -----------------------------------------------------------------------------------------------------------------
Total $28,872,991 575,084 (15,256) $29,432,819
- -----------------------------------------------------------------------------------------------------------------
There were no sales or transfers of securities held to maturity during the nine
months ended September 30, 1996.
(4) LOAN PORTFOLIO
The following is a summary of loans:
September 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------
Residential real estate:
Mortgages $171,686,033 $167,510,929
Homeowner construction 6,731,324 3,071,177
- ------------------------------------------------------------------------------------------------
Total residential real estate 178,417,357 170,582,106
- ------------------------------------------------------------------------------------------------
Commercial:
Mortgages 64,774,915 58,837,483
Construction and development 6,577,463 5,968,404
Other 97,459,456 96,830,889
- ------------------------------------------------------------------------------------------------
Total commercial 168,811,834 161,636,776
- ------------------------------------------------------------------------------------------------
Installment 59,664,184 54,240,010
- ------------------------------------------------------------------------------------------------
Total loans $406,893,375 $386,458,892
- ------------------------------------------------------------------------------------------------
(5) ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the allowance for loan losses:
Three months ended Nine months ended
September 30, September 30,
----------------------------------- ---------------------------------
1996 1995 1996 1995
- ----------------------------------------- -------------------- ------------- -------------------- -------------
Balance at beginning of period $8,150,002 $8,630,876 $7,784,516 $9,327,942
Provision charged to expense 300,000 275,000 900,000 725,000
Recoveries 173,123 269,704 671,180 455,691
Loans charged off (192,943) (835,905) (925,514) (2,168,958)
- ----------------------------------------- ---------------- ----------------- ---------------- -----------------
Balance at end of period $8,430,182 $8,339,675 $8,430,182 $8,339,675
- ----------------------------------------- ---------------- ----------------- ---------------- -----------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations - Quarters Ended September 30, 1996 and 1995
Net income for the three months ended September 30, 1996 amounted to $2,320,527,
up 14.2% over the $2,032,821 of net income recorded in the third quarter of
1995. Earnings per share for the quarter ended September 30, 1996 amounted to
$.51, up from the $.46 per share on net income earned in the comparable 1995
period. All share and per share amounts have been adjusted to reflect a 3-for-2
stock split effected on October 15, 1996.
Net interest income for the three months ended September 30, 1996 increased by
6.4% over the prior year quarter, to $6.8 million. This increase was primarily
attributable to higher interest income from securities, which was partially
offset by an increase in interest paid on borrowings. (See additional discussion
under the caption "Net Interest Income".)
The provision for loan losses amounted to $300,000 for the third quarter of
1996, up from $275,000 recorded in the third quarter of 1995.
Other noninterest income (noninterest income excluding gains on sales of
securities and gains (losses) on loan sales) amounted to $2.1 million for the
three months ended September 30, 1996, up 12.6% from the same 1995 period. This
increase is primarily due to higher revenues for trust services as well as an
increase in service charges earned on deposit accounts.
For the three months ended September 30, 1996 and 1995, securities gains
amounted to $117,689 and $111,198, respectively. Gains on loan sales in the
third quarter of 1996 amounted to $65,693, compared to losses on sales of loans
of $193,143 in the third quarter of 1995. The 1995 amount included a loss of
approximately $200,000 resulting from the sale of a pool of loans, most of which
were nonperforming.
Total noninterest expense for the quarter ended September 30, 1996 amounted to
$5.3 million, an increase of 10.0% from the comparable 1995 amount. This
increase was largely attributable to higher salaries and benefits expense
resulting from increased staffing levels and normal salary adjustments. In
addition, equipment costs were higher due to depreciation expense associated
with purchases that occurred in 1995 and in the first half of 1996.
Results of Operations - Nine Months Ended September 30, 1996 and 1995
Net income for the nine months ended September 30, 1996 amounted to $6,356,500,
13.1% higher than the $5,622,060 of net income recorded in the comparable 1995
period. Fully diluted earnings per share for the nine months ended September 30,
1996 amounted to $1.42, up 10.9% over the $1.28 per share earned in the
comparable 1995 period.
The increase in net income in 1996 is due to increases in net interest income
and noninterest income totaling $1,703,865, which were partially offset by an
increase in the provision for loan losses of $175,000 and an increase in
noninterest expense of $574,425.
Net interest income for the nine months ended September 30, 1996 increased by
4.1% over the same prior year period. This increase was primarily attributable
to higher dividend and interest income from securities, which was partially
offset by an increase in interest paid on time deposits and borrowings. (See
additional discussion under the caption "Net Interest Income".)
