UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
--------------------------
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
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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
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]Yes [ ]No
The number of shares of common stock of the registrant outstanding as of July
31, 1997 was 4,400,488.
Page 1
Washington Trust Bancorp, Inc. and Subsidiary
Form 10-Q For The Quarter Ended June 30, 1997
CONTENTS
Page No.
PART I. ITEM 1. Financial Information
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three Months and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Changes in Shareholders' Equity
Six Months Ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 6
Condensed Notes to Consolidated Financial Statements 8
PART I. ITEM 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. Other Information 16
Signatures 17
CONSOLIDATED BALANCE SHEETS
Washington Trust Bancorp, Inc. and Subsidiary
June 30, December 31,
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------- ---------------- -----------------
Assets:
Cash and due from banks $20,489 $17,418
Federal funds sold 8,200 1,548
Mortgage loans held for sale 667 744
Securities:
Available for sale, at fair value 235,806 198,317
Held to maturity, at cost; fair value $49.6 million
in 1997 and $28.1 million in 1996 49,246 27,926
- ---------------------------------------------------------------------------- ---------------- -----------------
Total securities 285,052 226,243
Federal Home Loan Bank stock, at cost 16,444 11,683
Loans 440,150 418,993
Less allowance for loan losses 8,411 8,495
- ---------------------------------------------------------------------------- ---------------- -----------------
Net loans 431,739 410,498
Premises and equipment, net 20,609 19,040
Accrued interest receivable 5,015 4,160
Other real estate owned, net 520 1,090
Other assets 4,433 2,522
- ---------------------------------------------------------------------------- ---------------- -----------------
Total assets $793,168 $694,946
============================================================================ ================ =================
Liabilities:
Deposits:
Demand $76,088 $65,014
Savings 176,317 170,172
Time 261,985 241,375
- ---------------------------------------------------------------------------- ---------------- -----------------
Total deposits 514,390 476,561
Dividends payable 833 785
Short term borrowings 15,753 14,000
Federal Home Loan Bank advances 192,152 138,493
Accrued expenses and other liabilities 6,566 5,680
- ---------------------------------------------------------------------------- ---------------- -----------------
Total liabilities 729,694 635,519
- ---------------------------------------------------------------------------- ---------------- -----------------
Shareholders' Equity:
Common stock of $.0625 par value; authorized
10,000,000 shares; issued 4,400,443 shares in 1997
and 4,362,631 shares in 1996 275 273
Paid-in capital 4,042 3,764
Retained earnings 53,634 50,886
Unrealized gain on securities available for sale, net of tax 5,523 4,504
- ---------------------------------------------------------------------------- ---------------- -----------------
Total shareholders' equity 63,474 59,427
- ---------------------------------------------------------------------------- ---------------- -----------------
Total liabilities and shareholders' equity $793,168 $694,946
============================================================================ ================ =================
CONSOLIDATED STATEMENTS OF INCOME
Washington Trust Bancorp, Inc. and Subsidiary
Three Months Six Months
--------------------------------------------------------
Periods ended June 30, 1997 1996 1997 1996
- -------------------------------------------------------------------------------------- -----------------------------
(In thousands, except per share amounts)
Interest income:
Interest and fees on loans $9,712 $8,977 $18,986 $17,815
Income from securities:
Interest 4,239 1,532 7,977 3,021
Dividends 497 336 899 703
Federal funds sold and securities purchased
under agreements to resell 70 55 132 140
- --------------------------------------------------------------------------------------------------------------------
Total interest income 14,518 10,900 27,994 21,679
- -------------------------------------------------------------------------------------- -----------------------------
Interest expense:
Savings deposits 860 948 1,720 1,915
Time deposits 3,493 3,100 6,769 6,177
Federal Home Loan Bank advances 2,825 467 5,171 803
Other 228 40 528 48
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 7,406 4,555 14,188 8,943
- -------------------------------------------------------------------------------------- -----------------------------
Net interest income 7,112 6,345 13,806 12,736
Provision for loan losses 300 300 600 600
- --------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 6,812 6,045 13,206 12,136
- -------------------------------------------------------------------------------------- -----------------------------
Noninterest income:
Trust revenue 1,223 1,016 2,311 1,892
Service charges on deposit accounts 623 554 1,176 1,047
Merchant processing fees 165 144 281 238
Net gains (losses) on sales of securities 373 (50) 627 148
Net gains on loan sales 62 46 134 75
Other income 256 244 505 493
