UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 ------------------------------------------------------ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________________ to _____________________ Commission file Number 0-13091 --------------------------------------------------------- WASHINGTON TRUST BANCORP, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0404671 - ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23 BROAD STREET, WESTERLY, RHODE ISLAND 02891 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (401) 348-1200 -------------------- Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange on Title of each class which registered NONE NONE - ---------------------- ----------------------- Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, $.0625 PAR VALUE - ------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant was $80,652,096 at March 18, 1996 which includes $7,687,792 held by The Washington Trust Company under trust agreements and other instruments. The number of shares of common stock of the registrant outstanding as of March 18, 1996 was 2,880,432. Page 1 of 92 Exhibit Index page 23 DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's 1995 Annual Report to Shareholders. (Parts I, II and IV) 2. Portions of the Registrant's Proxy Statement dated March 18, 1996 for the 1996 Annual Meeting of Shareholders. (Part III). =============================================================================== FORM 10-K WASHINGTON TRUST BANCORP, INC. For the Year Ended December 31, 1995 TABLE OF CONTENTS ----------------- Description Page Number --------------- ----------- Part I - ------ Item 1 - Business 3 Item 2 - Properties 16 Item 3 - Legal Proceedings 17 Item 4 - Submission of Matters to a Vote of Security Holders 17 Executive Officers of the Registrant 18 Part II - ------- Item 5 - Market for the Registrant's Common Stock and Related Stockholder Matters 20 Item 6 - Selected Financial Data 21 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 8 - Financial Statements and Supplementary Data 21 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 21 Part III - -------- Item 10 - Directors and Executive Officers of the Registrant 22 Item 11 - Executive Compensation 22 Item 12 - Security Ownership of Certain Beneficial Owners and Management 22 Item 13 - Certain Relationships and Related Transactions 22 Part IV - ------- Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 23 Signatures 24 - ---------- -2- PART I ------ ITEM 1. BUSINESS - ---------------- Washington Trust Bancorp, Inc. - ------------------------------ Washington Trust Bancorp, Inc. (the "Corporation") is a publicly-owned, registered bank holding company, organized in 1984 under the laws of the state of Rhode Island, whose subsidiaries are permitted to engage in banking and other financial services and businesses. The Corporation conducts its business through its wholly-owned subsidiary, The Washington Trust Company (the "Bank"), a Rhode Island chartered commercial bank. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC"), subject to regulatory limits. The Corporation was formed in 1984 under a plan of reorganization in which outstanding common shares of The Washington Trust Company were exchanged for common shares of Washington Trust Bancorp, Inc. At December 31, 1995 the Corporation had total consolidated assets of $548 million, deposits of $468 million and equity capital of $53 million. The Washington Trust Company - ---------------------------- The Washington Trust Company was originally chartered in 1800 as the Washington Bank and is the oldest banking institution headquartered in its market area. Its current corporate charter dates to 1902. See "Market Area and Competition" below for further information. A broad range of financial services are provided by the Bank, including: - - Residential mortgages - Commercial and consumer demand deposits - - Commercial loans - Savings, NOW and money market deposits - - Construction loans - Certificates of deposit - - Consumer installment loans - Retirement accounts - - Home equity lines of credit - Cash management services - - VISA and Mastercard accounts - Safe deposit boxes - - Merchant credit card services - Trust and investment services Automated teller machines (ATM's) are located at each of the Bank's six banking offices. The Bank is a member of the NYCE, Plus and Cashstream ATM networks. Data processing for most of the Bank's deposit and loan accounts and other applications is conducted internally using owned equipment. Application software is primarily obtained through purchase or licensing agreements. The Bank's Trust and Investment Department provides fiduciary services as trustee under wills and trust agreements; as executor or administrator of estates; as a provider of agency and custodial investment services to individuals and institutions; and as a trustee for employee benefit plans. The market value of total trust assets amounted to $467 million as of December 31, 1995. -3- The Bank's primary source of income is net interest income, the difference between interest earned on interest-earning assets and interest paid on interest-bearing deposits and other borrowed funds. Sources of noninterest income include fees for management of customer investment portfolios, trusts and estates, service charges on deposit accounts, merchant processing fees and other banking-related fees. Noninterest expenses include the provision for loan losses, salaries and employee benefits, occupancy, equipment, office supplies deposit taxes and assessments, foreclosed property costs and other administrative expenses. The following is a summary of the relative amounts of income producing functions as a percentage of gross operating income during the past five years: <TABLE> <CAPTION> 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Interest