Other noninterest income amounted to $5.8 million for the nine months ended
September 30, 1996, up by 13.1% from the comparable 1995 amount of $5.1 million.
This increase is primarily due to higher revenues for trust services as well as
an increase in service charges earned on deposit accounts.
For the nine months ended September 30, 1996 and 1995, securities gains amounted
to $266,026 and $280,408, respectively. Gains on loan sales for the 1996
year-to-date period amounted to $140,734, compared to losses on sales of loans
of $145,068 for the same 1995 period. The 1995 amount includes a loss of
approximately $200,000 resulting from the sale of a pool of loans, most of which
were nonperforming.
Total noninterest expense for the nine months ended September 30, 1996 amounted
to $15.2 million, up 3.9% from the 1995 amount of $14.6 million. Federal Deposit
Insurance Corporation premiums for the nine months ended September 30, 1996 were
reduced by approximately $467,000 from the comparable 1995 amount due to a
reduction in rates paid by banks for deposit insurance premiums. This savings
was offset by increases in salaries and benefits and equipment expense. Salaries
and benefits were up due to increased staffing levels and normal salary
adjustments, while equipment costs were higher due to depreciation expense
associated with purchases that occurred in 1995 and in the first half of 1996.
Average Balances/Net Interest Margin - Fully Taxable Equivalent Basis (FTE)
The following table presents average balance and interest rate information. Tax
exempt income is converted to a FTE 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, 1996 1995
- ------------------------------------------ ------------------------------------ ----------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------- ------------- ------------ ---------- -------------- ----------- -----------
Interest-earning assets:
Residential real estate loans $174,308 10,781 8.25% $176,397 11,019 8.33%
Commercial and other loans 164,909 12,178 9.85% 170,141 12,142 9.52%
Installment loans 56,066 4,067 9.67% 47,599 3,585 10.04%
- -------------------------------------------------------------------------------------------------------------------
Total loans 395,283 27,026 9.12% 394,137 26,746 9.05%
Federal funds sold and securities
purchased under agreements to
resell 4,509 180 5.32% 13,241 575 5.80%
Taxable securities 114,347 6,469 7.54% 77,201 4,097 7.08%
Nontaxable securities 15,881 777 6.52% 10,608 523 6.57%
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 530,020 34,452 8.67% 495,187 31,941 8.60%
Non interest-earning assets 36,940 36,838
- -------------------------------------------------------------------------------------------------------------------
Total assets $566,960 $532,025
- -------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings deposits $174,556 2,881 2.20% $178,519 2,949 2.20%
Time deposits 231,501 9,294 5.35% 221,956 8,617 5.18%
FHLB advances 38,637 1,721 5.94% 21,790 1,006 6.15%
Other 2,175 90 5.48% 442 19 5.89%
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities
446,869 13,986 4.17% 422,707 12,591 3.97%
Non interest-bearing liabilities 64,761 60,534
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 511,630 483,241
Total shareholders' equity 55,330 48,784
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $566,960 $532,025
- -------------------------------------------------------------------------------------------------------------------
Net interest income /
interest rate spread $20,466 4.50% $19,350 4.63%
- -------------------------------------------------------------------------------------------------------------------
Net interest margin 5.15% 5.21%
- -------------------------------------------------------------------------------------------------------------------
<FN>
Interest income amounts presented in the table above include the following
adjustments for taxable equivalency (in thousands):
September 30, 1996 September 30, 1995
- --------------------------- ------------------- -----------------------
Commercial and other loans $62 $63
Nontaxable debt securities 527 337
Corporate stocks 352 187
</FN>
Net Interest Income
(The accompanying schedule on the previous page should be read in conjunction
with this discussion.)
FTE net interest income for the nine months ended September 30, 1996 amounted to
$20.5 million, up by approximately $1.1 million, or 5.8%, over the same 1995
period. The growth in interest-earning assets, as well as an increase in the
overall rate earned on those assets, were responsible for the improvement in net
interest income. The interest rate spread and the net interest margin for the
nine months ended September 30, 1996 amounted to 4.50% and 5.15%, respectively.
Comparable amounts for 1995 were 4.63% and 5.21%, respectively.
For the nine months ended September 30, 1996, average interest-earning assets
amounted to $530.0 million, an increase of $34.8 million, or 7.0%, over the
comparable 1995 amount. The FTE rate of return on average interest-earning
assets was 8.67% for the nine months ended September 30, 1996, up from 8.60% for
the same 1995 period. The growth in average interest-earning assets was due to
the increase in average taxable securities, which were up by $37.1 million, or
48.1%, from the 1995 amount. The increase in average taxable securities resulted
primarily from an investment leverage program which was implemented in the
second quarter of 1996. The objective of the program is to increase net interest
income and improve returns on equity, while incurring limited interest rate
risk. Approximately $50 million of adjustable rate mortgage-backed securities
were purchased under this program and funded with Federal Home Loan Bank (FHLB)
advances with similar interest rate repricing characteristics.