- --------------------------------------------------------------------------------------------------------------------
Total noninterest income 2,702 1,954 5,034 3,893
- -------------------------------------------------------------------------------------- -----------------------------
Noninterest expense:
Salaries and employee benefits 3,203 2,778 6,156 5,482
Net occupancy 426 307 809 635
Equipment 506 372 970 737
Merchant processing costs 169 146 255 214
Office supplies 230 102 386 244
Advertising and promotion 190 153 312 219
Credit and collection 58 117 108 214
Other 1,370 1,049 2,647 2,170
- --------------------------------------------------------------------------------------------------------------------
Total noninterest expense 6,152 5,024 11,643 9,915
- -------------------------------------------------------------------------------------- -----------------------------
Income before income taxes 3,362 2,975 6,597 6,114
Income tax expense 1,101 948 2,185 2,078
- -------------------------------------------------------------------------------------- -----------------------------
Net income $2,261 $2,027 $4,412 $4,036
====================================================================================== =============================
Weighted average shares outstanding - primary 4,539.9 4,479.5 4,541.5 4,438.6
Weighted average shares outstanding - fully diluted 4,551.5 4,493.4 4,546.9 4,460.3
Earnings per share - primary $.50 $.45 $.97 $.91
Earnings per share - fully diluted $.50 $.45 $.97 $.90
Cash dividends declared per share $.19 $.17 $.38 $.35
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Washington Trust Bancorp, Inc. and Subsidiary
Six months ended June 30, 1997 1996
- ------------------------------------------------------------------------------- ---------------- ----------------
(Dollars in thousands)
Common Stock
Balance at beginning of year $273 $180
Issuance of common stock for stock option plan and other purposes 2 1
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period 275 181
- ------------------------------------------------------------------------------- ---------------- ----------------
Paid-in Capital
Balance at beginning of year 3,764 3,071
Issuance of common stock for dividend reinvestment plan,
stock option plan and other purposes 278 483
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period 4,042 3,554
- ------------------------------------------------------------------------------- ---------------- ----------------
Retained Earnings
Balance at beginning of year 50,886 45,631
Net income 4,412 4,036
Cash dividends declared (1,664) (1,504)
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period 53,634 48,163
- ------------------------------------------------------------------------------- ---------------- ----------------
Unrealized Gain on Securities Available for Sale, Net of Tax
Balance at beginning of year 4,504 4,382
Change in unrealized gain on securities available for sale, net of tax 1,019 (440)
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period 5,523 3,942
- ------------------------------------------------------------------------------- ---------------- ----------------
Treasury Stock
Balance at beginning of year - (327)
Repurchase of common stock (412) -
Issuance of common stock for dividend reinvestment plan
and stock option plans 412 327
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period - -
- ------------------------------------------------------------------------------- ---------------- ----------------
Total Shareholders' Equity $63,474 $55,840
=============================================================================== ================ ================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Washington Trust Bancorp, Inc. and Subsidiary
Six months ended June 30, 1997 1996
- ------------------------------------------------------------------------ ------------------- --------------------
(Dollars in thousands)
Cash flows from operating activities:
Net income $4,412 $4,036
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 600 600
Provision for valuation of other real estate owned 27 186
Depreciation of premises and equipment 944 704
Amortization of net deferred loan fees and costs (122) (70)
Net gains on sales of securities (627) (148)
Net gains on sales of other real estate owned (75) (133)
Net gains on loan sales (134) (75)
Proceeds from sales of loans 9,259 7,193
Loans originated for sale (10,313) (9,784)
Increase in accrued interest receivable (855) (438)
(Increase) decrease in other assets (717) 273
Increase (decrease) in accrued expenses and other liabilities 262 (835)
Other, net 450 142
- ------------------------------------------------------------------------ ------------------- --------------------
Net cash provided by operating activities 3,111 1,651
- ------------------------------------------------------------------------ ------------------- --------------------
Cash flows from investing activities: Securities available for sale:
Purchases (84,505) (33,507)
Proceeds from sales 35,410 11,109
Maturities and principal repayments 13,456 7,012
Securities held to maturity:
Purchases (21,998) (3,471)
Maturities and principal repayments 661 2,780
Purchases of Federal Home Loan Bank stock (4,761) -
Loan originations over principal collected on loans (20,105) (10,869)
Purchase of loans (324) -
Proceeds from sales of other real estate owned 593 546
