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 September 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
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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
November 5, 1997 was 4,384,477.
Page 1
Washington Trust Bancorp, Inc. and Subsidiary
Form 10-Q For The Quarter Ended September 30, 1997
CONTENTS
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income
Three Months and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flows
Nine Months Ended September 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 17
Signatures 18
CONSOLIDATED BALANCE SHEETS
Washington Trust Bancorp, Inc. and Subsidiary
September 30, December 31,
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------- ---------------- -----------------
Assets:
Cash and due from banks $18,653 $17,418
Federal funds sold 7,292 1,548
Mortgage loans held for sale 517 744
Securities:
Available for sale, at fair value 238,891 198,317
Held to maturity, at cost; fair value $50.4 million
in 1997 and $28.1 million in 1996 49,711 27,926
- ---------------------------------------------------------------------------- ---------------- -----------------
Total securities 288,602 226,243
Federal Home Loan Bank stock, at cost 16,444 11,683
Loans 451,602 418,993
Less allowance for loan losses 8,823 8,495
- ---------------------------------------------------------------------------- ---------------- -----------------
Net loans 442,779 410,498
Premises and equipment, net 21,417 19,040
Accrued interest receivable 5,281 4,160
Other real estate owned, net 842 1,090
Other assets 4,621 2,522
- ---------------------------------------------------------------------------- ---------------- -----------------
Total assets $806,448 $694,946
- ---------------------------------------------------------------------------- ---------------- -----------------
Liabilities:
Deposits:
Demand $74,696 $65,014
Savings 180,325 170,172
Time 277,151 241,375
- ---------------------------------------------------------------------------- ---------------- -----------------
Total deposits 532,172 476,561
Dividends payable 876 785
Short term borrowings 10,555 14,000
Federal Home Loan Bank advances 188,092 138,493
Accrued expenses and other liabilities 9,164 5,680
- ---------------------------------------------------------------------------- ---------------- -----------------
Total liabilities 740,859 635,519
- ---------------------------------------------------------------------------- ---------------- -----------------
Shareholders' Equity:
Common stock of $.0625 par value; authorized
10,000,000 shares; issued 4,401,298 shares in 1997
and 4,362,631 shares in 1996 275 273
Paid-in capital 4,036 3,764
Retained earnings 55,119 50,886
Unrealized gain on securities available for sale, net of tax 6,842 4,504
Treasury stock, at cost; 22,423 shares in 1997 (683) -
- ---------------------------------------------------------------------------- ---------------- -----------------
Total shareholders' equity 65,589 59,427
- ---------------------------------------------------------------------------- ---------------- -----------------
Total liabilities and shareholders' equity $806,448 $694,946
- ---------------------------------------------------------------------------- ---------------- -----------------
CONSOLIDATED STATEMENTS OF INCOME
Washington Trust Bancorp, Inc. and Subsidiary
Three Months Nine Months
------------- ------------- ------------- -----------
Periods ended September 30, 1997 1996 1997 1996
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
(In thousands, except per share amounts)
Interest income:
Interest and fees on loans $9,954 $9,149 $28,940 $26,963
Income from securities:
Interest 4,299 2,313 12,276 5,335
Dividends 525 330 1,424 1,032
Federal funds sold and securities purchased
under agreements to resell 128 40 259 180
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Total interest income 14,906 11,832 42,899 33,510
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Interest expense:
Savings deposits 895 965 2,615 2,881
Time deposits 3,776 3,117 10,545 9,294
Federal Home Loan Bank advances 2,812 919 7,982 1,721
Other 126 41 654 89
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Total interest expense 7,609 5,042 21,796 13,985
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Net interest income 7,297 6,790 21,103 19,525
Provision for loan losses 400 300 1,000 900
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Net interest income after provision for loan losses 6,897 6,490 20,103 18,625
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Noninterest income:
Trust revenue 1,056 904 3,367 2,797