For the nine months ended September 30, 1996, the FTE yield on taxable
securities rose by 46 basis points over the prior year, to 7.54%, as a result of
a change in the mix of securities. During this same period, average U.S.
Treasury obligations comprised 37% of total average taxable securities, down
from 59% for the comparable 1995 period, due largely to the purchase of
higher-yielding mortgage-backed securities under the investment leverage
program. The additional growth in mortgage-backed securities and corporate
stocks resulted from maturing short-term investments and liquidity generated
from deposit growth. (See notes 2 and 3 to the Consolidated Financial Statements
for more information on the composition of securities.)
The overall yield on average total loans amounted to 9.12% for the nine months
ended September 30, 1996, up from 9.05% in the comparable 1995 period due to a
change in the mix of loans. The average balance of installment loans, the
highest yielding loan category, rose by $8.5 million, while the average balance
of residential real estate and commercial loans declined by $2.1 million and
$5.2 million, respectively. Another factor in the increase in the overall yield
on average total loans was the increase in the yield on commercial loans, which
rose 33 basis points to 9.85%. Lower levels of nonaccrual commercial loans
contributed to this yield improvement. In addition, most commercial loans
reprice periodically based upon the prime rate, which was 8.25% at September 30,
1996 versus 8.75% a year earlier; however, this decline in the prime rate was
partially offset by payments received under interest rate floor contracts. The
interest earned on these contracts, net of floor contract premium amortization,
increased interest earned on commercial loans by approximately $134,000, or 11
basis points, for the nine months ended September 30, 1996. The yields on
residential real estate and installment loans decreased by 8 basis points and 37
basis points, respectively, from the prior year to date period.
The Corporation's total cost of funds on interest-bearing liabilities amounted
to 4.17% for the nine months ended September 30, 1996, up from 3.97% for the
comparable 1995 period. This increase was due to increases in the volume of
average time deposits and the rate paid on these deposits, as well as higher
average FHLB advances outstanding. These factors offset the benefit of an
increase in average demand deposits, an interest-free source of funding. Average
demand deposits for the nine months ended September 30, 1996 were up by $7.8
million, or 14.6%, from the same prior year period. Average time deposits rose
4.3% from the prior year amount, to $231.5 million. The rate paid on time
deposits was 5.35% for the first nine months of 1996, up from 5.18% for the same
1995 period. While average savings deposits for the nine months ended September
30, 1996 declined by 2.2% from the comparable 1995 amount, the rate paid on
these deposits remained unchanged from the prior year period at 2.20%.
Average FHLB advances for the nine months ended September 30, 1996 amounted to
$38.6 million, up by 77.3% from the $21.8 million average balance for the same
1995 period. The additional advances were used primarily to purchase securities
under the investment leverage program implemented in the second quarter of 1996.
The average rate paid on FHLB advances for the nine months ended September 30,
1996 was 5.94%, a decrease of 21 basis points from the prior year rate.
Financial Condition and Liquidity
Total assets amounted to $623.4 million at September 30, 1996, an increase of
$75.8 million from the December 31, 1995 amount of $547.7 million. Average
assets totaled $567.0 million for the nine months ended September 30, 1996, up
by 6.6% over the comparable 1995 period.
Securities Available for Sale - The amortized cost of securities available for
sale at September 30, 1996 amounted to $138.4 million, an increase of $60.1
million over the December 31, 1995 amount of $78.2 million. Approximately $50.0
million of this increase is attributable to adjustable rate pass-through
securities and collateralized mortgage obligations issued by U.S.
government-sponsored agencies which were purchased under the investment leverage
program which began in the second quarter of 1996. (See Net Interest Income for
additional discussion of the investment leverage program).
The net unrealized gain on securities available for sale decreased in the nine
months ended September 30, 1996 by approximately $660,000. This decline is
attributable to the decline in the market value of debt securities resulting
from the rise in medium-term and long-term Treasury rates that has occurred
since December 31, 1995.
Securities Held to Maturity - The carrying value of securities held to maturity
amounted to $28.3 million at September 30, 1996, down from $28.9 million at
December 31, 1995. The net unrealized gain on securities held to maturity
amounted to approximately $38,000 and $560,000 at September 30, 1996 and
December 31, 1995, respectively, representing a reduction of $522,000 during
this nine-month period. This decline was attributable to the rise in medium-term
and long-term Treasury rates occurring since December 31, 1995.