Purchases of premises and equipment (2,524) (1,126)
Purchase of deposits, net of premium paid 7,014 -
- ------------------------------------------------------------------------ ------------------- --------------------
Net cash used in investing activities (77,083) (27,526)
- ------------------------------------------------------------------------ ------------------- --------------------
Cash flows from financing activities:
Net increase in deposits 29,619 2,403
Net increase in other short term borrowings 1,753 -
Proceeds from Federal Home Loan Bank advances 244,100 30,044
Repayment of Federal Home Loan Bank advances (190,441) (15,604)
Repurchase of common stock (412) -
Proceeds from issuance of common stock 692 811
Cash dividends paid (1,616) (1,436)
- ------------------------------------------------------------------------ ------------------- --------------------
Net cash provided by financing activities 83,695 16,218
- ------------------------------------------------------------------------ ------------------- --------------------
Net increase (decrease) in cash and cash equivalents 9,723 (9,657)
Cash and cash equivalents at beginning of year 18,966 28,651
- ------------------------------------------------------------------------ ------------------- --------------------
Cash and cash equivalents at end of period $28,689 $18,994
======================================================================== =================== ====================
(continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Washington Trust Bancorp, Inc. and Subsidiary
Six months ended June 30, 1997 1996
- --------------------------------------------------------------------------------- ------------- -------------
(Dollars in thousands)
Noncash Investing and Financing Activities:
Net transfers from loans to other real estate owned $248 $553
Loans charged off 828 733
Loans made to facilitate the sale of other real estate owned 270 293
Increase (decrease) in unrealized gain on securities available for sale,
net of tax 1,019 (440)
Supplemental Disclosures:
Interest payments $8,154 $3,819
Income tax payments 2,002 2,114
Condensed Notes to Consolidated Financial Statements
Washington Trust Bancorp, Inc. and Subsidiary
(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 June 30, 1997 and December 31, 1996
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, 1996, included in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996.
All amounts are presented in thousands, except per share amounts. All share and
per share amounts have been adjusted to reflect a 3-for-2 split of the
Corporation's common stock effected on October 15, 1996.
(2) Securities Available For Sale
Securities available for sale are summarized as follows:
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- ------------------------------------------- ---------------- ---------------- ---------------- ----------------
June 30, 1997
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $80,694 484 (219) $80,959
Mortgage-backed securities 133,321 1,127 (206) 134,242
Corporate stocks 12,641 8,057 (93) 20,605
- --------------------------------------------------------------------------------------------------------------
Total $226,656 9,668 (518) $235,806
==============================================================================================================
December 31, 1996
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $48,714 500 (112) $49,102
Mortgage-backed securities 129,232 144 (872) 128,504
Corporate stocks 12,865 7,919 (73) 20,711
- --------------------------------------------------------------------------------------------------------------
Total $190,811 8,563 (1,057) $198,317
==============================================================================================================
Securities available for sale with a fair value of $14.0 million and $42.0
million were pledged to secure Treasury Tax and Loan deposits, short-term
borrowings and public deposits at June 30, 1997 and December 31, 1996,
respectively.
For the six months ended June 30, 1997, proceeds from sales of securities
available for sale amounted to $35.4 million, while net realized gains on these
sales amounted to $627,000.
(3) Securities Held To Maturity
The amortized cost and fair value of securities held to maturity are summarized
as follows:
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- ------------------------------------------ ----------------- ---------------- ---------------- --------------
June 30, 1997
Obligations of U.S. government-
sponsored agencies $21,902 178 - $22,080
Mortgage-backed securities 11,699 174 - 11,873
States and political subdivisions 15,645 48 (15) 15,678
- -------------------------------------------------------------------------------------------------------------
Total $49,246 400 (15) $49,631
=============================================================================================================
December 31, 1996
Mortgage-backed securities $12,344 185 - $12,529
States and political subdivisions 15,582 47 (44) 15,585
- -------------------------------------------------------------------------------------------------------------
Total $27,926 232 (44) $28,114
=============================================================================================================
There were no sales or transfers of securities held to maturity during the six
months ended June 30, 1997.