Service charges on deposit accounts 611 553 1,787 1,600
Merchant processing fees 483 405 764 643
Net gains on sales of securities 56 118 683 266
Net gains on loan sales 209 66 343 141
Other income 246 256 751 749
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Total noninterest income 2,661 2,302 7,695 6,196
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Noninterest expense:
Salaries and employee benefits 3,241 2,880 9,397 8,361
Net occupancy 457 310 1,266 945
Equipment 535 388 1,505 1,124
Merchant processing costs 370 298 625 511
Office supplies 139 136 525 380
Advertising and promotion 195 161 508 380
Other 1,158 1,100 3,912 3,487
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Total noninterest expense 6,095 5,273 17,738 15,188
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Income before income taxes 3,463 3,519 10,060 9,633
Income tax expense 1,099 1,198 3,284 3,276
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Net income $2,364 $2,321 $6,776 $6,357
- ------------------------------------------------------------ ------------- ------------- ------------- -------------
Weighted average shares outstanding - primary 4,548.4 4,503.5 4,543.7 4,459.8
Weighted average shares outstanding - fully diluted 4,550.5 4,513.6 4,549.4 4,485.8
Earnings per share - primary $.52 $.52 $1.49 $1.43
Earnings per share - fully diluted $.52 $.51 $1.49 $1.42
Cash dividends declared per share $.20 $.18 $.58 $.53
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Washington Trust Bancorp, Inc. and Subsidiary
Nine months ended September 30, 1997 1996
- ------------------------------------------------------------------------------- ---------------- ----------------
(Dollars in thousands)
Common Stock
Balance at beginning of year $273 $180
Issuance of common stock for stock option plan 2 1
3-for-2 stock split in the form of a stock dividend - 91
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period 275 272
- ------------------------------------------------------------------------------- ---------------- ----------------
Paid-in Capital
Balance at beginning of year 3,764 3,071
Issuance of common stock for stock option plan 272 432
3-for-2 stock split in the form of a stock dividend - (91)
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period 4,036 3,412
- ------------------------------------------------------------------------------- ---------------- ----------------
Retained Earnings
Balance at beginning of year 50,886 45,631
Net income 6,776 6,357
Cash dividends declared (2,543) (2,289)
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period 55,119 49,699
- ------------------------------------------------------------------------------- ---------------- ----------------
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 2,338 (396)
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period 6,842 3,986
- ------------------------------------------------------------------------------- ---------------- ----------------
Treasury Stock
Balance at beginning of year - (327)
Repurchase of common stock (1,115) (241)
Issuance of common stock for stock option plan 432 452
- ------------------------------------------------------------------------------- ---------------- ----------------
Balance at end of period (683) (116)
- ------------------------------------------------------------------------------- ---------------- ----------------
Total Shareholders' Equity $65,589 $57,253
- ------------------------------------------------------------------------------- ---------------- ----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Washington Trust Bancorp, Inc. and Subsidiary
Nine months ended September 30, 1997 1996
- ------------------------------------------------------------------------ ------------------- --------------------
(Dollars in thousands)
Cash flows from operating activities:
Net income $6,776 $6,357
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,000 900
Provision for valuation of other real estate owned 41 278
Depreciation of premises and equipment 1,478 1,060
Amortization of net deferred loan fees and costs (109) (107)
Net gains on sales of securities (683) (266)
Net gains on sales of other real estate owned (91) (293)
Net gains on loan sales (343) (141)
Proceeds from sales of loans 16,999 12,350
Loans originated for sale (16,825) (11,861)
Increase in accrued interest receivable (1,121) (770)
Increase in other assets (904) (46)
Increase in accrued expenses and other liabilities 1,985 288
Other, net 655 156
- ------------------------------------------------------------------------ ------------------- --------------------
Net cash provided by operating activities 8,858 7,905