Loans - Total loans amounted to $406.9 million at September 30, 1996, an
increase of $20.4 million, or 5.3%, from the December 31, 1995 balance of $386.5
million. All categories of loans exhibited increases over the year-end 1995
amounts. The strong growth in installment loans experienced during 1995 has
continued in 1996. As of September 30, 1996, installment loans were up by 10.0%
over the December 31, 1995 balance. Demand for commercial loans has improved
after being relatively soft during 1995, with the largest increase occurring in
the commercial mortgage portfolio. Residential mortgages increased by $4.1
million from the December 31, 1995 balance due to a decision by the Corporation
to retain 15-year fixed rate mortgages in its portfolio of loans. The
Corporation continues to sell substantially all 30-year fixed rate residential
mortgage originations, and has retained servicing rights on all residential
mortgage loans sold.
Deposits and Other Borrowings - Total deposits amounted to $471.0 million at
September 30, 1996, up by $3.1 million from the December 31, 1995 amount of
$467.9 million. Savings and time deposits decreased by 1.1% from the December
31, 1995 balance. Demand deposits increased by 12.6% from the year-end 1995
amount due to the normal seasonal deposit inflow.
The Corporation utilizes FHLB advances as a funding source. FHLB advances
amounted to $78.7 million at September 30, 1996, up by $57.7 million from the
December 31, 1995 amount. In addition, short-term borrowings outstanding at
September 30, 1996 amounted to $10.2 million. The additional FHLB advances and
short-term borrowings were used to fund loan growth and to purchase securities
under the investment leverage program implemented in the second quarter of 1996.
The Corporation is required to maintain a level of investment in FHLB stock
which is based on the level of its FHLB advances. As a result of the increase in
the FHLB advances during 1996, the Corporation has increased its investment in
FHLB stock from $2,995,000 at December 31, 1995 to $7,185,900 at September 30,
1996.
For the nine months ended September 30, 1996, net cash provided by operations
amounted to $7.9 million, the majority of which was generated by net income.
Proceeds from sales of loans in the first nine months of 1996 amounted to $12.3
million, while loans originated for sale amounted to $11.9 million. Net cash
used in investing activities amounted to $87.1 million and was primarily used to
purchase securities available for sale and for loan originations. Net cash used
in investing activities also included $3.2 million used to purchase premises and
equipment. The funding for cash used in investing activities was generated by
utilizing cash and cash equivalents, by a net increase in FHLB advances of $57.7
million, and by an increase in short-term borrowings of $10.2 million. (See
Consolidated Statements of Cash Flows for additional information.)
During 1996, the Corporation has announced plans to expand its market area into
contiguous communities. The Corporation will open a new 5,900 square foot branch
office later this year in North Kingstown, Rhode Island. The branch will be a
full service banking office, offering deposit and loan services for businesses
and consumers, as well as trust and investment services. Plans were also
announced to install branches in two supermarkets in early 1997. The branches
will offer a complete range of financial products and services. The Corporation
has also entered into an agreement to acquire a branch office of a Connecticut
bank and its deposits of approximately $10 million. The transaction is expected
to become effective during the first quarter of 1997.
Asset Quality
Nonperforming assets are summarized in the following table:
September 30, December 31,
(Dollars in thousands) 1996 1995
---------------- -----------------
Nonaccrual loans 90 days or more past due $3,896 $4,616
Nonaccrual loans less than 90 days past due 2,356 3,958
--------------- ---------------
Total nonaccrual loans 6,252 8,574
--------------- ---------------
Other real estate owned:
Properties acquired through foreclosure 1,721 2,115
Valuation allowance (310) (410)
--------------- ---------------
Total other real estate owned 1,411 1,705
--------------- ---------------
Total nonperforming assets $7,663 $10,279
--------------- ---------------
Nonaccrual loans as a % of total loans 1.5% 2.2%
Nonperforming assets as a % of total assets 1.2% 1.9%
Allowance for loan losses to nonaccrual loans 134.8% 90.8%
Not included in the analysis of nonperforming assets at September 30, 1996 and
December 31, 1995 above are approximately $1.7 million and $257,000,
respectively, of loans greater than 90 days past due and still accruing. These
loans consist primarily of residential mortgages which are considered
well-collateralized and in the process of collection and therefore are deemed to
have no loss exposure. In addition, at September 30, 1996 and December 31, 1995,
there were approximately $47,000 and $28,000, respectively, of credit card loans
which were 90 days or more past due and still accruing. The average balance and
corresponding percentage of net charge-offs on credit card loans for the nine
months ended September 30, 1996 amounted to $3,755,000 and 2.4%, respectively.