(4) Loan Portfolio
The following is a summary of loans:
June 30, December 31,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------
Residential real estate:
Mortgages $175,130 $171,423
Homeowner construction 4,871 4,631
- --------------------------------------------------------------------------------
Total residential real estate 180,001 176,054
- --------------------------------------------------------------------------------
Commercial:
Mortgages 65,973 66,224
Construction and development 2,193 4,174
Other 123,057 109,485
- --------------------------------------------------------------------------------
Total commercial 191,223 179,883
- --------------------------------------------------------------------------------
Consumer 68,926 63,056
- --------------------------------------------------------------------------------
Total loans $440,150 $418,993
================================================================================
(5) Allowance For Loan Losses
The following is an analysis of the allowance for loan losses (dollars in
thousands):
Three months Six months
-----------------------------------------------------------------
Periods ended June 30, 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $8,585 $7,932 $8,495 $7,785
Provision charged to expense 300 300 600 600
Recoveries 38 325 144 498
Loans charged off (512) (407) (828) (733)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period $8,411 $8,150 $8,411 $8,150
===================================================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Washington Trust Bancorp, Inc. and Subsidiary
Results of Operations - Quarters Ended June 30, 1997 and 1996 Net income for the
three months ended June 30, 1997 amounted to $2.3 million, up 11.5% over the
$2.0 million of net income recorded in the second quarter of 1996. Earnings per
share for the quarter ended June 30, 1997 amounted to $.50, up from the $.45 per
share on net income earned in the comparable 1996 period.
Net interest income for the first quarter of 1997 increased by 12.1% over the
prior year quarter, to $7.1 million. This increase was primarily attributable to
net interest income generated under an investment program, as well as higher
interest and fees on loans. (See additional discussion under the caption "Net
Interest Income".)
The provision for loan losses for the three months ended June 30, 1997 amounted
to $300,000, unchanged from the prior year period.
Other noninterest income (noninterest income excluding net gains on sales of
securities) amounted to $2.3 million for the second quarter of 1997, up 16.2%
from the same 1996 period. This increase is primarily due to higher revenues for
trust services as well as increases in service charges earned on deposit
accounts and net gains on loan sales. For the three months ended June 30, 1997
and 1996, net gains (losses) on sales of securities amounted to approximately
$373,000 and ($50,000), respectively. Approximately $208,000 of the securities
gains in the second quarter of 1997 were associated with a nonrecurring
charitable contribution.
Total noninterest expense for the quarter ended June 30, 1997 amounted to $6.1
million, an increase of 22.5% from the comparable 1996 amount. This increase was
primarily attributable to higher salaries and benefits expense and increases in
other variable expenses resulting from the expansion of the Corporation's market
area which began in the first quarter of 1997. (See additional discussion under
the caption "Financial Condition and Liquidity".) Equipment costs rose 36.0%
over the prior year period due primarily to depreciation expense associated with
purchases that occurred in 1997 and 1996. Other noninterest expense increased by
approximately $321,000, or 30.6%, over the comparable 1996 amount mainly due to
a nonrecurring charitable contribution of approximately $219,000 made during the
second quarter of 1997.
Results of Operations - Six Months Ended June 30, 1997 and 1996
Net income for the six months ended June 30, 1997 amounted to $4.4 million,
up 9.3% over the $4.0 million of net income recorded in the comparable 1996
period. Fully diluted earnings per share for the six months ended June 30, 1997
amounted to $.97, up 7.8% from the $.90 per share on net income earned in the
comparable 1996 period.
Net interest income for the six months ended June 30, 1997 increased by 8.4%
over the prior year period, to $13.8 million. This increase was primarily
attributable to net interest income generated under an investment program. (See
additional discussion under the caption "Net Interest Income".)
The provision for loan losses for the six months ended June 30, 1997 amounted to
$600,000, unchanged from the prior year period.
Other noninterest income (noninterest income excluding net gains (losses) on
sales of securities) amounted to $4.4 million for the six months ended June 30,
1997, up 17.7% from the same 1996 period. This increase was primarily due to
higher revenues for trust services as well as an increase in service charges on
deposit amounts and net gains on loan sales. For the six months ended June 30,
1997 and 1996, net gains on sales of securities amounted to $627,000 and
$148,000, respectively.