- ------------------------------------------------------------------------ ------------------- --------------------
Cash flows from investing activities: Securities available for sale:
Purchases (111,826) (93,760)
Proceeds from sales 49,677 18,563
Maturities and principal repayments 25,459 15,196
Securities held to maturity:
Purchases (23,756) (3,688)
Maturities and principal repayments 1,957 4,250
Purchases of Federal Home Loan Bank stock (4,761) (4,191)
Loan originations over principal collected on loans (32,709) (20,927)
Purchase of loans (324) -
Proceeds from sales of other real estate owned 565 701
Purchases of premises and equipment (3,869) (3,249)
Purchase of deposits, net of premium paid 7,014 -
- ------------------------------------------------------------------------ ------------------- --------------------
Net cash used in investing activities (92,573) (87,105)
- ------------------------------------------------------------------------ ------------------- --------------------
Cash flows from financing activities:
Net increase in deposits 47,401 3,133
Net increase (decrease) in other short term borrowings (3,445) 10,212
Proceeds from Federal Home Loan Bank advances 351,100 111,394
Repayment of Federal Home Loan Bank advances (301,502) (53,686)
Repurchase of common stock (1,115) (241)
Proceeds from issuance of common stock 707 885
Cash dividends paid (2,452) (2,190)
- ------------------------------------------------------------------------ ------------------- --------------------
Net cash provided by financing activities 90,694 69,507
- ------------------------------------------------------------------------ ------------------- --------------------
Net increase (decrease) in cash and cash equivalents 6,979 (9,693)
Cash and cash equivalents at beginning of year 18,966 28,651
- ------------------------------------------------------------------------ ------------------- --------------------
Cash and cash equivalents at end of period $25,945 $18,958
- ------------------------------------------------------------------------ ------------------- --------------------
(continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Washington Trust Bancorp, Inc. and Subsidiary
Nine months ended September 30, 1997 1996
- --------------------------------------------------------------------------------- ------------- -------------
(Dollars in thousands)
Noncash Investing and Financing Activities:
Net transfers from loans to other real estate owned $635 $1,049
Loans charged off 960 926
Loans made to facilitate the sale of other real estate owned 374 598
Increase (decrease) in unrealized gain on securities available for sale,
net of tax 2,338 (396)
Supplemental Disclosures:
Interest payments $12,699 $6,079
Income tax payments 2,002 3,082
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 September 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
- ------------------------------------------- ---------------- ---------------- ---------------- ------------------
September 30, 1997
U.S. Treasury obligations
and obligations of U.S.
government-sponsored agencies $87,237 792 (45) $87,984
Mortgage-backed securities 126,902 1,599 (46) 128,455
Corporate bonds 1,984 10 - 1,994
Corporate stocks 11,420 9,074 (36) 20,458
- ------------------------------------------------------------------------------------------------------------------
Total $227,543 11,475 (127) $238,891
- ------------------------------------------------------------------------------------------------------------------
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 $21.3 million and $42.0
million were pledged to secure Treasury Tax and Loan deposits, short-term
borrowings and public deposits at September 30, 1997 and December 31, 1996,
respectively.
For the nine months ended September 30, 1997, proceeds from sales of securities
available for sale amounted to $49.7 million, while net realized gains on these
sales amounted to $683,000.
(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
- ------------------------------------------ ----------------- ---------------- ---------------- ------------------
September 30, 1997
Obligations of U.S. government-
sponsored agencies $21,917 219 - $22,136
Mortgage-backed securities 11,236 352 - 11,588
States and political subdivisions 16,558 111 (1) 16,668
- -----------------------------------------------------------------------------------------------------------------
Total $49,711 682 (1) $50,392
- -----------------------------------------------------------------------------------------------------------------
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 nine
months ended September 30, 1997.