This compares to an average balance and percentage of net charge-offs of
$3,609,000 and 1.1%, respectively, for the year ended December 31, 1995.
The following is an analysis of nonaccrual loans by loan category:
September 30, December 31,
(In thousands) 1996 1995
--------------- ----------------
Residential mortgages $2,505 $2,280
Commercial:
Mortgages 1,482 2,798
Construction and development 230 280
Other (1) 1,688 2,779
Installment 347 437
--------------- ---------------
Total nonperforming loans $6,252 $8,574
--------------- ---------------
(1) Loans to businesses and individuals, a substantial portion of which is fully
or partially collateralized by real estate.
Impaired loans consist of all nonaccrual commercial loans. At September 30,
1996, the recorded investment in impaired loans was $3,400,000, including
$1,902,000 which had a related allowance amounting to $343,000. At December 31,
1995, the recorded investment in impaired loans was $5,855,000, including
$4,854,000 which had a related allowance amounting to $953,000. The balance of
impaired loans which did not require an allowance at September 30, 1996 and
December 31, 1995 was $1,498,000 and $1,001,000, respectively. During the nine
months ended September 30, 1996, the average recorded investment in impaired
loans was $4,952,000. Also during this period, interest income recognized on
impaired loans amounted to approximately $204,000. Interest income on impaired
loans is recognized on a cash basis only.
The balance of other real estate owned is comprised of the following types of
properties (in thousands):
September 30, December 31,
1996 1995
-------------- --------------
Commercial real estate $740 $671
Residential real estate 450 707
Land and other 531 737
------------- -------------
1,721 2,115
Valuation allowance (310) (410)
------------- -------------
Total other real estate owned $1,411 $1,705
------------- -------------
An analysis of the activity relating to other real estate owned for the nine
months ended September 30, 1996 follows (in thousands):
Balance at beginning of year $2,115
Transfers from loans, net 1,049
Sales and other reductions (1,452)
Other 9
-----------
1,721
Valuation allowance (310)
-----------
Balance at end of period $1,411
-----------
The following is an analysis of the OREO valuation allowance for the nine months
ended September 30, 1996 (in thousands):
Balance at beginning of period $410
Provision charged to expense 278
Sales and other reductions (378)
-------------
Balance at end of period $310
-----------
Capital Resources
Total equity capital amounted to $57.3 million, or 9.2% of total assets at
September 30, 1996. This compares to $52.9 million, or 9.7% at December 31,
1995. Total equity increased by $4.3 million from December 31, 1995, $4.1
million of which is attributable to earnings retention.
The Corporation's total risk-adjusted capital ratio amounted to 15.48% at
September 30, 1996. Banks are required to maintain a minimum capital to
risk-adjusted asset ratio of 8%. The Corporation's leverage ratio amounted to
8.90% at September 30, 1996, 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, 1996 amounted to $784,444, representing $.18
per share payable on October 15, 1996, an increase of 12.5% over the $.16 per
share declared in the third quarter of 1995. These per share amounts have been
adjusted to reflect the 3-for-2 stock split paid in the form of a stock dividend
on October 15, 1996 to shareholders of record on October 1, 1996.
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.
In June 1996, the Corporation's Board of Directors approved a program to
repurchase up to 87,000 (split-adjusted) or approximately 2% of its outstanding
common shares. The Corporation plans to hold the repurchased shares as treasury
stock to be used for general corporate purposes. During the third quarter of
1996, shares were repurchased under this program at a total cost of $240,500.
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
(a) Exhibit index
Exhibit No.
Exhibit 11 Statement re Computation of Earnings Per Share
(b) The following reports on Form 8-K were filed during the quarter
ended September 30, 1996:
On August 23, 1996, a Form 8-K was filed which reported that the
Corporation's Board of Directors declared a dividend of one common
share purchase right (a "Right") for each share of common stock, par
value $.0625 per share (the "Common Shares") outstanding on September
3, 1996 to the shareholders of record on that date.
On September 19, 1996, a Form 8-K was filed which reported that the
Corporation's Board of Directors voted to approve a 3-for-2 stock split
on shares on common stock. The stock split, in the form of a stock
dividend, was paid on October 15, 1996 to shareholders of record as of
October 1, 1996.
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 14, 1996 By: Joseph J. Kirby
------------------------
Joseph J. Kirby
Chairman and Chief Executive Officer
(principal executive officer)
November 14, 1996 By: David V. Devault
-------------------------
David V. Devault
Vice President and Chief Financial Officer
(principal financial officer)