Total noninterest expense for the six months ended June 30, 1997 amounted to
$11.6 million, an increase of 17.4% from the comparable 1996 amount. This
increase was primarily attributable to
Results of Operations - Six Months Ended June 30, 1997 and 1996 (continued)
higher salaries and benefits expense and increases in other variable expenses
resulting from the expansion of the Corporation's market area which began in the
first quarter of 1997. (See additional discussion under the caption "Financial
Condition and Liquidity".) Equipment costs rose 31.6% over the prior year period
due primarily to depreciation expense associated with purchases that occurred in
1997 and late 1996. Other noninterest expense increased by approximately
$477,000, or 22.0%, over the comparable 1996 amount due mainly to a nonrecurring
charitable contribution of approximately $219,000 made during the second quarter
of 1997.
Net Interest Income
(The accompanying schedule on the page 12 should be read in conjunction with
this discussion.)
FTE net interest income for the six months ended June 30, 1997 amounted to $14.5
million, up by 9.3%, over the same 1996 period due to the growth in
interest-earning assets. The interest rate spread and the net interest margin
for the six months ended June 30, 1997 amounted to 3.58% and 4.12%,
respectively. Comparable amounts for quarter ended June 30, 1996 were 4.55% and
5.18%, respectively.
For the six months ended June 30, 1997, average interest-earning assets amounted
to $705.9 million, an increase of $193.0 million, or 37.6%, over the comparable
1996 amount. The FTE rate of return on average interest-earning assets was 8.14%
for the six months ended June 30, 1997, down from 8.67% for the same 1996
period. The growth in average interest-earning assets was due primarily to the
increase in average taxable securities, which were up by $148.4 million from the
1996 amount. The increase in average taxable securities resulted primarily from
an investment securities purchase 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. The
securities purchased under this program were funded with Federal Home Loan Bank
(FHLB) advances with similar interest rate repricing characteristics.
The yield on average total loans amounted to 8.94% for the six months ended June
30, 1997, down from 9.11% in the comparable 1996 period due to changes in the
prime rate as well as lower yields on new loan originations. Average total loans
for the six months ended June 30, 1997 rose 8.7% over the prior year and
amounted to $426.4 million. Average consumer loans rose by 17.9% over the prior
year, while the average balance of residential real estate and commercial loans
increased by 2.3% and 12.5%, respectively. The yields on residential real estate
and consumer loans decreased by 13 basis points and 38 basis points,
respectively, from the comparable prior period, primarily due to lower yields on
new loan originations. The yield on total commercial loans for the six months
ended June 30, 1997 amounted to 9.57%, down 22 basis points from the comparable
1996 period due primarily to lower yields on new loan originations.
The Corporation's total cost of funds on interest-bearing liabilities amounted
to 4.56% for the six months ended June 30, 1997, up from 4.12% for the
comparable 1996 period. This increase was due primarily to higher average FHLB
advances outstanding. Average FHLB advances for the six months ended June 30,
1997 amounted to $178.6 million, up substantially from the $26.8 million average
balance for the same 1996 period. The additional advances were used primarily to
purchase securities under the investment program. The average rate paid on FHLB
advances for the six months ended June 30, 1997 was 5.79%, a decrease of 19
basis points from the prior year rate. Average time deposits rose 8.4% from the
prior year amount, to $250.9 million. The rate paid on time deposits increased
to 5.4, up 6 basis points from the prior year rate. Average savings deposits for
the six months ended June 30, 1997 declined slightly from the comparable 1996
amount. The rate paid on these deposits was 1.99% for the first six months of
1997, down from 2.20% for the same 1996 period. For the six months ended June
30, 1997, average demand deposits, an interest-free funding source, were up by
$7.2 million, or 12.7%, from the same prior year period.
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.