(4) Loan Portfolio The following is a summary of loans:
September 30, December 31,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------
Residential real estate:
Mortgages $182,953 $171,423
Homeowner construction 4,349 4,631
- --------------------------------------------------------------------------------
Total residential real estate 187,302 176,054
- --------------------------------------------------------------------------------
Commercial:
Mortgages 63,657 66,224
Construction and development 3,530 4,174
Other 119,282 109,485
- --------------------------------------------------------------------------------
Total commercial 186,469 179,883
- --------------------------------------------------------------------------------
Consumer 77,831 63,056
- --------------------------------------------------------------------------------
Total loans $451,602 $418,993
- --------------------------------------------------------------------------------
(5) Allowance For Loan Losses
The following is an analysis of the allowance for loan losses (dollars in
thousands):
Three months Nine months
-----------------------------------------------------------------
Periods ended September 30, 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Balance at beginning of period $8,411 $8,150 $8,495 $7,785
Provision charged to expense 400 300 1,000 900
Recoveries 144 173 288 671
Loans charged off (132) (193) (960) (926)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period $8,823 $8,430 $8,823 $8,430
- -------------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Washington Trust Bancorp, Inc. and Subsidiary
Results of Operations - Quarters Ended September 30, 1997 and 1996
Net income for the three months ended September 30, 1997 amounted to $2.4
million, up 1.9% over the $2.3 million of net income recorded in the third
quarter of 1996. Fully diluted earnings per share for the quarter ended
September 30, 1997 amounted to $.52, up from the $.51 per share on net income
earned in the comparable 1996 quarter.
Net interest income for the third quarter of 1997 increased by 7.5% over the
prior year quarter, to $7.3 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 September 30, 1997
amounted to $400,000, up from $300,000 for the third quarter of 1996.
Other noninterest income (noninterest income excluding net gains on sales of
securities) amounted to $2.6 million for the third quarter of 1997, up 19.3%
from the same 1996 period. This increase was primarily due to higher revenues
for trust services as well as increases in net gains on loan sales, merchant
processing fees and service charges earned on deposit accounts. For the three
months ended September 30, 1997 and 1996, net gains on sales of securities
amounted to approximately $56,000 and $118,000, respectively.
Total noninterest expense for the quarter ended September 30, 1997 amounted to
$6.1 million, an increase of 15.6% from the comparable 1996 amount. This
increase was primarily attributable to higher salaries and benefits expense and
increases in other expenses resulting from the opening of four additional branch
offices during the first half of 1997. (See additional discussion of the
expansion of the Corporation's market area under the caption "Financial
Condition and Liquidity".) Net occupancy and equipment costs rose 47.4% and
37.9%, respectively, over the prior year period due primarily to depreciation
expense associated with purchases of premises and equipment that occurred in
1997 and late 1996.
Results of Operations - Nine Months Ended September 30, 1997 and 1996
Net income for the nine months ended September 30, 1997 amounted to $6.8
million, up 6.6% over the $6.4 million of net income recorded in the comparable
1996 period. Fully diluted earnings per share for the nine months ended
September 30, 1997 amounted to $1.49, up 4.9% from the $1.42 per share on net
income earned in the comparable 1996 period.
Net interest income for the nine months ended September 30, 1997 increased by
8.1% over the prior year period, to $21.1 million. This increase was primarily
attributable to net interest income generated under an investment program. (See
additional discussion under the caption "Net Interest Income".)
For the nine months ended September 30, 1997 and 1996, the provision for loan
losses amounted to $1,000,000 and $900,000, respectively.
Other noninterest income (noninterest income excluding net gains on sales of
securities) amounted to $7.0 million for the nine months ended September 30,
1997, up 18.2% from the same 1996 period. This increase was primarily due to
higher revenues for trust services as well as an increase in net gains on loan
sales, service charges on deposit amounts and merchant processing fees. For the
nine months ended September 30, 1997 and 1996, net gains on sales of securities
amounted to $683,000 and $266,000, respectively.
Total noninterest expense for the nine months ended September 30, 1997 amounted
to $17.7 million, an increase of 16.8% from the comparable 1996 amount. This
increase was primarily attributable to
Results of Operations - Nine Months Ended September 30, 1997 and 1996(continued)
higher salaries and benefits expense and increases in other expenses resulting
from the opening of four additional branch offices during the first half of
1997. (See additional discussion of the expansion of the Corporation's market
area under the caption "Financial Condition and Liquidity".) Net occupancy and
equipment costs for the nine months ended September 30, 1997 rose 34.0% and
33.9%, respectively, over the comparable prior year period due primarily to
depreciation expense associated with purchases of premises and equipment that
occurred in 1997 and late 1996. Other noninterest expense increased by
approximately $525,000, or 16.6%, over the comparable 1996 amount mainly due 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 nine months ended September 30, 1997 amounted to
$22.3 million, up by 8.7% over the same 1996 period due primarily to the growth
in interest-earning assets. The interest rate spread and the net interest margin
for the nine months ended September 30, 1997 amounted to 3.55% and 4.12%,
respectively. Comparable amounts for quarter ended September 30, 1996 were 4.50%
and 5.15%, respectively.