Six months ended June 30, 1997 1996
- -------------------------------------- ------------------------------------- --------------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------- ------------- ------------ ---------- -------------- ----------- -----------
Interest-earning assets:
Residential real estate loans $176,664 7,200 8.15% $172,729 7,154 8.28%
Commercial and other loans 184,773 8,841 9.57% 164,312 8,039 9.79%
Consumer loans 64,972 3,016 9.28% 55,126 2,662 9.66%
- -------------------------------------------------------------------------------------------------------------------
Total loans 426,409 19,057 8.94% 392,167 17,855 9.11%
Federal funds sold 4,842 132 5.44% 5,301 140 5.28%
Taxable debt securities 231,061 7,892 6.83% 82,651 2,776 6.72%
Nontaxable debt securities 15,669 519 6.63% 15,885 520 6.55%
Corporate stocks 27,902 1,115 7.99% 16,913 943 11.15%
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 705,883 28,715 8.14% 512,917 22,234 8.67%
Non interest-earning assets 44,449 36,109
- -------------------------------------------------------------------------------------------------------------------
Total assets $750,332 $549,026
- -------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings deposits $173,223 1,720 1.99% $174,008 1,915 2.20%
Time deposits 250,866 6,769 5.40% 231,393 6,177 5.34%
FHLB advances 178,550 5,171 5.79% 26,801 802 5.98%
Other 19,063 528 5.54% 1,793 48 5.41%
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities
621,702 14,188 4.56% 433,995 8,942 4.12%
Demand deposits 63,964 56,737
Non interest-bearing liabilities 3,278 3,549
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 688,944 494,281
Total shareholders' equity 61,388 54,745
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $750,332 $549,026
- -------------------------------------------------------------------------------------------------------------------
Net interest income /
interest rate spread $14,527 3.58% $13,292 4.55%
- -------------------------------------------------------------------------------------------------------------------
Net interest margin 4.12% 5.18%
- -------------------------------------------------------------------------------------------------------------------
<FN>
Interest income amounts presented in the table above include the following
adjustments for taxable equivalency:
Six months ended June 30, 1997 1996
- ------------------------------------------ ---------------- -----------------
Commercial and other loans $71 $41
Taxable debt securities (1) 250 88
Nontaxable debt securities 185 186
Corporate stocks 215 240
(1)Represents adjustments for US Treasury and government agency obligations
which are exempt from state income taxes only.
</FN>
Financial Condition and Liquidity
Total assets amounted to $793.2 million at June 30, 1997, an increase of $98.2
million, or 14.1% from the December 31, 1996 amount of $694.9 million. Average
assets totaled $750.3 million for the six months ended June 30, 1997, up by
36.7% over the comparable 1996 period.
Securities Available for Sale - The amortized cost of securities available for
sale at June 30, 1997 amounted to $226.7 million, an increase of 18.8% over the
December 31, 1996 amount of $190.8 million. This increase is attributable to
purchases of adjustable rate pass-through securities and collateralized mortgage
obligations issued by U.S. government-sponsored agencies which were purchased
under the investment program. (See "Net Interest Income" for additional
discussion of the investment program.) The net unrealized gain on securities
available for sale increased by approximately $1.6 million during the six months
ended June 30, 1997. This increase is attributable to both the rise in the
equity market and the effect of decreases in medium and long-term bond rates
that have occurred in the second quarter of 1997.
Securities Held to Maturity - The carrying value of securities held to maturity
amounted to $49.2 million at June 30, 1997, up from $27.9 million at December
31, 1996. The net unrealized gain on securities held to maturity amounted to
approximately $385,000 at June 30, 1997, up from $188,000 at December 31, 1996.
This increase is attributable to the decrease in medium and long-term bond rates
occurring in the second quarter of 1997.
Loans - Total loans amounted to $440.2 million at June 30, 1997, an increase of
$21.2 million, or 5.0%, from the December 31, 1996 balance of $419.0 million.
All categories of loans exhibited modest increases over the year-end 1996
amounts, with the largest increases occurring in the commercial and consumer
portfolios.
Deposits - Total deposits amounted to $514.4 million at June 30, 1997, up by
7.9% from the December 31, 1996 amount of $476.6 million. This increase was
primarily attributable to normal seasonal deposit inflow and the expansion of
the Corporation's market area which included approximately $8.2 million of
deposits that were acquired from another bank in March, 1997. Savings deposits
rose 3.6% and time deposits increased by 8.5% from the December 31, 1996
balance. Demand deposits amounted to $76.1 million, up 17.0% from the December
31, 1996 balance of $65.0 million.
Borrowings - The Corporation utilizes FHLB advances as a funding source. FHLB
advances amounted to $192.2 million at June 30, 1997, up by $53.7 million from
the December 31, 1996 amount. In addition, short-term borrowings outstanding at
June 30, 1997 amounted to $15.8 million. The additional FHLB advances and
short-term borrowings were used to fund loan growth and to purchase securities
under the investment program. 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 FHLB advances during the three months ended June 30,
1997, the Corporation has increased its investment in FHLB stock from $11.7
million at December 31, 1996 to $16.4 million at June 30, 1997.
For the six months ended June 30, 1997, net cash provided by operations amounted
to $3.1 million, the majority of which was generated by net income. Proceeds
from sales of loans in the first six months of 1997 amounted to $9.3 million,
while loans originated for sale amounted to $10.3 million. Net cash used in
investing activities amounted to $77.1 million and was primarily used to
purchase securities available for sale and held to maturity and FHLB stock and
for loan originations. Net cash provided by investing activities was generated
mainly by a net increase in FHLB advances of $53.7 million, and by an increase
in deposits of $29.6 million. (See Consolidated Statements of Cash Flows for
additional information.)
Branch Expansion
During the first quarter of 1997, the Corporation expanded its market area into
contiguous communities. A de novo branch was opened in February, 1997 in North
Kingstown, Rhode Island. This branch is a full service banking office, offering
deposit and loan services for businesses and consumers, as well as trust and
investment services. The Corporation also acquired a branch of a
Financial Condition and Liquidity (continued):
Connecticut bank, including its deposits of approximately $8.2 million, in March
1997. This is the Corporation's first full-service branch located in the state
of Connecticut. During the second quarter of 1997, the Corporation opened two
branches in local supermarkets. The supermarket branches offer a complete range
of financial products and services.
Asset Quality
Nonperforming assets are summarized in the following table:
June 30, December 31,
(Dollars in thousands) 1997 1996
------------- ---------------
Nonaccrual loans 90 days or more past due $4,218 $3,099
Nonaccrual loans less than 90 days past due 4,544 4,443
------------- ---------------
Total nonaccrual loans 8,762 7,542
------------- ---------------
Other real estate owned:
Properties acquired through foreclosure 601 1,295
Valuation allowance (81) (205)
------------- ---------------
Total other real estate owned 520 1,090
------------- ---------------
Total nonperforming assets $9,282 $8,632
============= ===============
Nonaccrual loans as a % of total loans 2.0% 1.8%
Nonperforming assets as a % of total assets 1.2% 1.2%
Allowance for loan losses to nonaccrual loans 96.0% 112.6%
Not included in the analysis of nonperforming assets at June 30, 1997 and
December 31, 1996 above are approximately $1.6 and $1.4 million, 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.
The following is an analysis of nonaccrual loans by loan category:
June 30, December 31,
(Dollars in thousands) 1997 1996
------------- ----------------
Residential mortgages $3,182 $2,067
Commercial:
Mortgages 2,174 2,133
Construction and development - 80
Other (1) 3,095 2,881
Consumer 311 381
------------- ---------------
Total nonperforming loans $8,762 $7,542
============= ===============
(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 June 30, 1997, the
recorded investment in impaired loans was $5.3 million, including $4.8 million
which had a related allowance amounting to $908,000. At December 31, 1996, the
recorded investment in impaired loans was $5.1 million, including $4.5 million
which had a related allowance amounting to $867,000. The balance of impaired
loans which did not require an allowance at June 30, 1997 and December 31, 1996
was $567,000 and $572,000, respectively. During the six months ended June 30,
1997, the average recorded investment in impaired loans was $5.3 million. Also
during this period, interest income recognized on impaired loans amounted to
approximately $226,000. Interest income on impaired loans is recognized on a
cash basis only.
Capital Resources
Total equity capital amounted to $63.5 million, or 8.0% of total assets at June
30, 1997. This compares to $59.4 million, or 8.6% at December 31, 1996. The
reduction in this ratio is due primarily to the growth in assets resulting from
the investment program. Total equity increased by approximately $4.0 million
from December 31, 1996. This increase was primarily attributable to a $2.7
million increase in earnings retention and a $1.0 million increase in unrealized
gain on securities available for sale, net of tax. (See the Consolidated
Statements of Changes in Shareholders' Equity for additional information.)
At June 30, 1997, the Corporation's Tier 1 capital ratio was 13.08%, the total
risk-adjusted capital ratio was 14.34% and the leverage ratio was 7.57%. These
ratios were all above the ratios required to be categorized as well-capitalized.