For the nine months ended September 30, 1997, average interest-earning assets
amounted to $720.0 million, an increase of $190.0 million, or 35.8%, over the
comparable 1996 amount. The growth in average interest-earning assets was due
primarily to the increase in average taxable debt securities, which were up by
$140.1 million from the 1996 amount. The increase in average taxable debt
securities resulted primarily from an investment securities purchase program
which was implemented during the third and fourth quarters 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 FTE rate of return on
average interest-earning assets was 8.16% for the nine months ended September
30, 1997, down from 8.67% for the same 1996 period.
The yield on average total loans amounted to 8.96% for the nine months ended
September 30, 1997, down from 9.12% in the comparable 1996 period due primarily
to lower yields on new loan originations. Average total loans for the nine
months ended September 30, 1997 rose 9.5% over the prior year and amounted to
$432.7 million. Average consumer loans rose by 18.6% over the prior year, while
the average balance of commercial and residential real estate loans increased by
13.9% and 2.4%, respectively. The yields on consumer and residential real estate
loans decreased by 35 basis points and 10 basis points, respectively, from the
comparable prior period, and amounted to 9.32% and 8.15%, respectively. The
yield on total commercial loans for the nine months ended September 30, 1997
amounted to 9.59%, down 26 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 4.61% for the nine months ended September 30, 1997, up from 4.17% for the
comparable 1996 period. This increase was due primarily to higher average FHLB
advances outstanding which have the highest overall cost of funds rate of the
bank's interest-bearing liabilities. Average FHLB advances for the nine months
ended September 30, 1997 amounted to $181.5 million, up substantially from the
$38.6 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 nine months ended September 30, 1997
was 5.86%, a decrease of 8 basis points from the prior year rate. Average time
deposits rose 11.4% from the prior year amount, to $257.9 million. The rate paid
on time deposits increased to 5.45%, up 10 basis points from the prior year
rate. Average savings deposits for the nine months ended September 30, 1997
increased slightly from the comparable 1996 amount. The rate paid on these
deposits was 1.99% for the first nine months of 1997, down from 2.20% for the
same 1996 period. For the nine months ended September 30, 1997, average demand
deposits, an interest-free funding source, were up by $7.7 million, or 12.5%,
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.
Nine months ended September 30, 1997 1996
- ------------------------------------------ ------------------------------------ ----------------------------------
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Rate Balance Interest Rate
- -------------------------------------- ------------- ------------ ---------- -------------- ----------- -----------
Interest-earning assets:
Residential real estate loans $178,411 10,909 8.15% $174,308 10,781 8.25%
Commercial and other loans 187,757 13,501 9.59% 164,909 12,178 9.85%
Consumer loans 66,515 4,651 9.32% 56,066 4,067 9.67%
- -------------------------------------------------------------------------------------------------------------------
Total loans 432,683 29,061 8.96% 395,283 27,026 9.12%
Federal funds sold 6,394 259 5.41% 4,509 180 5.32%
Taxable debt securities 237,340 12,207 6.86% 97,259 5,085 6.97%
Nontaxable debt securities 15,647 779 6.64% 15,881 777 6.52%
Corporate stocks 27,944 1,743 8.32% 17,088 1,384 10.80%
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 720,008 44,049 8.16% 530,020 34,452 8.67%
Non interest-earning assets 46,088 36,940
- -------------------------------------------------------------------------------------------------------------------
Total assets $766,096 $566,960
- -------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Savings deposits $175,458 2,615 1.99% $174,556 2,881 2.20%
Time deposits 257,893 10,545 5.45% 231,501 9,294 5.35%
FHLB advances 181,546 7,982 5.86% 38,637 1,721 5.94%
Other 15,621 654 5.59% 2,175 90 5.48%
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities
630,518 21,796 4.61% 446,869 13,986 4.17%
Demand deposits 69,108 61,445
Non interest-bearing liabilities 5,176 3,316
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 704,802 511,630
Total shareholders' equity 61,294 55,330
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $766,096 $566,960
- -------------------------------------------------------------------------------------------------------------------
Net interest income /
interest rate spread $22,253 3.55% $20,466 4.50%
- -------------------------------------------------------------------------------------------------------------------
Net interest margin 4.12% 5.15%
- -------------------------------------------------------------------------------------------------------------------
<FN>
Interest income amounts presented in the table above include the following
adjustments for taxable equivalency:
Nine months ended September 30, 1997 1996
- --------------------------------------------- ---------------- -----------------
Commercial and other loans $121 $62
Taxable debt securities (1) 434 250
Nontaxable debt securities 276 277
Corporate stocks 319 352
(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 $806.4 million at September 30, 1997, an increase of
$111.5 million, or 16.0%, from the December 31, 1996 amount of $694.9 million.