Dividends payable at June 30, 1997 amounted to approximately $833,000,
representing $.19 per share payable on July 15, 1997, an increase of 11.8% over
the $.17 per share declared in the fourth quarter of 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.
Recent Accounting Developments
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS 128
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. The objective of this Statement is to simplify the
computation of EPS and to make the U.S. standard for computing EPS more
compatible with such standards of other countries and with that of the
International Accounting Standards Committee. SFAS 128 is effective for
reporting periods ending after December 15, 1997. The adoption of this
pronouncement is not expected to have a material impact on the Corporation's
computation of earnings per share.
Also in February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information about Capital Structure". This Statement
establishes standards for disclosing information about an entity's capital
structure. It applies to all entities and is effective for reporting periods
ending after December 15, 1997. The Corporation's disclosures currently comply
with these new requirements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income, which is defined as all changes
in equity, except for those resulting from investments by and distributions to
shareholders. This Statement classifies net income as a component of
comprehensive income, with all other components referred to in the aggregate as
other comprehensive income. The provisions of this Statement are effective for
fiscal years beginning after December 15, 1997.
Also in June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". This
Statement establishes standards for reporting information about operating
segments. An operating segment is defined as a component of an enterprise for
which separate financial information is available and reviewed regularly by the
enterprise's chief operating decision maker in order to make decisions about
resources to be allocated to the segment and also to evaluate the segment's
performance. SFAS No. 131 requires a corporation to disclose certain balance
sheet and income statement information by operating segment, as well as provide
a reconciliation of operating segment information to the corporation's
consolidated balances. This Statement is effective for reporting periods
beginning after December 15, 1997.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
No material changes since the filing of the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item4. Submission of Matters to a Vote of Security Holders (a) The Annual
Meeting of Shareholders was held on April 29, 1997.
(c) Matters voted upon were as follows:
i. A proposal to elect Steven J. Crandall, Richard A. Grills, James W.
McCormick, Jr., Victor J.Orsinger II, James P. Sullivan, and Neil H.
Thorp as directors of the Corporation for three year terms expiring
at the 2000 Annual Meeting of Shareholders passed as follows:
Abstentions
Votes Votes and Broker
In Favor Withheld Non-votes
Steven J. Crandall 3,620,892.32 25,735.53 0
Richard A. Grills 3,621,142.62 25,485.53 0
James W. McCormick, Jr. 3,621,142.62 25,485.53 0
Victor J. Orsinger, II 3,620,892.32 25,735.53 0
James P. Sullivan 3,612,268.93 34,358.53 0
Neil H. Thorp 3,621,142.62 25,485.53 0
ii. A proposal to adopt the Washington Trust Bancorp, Inc. 1997 Equity
Incentive Plan was passed by a vote of 2,646,875.01 shares in favor,
271,348.72 shares against, with no abstentions or broker non-votes.
iii.A proposal to amend Article FOURTH of the Corporation's Restated
Articles of Incorporation to increase the number of shares of the
Corporation's Common Stock, $.0625 par value, that may be issued
thereunder from 10,000,000 shares to 30,000,000 shares was passed by a
vote of 3,383,485.53 shares in favor and 198,050.74 shares against, with
no abstentions or broker non-votes.
iv. A proposal for the ratification of KPMG Peat Marwick LLP to serve as
independent auditors of the Corporation for the current fiscal year
ending December 31, 1997 was passed by a vote of 3,582,460.91 shares in
favor; 40,973.5 shares against; with no abstentions or broker non-votes.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit index
Exhibit No.
3.i Amendment to Articles of Incorporation
*10.a Washington Trust Bancorp, Inc. 1997 Equity Incentive Plan
*10.b Change in Control Agreements with Executive Officers
11 Statement re Computation of Per Share Earnings
* Management contract or compensatory plan or arrangement
(b) There were no reports on Form 8-K filed during the quarter ended
June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON TRUST BANCORP, INC.
(Registrant)
August 12, 1997 By: John C. Warren
-----------------------
John C. Warren
President and Chief Executive Officer
(principal executive officer)
August 12, 1997 By: David V. Devault
-------------------------
David V. Devault
Vice President, Treasurer and Chief Financial Officer
(principal financial officer)