Average assets totaled $766.1 million for the nine months ended September 30,
1997, up by 35.1% over the comparable 1996 period.
Securities Available for Sale - The carrying value of securities available for
sale at September 30, 1997 amounted to $238.9 million, an increase of 20.5% over
the December 31, 1996 amount of $198.3 million. This increase is attributable to
purchases of U.S. Treasury obligations and obligations of U.S.
government-sponsored agencies as well as an increase in the net unrealized gain
on securities available for sale of approximately $3.8 million during the nine
months ended September 30, 1997. This increase is attributable to both the rise
in the equity market that occurred in the third quarter of 1997 and the effect
of decreases in medium and long-term bond rates that has occurred during the
second and third quarters of 1997.
Securities Held to Maturity - The carrying value of securities held to maturity
amounted to $49.7 million at September 30, 1997, up from $27.9 million at
December 31, 1996. The net unrealized gain on securities held to maturity
amounted to approximately $681,000 at September 30, 1997, up from $188,000 at
December 31, 1996. This increase is attributable to the decrease in medium and
long-term bond rates that has occurred during the second and third quarters of
1997.
Loans - Total loans amounted to $451.6 million at September 30, 1997, an
increase of $32.6 million, or 7.8%, 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 consumer and
residential real estate portfolios.
Deposits - Total deposits amounted to $532.2 million at September 30, 1997, up
by 11.7% from the December 31, 1996 amount of $476.6 million. This increase was
attributable to normal seasonal deposit inflow and deposit inflow resulting from
the four additional branch offices opened during the first half of 1997.
Approximately $8.2 million of deposits were acquired from another bank in March,
1997. Time deposits rose 14.8% and savings deposits increased by 6.0% from the
December 31, 1996 balance. Demand deposits amounted to $74.7 million, up 14.9%
from the December 31, 1996 balance of $65.0 million.
Borrowings - The Corporation utilizes FHLB advances as a funding source. FHLB
advances amounted to $188.1 million at September 30, 1997, up by $49.6 million
from the December 31, 1996 amount. In addition, short-term borrowings
outstanding at September 30, 1997 amounted to $10.6 million. The additional FHLB
advances 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 nine months ended September
30, 1997, the Corporation has increased its investment in FHLB stock from $11.7
million at December 31, 1996 to $16.4 million at September 30, 1997.
For the nine months ended September 30, 1997, net cash provided by operations
amounted to $8.9 million, the majority of which was generated by net income.
Proceeds from sales of loans in the first nine months of 1997 amounted to $17.0
million, while loans originated for sale amounted to $16.8 million. Net cash
used in investing activities amounted to $92.6 million and was primarily used to
purchase securities available for sale, securities held to maturity, FHLB stock
and for loan originations. Net cash provided by investing activities of $90.7
million was generated mainly by a net increase in FHLB advances of $49.6
million, and by an increase in deposits of $47.4 million. (See Consolidated
Statements of Cash Flows for additional information.)
Branch Expansion
During the first six months of 1997, the Corporation expanded its market area
and increased the number of its branch offices from six to ten branches. In
February, 1997 the Corporation opened a de novo branch in North Kingstown, Rhode
Island. This branch is a full service banking office,
Financial Condition and Liquidity (continued):
offering deposit and loan services for businesses and consumers, as well as
trust and investment services. The Corporation also acquired a branch of a
Connecticut bank, including its deposits of approximately $8.2 million, in March
1997. This branch, located in Mystic, Connecticut, was the Corporation's first
branch office located in the state of Connecticut. During the second quarter of
1997, the Corporation opened two branches in local supermarkets, one of which is
located in Mystic, Connecticut, the other in Westerly, Rhode Island. The
Corporation has also announced the November 1997 opening of an additional
supermarket branch to be located in Mystic, Connecticut. The supermarket
branches are full service banking offices offering extended service hours.
Asset Quality
Nonperforming assets are summarized in the following table:
September 30, December 31,
(Dollars in thousands) 1997 1996
-------------- ---------------
Nonaccrual loans 90 days or more past due $4,586 $3,099
Nonaccrual loans less than 90 days past due 4,313 4,443
-------------- ---------------
Total nonaccrual loans 8,899 7,542
-------------- --------------
Other real estate owned:
Properties acquired through foreclosure 932 1,295
Valuation allowance (90) (205)
-------------- ---------------
Total other real estate owned 842 1,090
-------------- ---------------
Total nonperforming assets $9,741 $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 99.1% 112.6%
Not included in the analysis of nonperforming assets at September 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:
September 30, December 31,
(Dollars in thousands) 1997 1996
-------------- ---------------
Residential mortgages $2,976 $2,067
Commercial:
Mortgages 2,138 2,133
Construction and development - 80
Other (1) 3,361 2,881
Consumer 424 381
-------------- ---------------
Total nonaccrual loans $8,899 $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 September 30,
1997, the recorded investment in impaired loans was $5.5 million, including $4.9
million which had a related allowance amounting to $793,000. 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 September 30, 1997 and
December 31, 1996
Asset Quality (continued):
was $620,000 and $572,000, respectively. During the nine months ended September
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 $315,000. Interest income on impaired loans is recognized on a
cash basis only.
Capital Resources
Total equity capital amounted to $65.6 million, or 8.1% of total assets at
September 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
$6.2 million from December 31, 1996. This increase was primarily attributable to
a $4.2 million increase in earnings retention and a $2.3 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 September 30, 1997, the Corporation's Tier 1 capital ratio was 13.02%, the
total risk-adjusted capital ratio was 14.28% and the leverage ratio was 7.23%.
These ratios were all above the ratios required to be categorized as
well-capitalized.
Dividends payable at September 30, 1997 amounted to approximately $876,000,
representing $.20 per share payable on October 15, 1997, an increase of 11.1%
over the $.18 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.
On October 16, 1997, the Corporation's board of directors voted to approve a
3-for-2 stock split of the Corporation's common stock. The stock split, in the
form of a stock dividend, will be paid on November 19, 1997 to shareholders of
record as of November 5, 1997. The split will result in one additional share of
common stock being issued for every two shares issued and outstanding on the
record date. The par value of the common stock will remain unchanged at $.0625
per share. Cash payments will be made in lieu of issuing fractional shares. The
cash payment for fractional shares will be based on the closing price of the
common stock as reported by NASDAQ on the record date, November 5, 1997.
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.
Recent Accounting Developments (continued):
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 and Use of Proceeds
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.
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedules
(b) There were no reports on Form 8-K filed during the quarter ended
September 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)
November 14, 1997 By: John C. Warren
-----------------------
John C. Warren
President and Chief Executive Officer
(principal executive officer)
November 14, 1997 By: David V. Devault
-------------------------
David V. Devault
Vice President, Treasurer and Chief Financial Officer
(principal financial officer)