and fees on: Residential real estate loans 29% 31% 33% 37% 37% Commercial and other loans 33 32 30 31 33 Installment and consumer loans 10 9 8 9 10 ---- ---- ---- ---- ---- Total loan income 72 72 71 77 80 Interest and dividends on securities 13 13 13 9 7 Trust income 7 7 7 6 5 Other noninterest income 8 8 9 8 8 ---- ---- ---- ---- ---- Gross operating income 100% 100% 100% 100% 100% ==== ==== ==== ==== ==== </TABLE> The percentage of gross income derived from interest and fees on loans was 72% in 1995, down from a five-year high of 80% in 1991, primarily as a result of the lower interest rate environment that existed in 1993, 1994 and 1995. Market Area and Competition - --------------------------- The Bank's market area includes Washington County and a portion of Kent County in southern Rhode Island as well as a portion of New London County in southeastern Connecticut. The Bank's six banking offices are located in the following Rhode Island communities: - Westerly (2) - Charlestown - New Shoreham (Block Island) - Richmond - Narragansett The Bank's offices in Charlestown and on Block Island are the only bank facilities in those communities. The Block Island office was acquired from another Rhode Island bank in 1984. The Charlestown office was opened in 1988 and the Narragansett office was opened in 1989. Plans to construct a new branch facility in North Kingstown, Rhode Island are currently in process. The Bank faces strong competition from branches of major Rhode Island and regional commercial banks, local branches of certain Connecticut banks, as well as various credit unions, savings institutions and, to some extent, finance -4- companies. The principal methods of competition are through interest rates, financing terms and other customer conveniences. The Washington Trust Company had 36% of total deposits reported by financial institutions for banking offices within its market area as of June 30, 1994. The two closest competitors held 16% each, and the third closest competitor held 6% of total deposits in the market area. The Corporation believes that being the largest commercial banking institution headquartered within the market area provides a competitive advantage over other financial institutions. The Bank has a marketing department which is responsible for the review of existing products and services and the development of new products and services. Employees - --------- As of December 31, 1995 the Corporation employed approximately 233 full-time and 55 part-time employees. Management believes that its employee relations are good. Supervision and Regulation - -------------------------- General - The business in which the Corporation and the Bank are engaged is subject to extensive supervision, regulation, and examination by various bank regulatory authorities and other agencies of federal and state government. The supervisory and regulatory activities of these authorities are often intended primarily for the protection of customers or are aimed at carrying out broad public policy goals that may not be directly related to the financial services provided by the Corporation and the Bank, nor intended for the protection of the Corporation's shareholders. Proposals to change regulations and laws which affect the banking industry are frequently raised at the federal and state level. The potential impact on the Corporation of any future revisions to the supervisory or regulatory structure cannot be determined. The Corporation and the Bank are required by various authorities to file extensive periodic reports of financial and other information and such other reports as the regulatory and supervisory authorities may require. The Corporation is also subject to the reporting and other requirements of the Securities Exchange Act of 1934. The Corporation is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). As a bank holding company, the activities of the Corporation are regulated by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The BHC Act requires that the Corporation obtain prior approval of the Federal Reserve Board to acquire control over a bank or certain nonbank entities and restricts the activities of the Corporation to those closely related to banking. Federal law also regulates transactions between the Corporation and the Bank, including loans or extensions of credit. The Bank is subject to the supervision of, and examination by, the FDIC and the State of Rhode Island. The Washington Trust Company is also subject to various Rhode Island business and banking regulations. Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) - FDICIA was enacted in December 1991 and has resulted in extensive changes to the federal banking laws. Among other things, FDICIA requires the federal banking -5- regulators to take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements. FDICIA established five capital tiers, ranging from "well-capitalized" to "critically undercapitalized." A depository institution is well-capitalized if it significantly exceeds the minimum level required by regulation for each relevant capital measure. Under FDICIA, an institution that is not well- capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. In addition, "pass through" deposit insurance coverage may not be available for certain employee benefit accounts. At December 31, 1995, the Bank's capital ratios placed it in the well-capitalized category. Another primary purpose of FDICIA was to recapitalize the Bank Insurance Fund (BIF). The FDIC adopted a risk-related premium system for the assessment period beginning January 1, 1993. Under this new system, each institution's assessment rate is based on its capital ratios in combination with a supervisory evaluation of the risk the institution poses to the BIF. Banks deemed to be well- capitalized and who pose the lowest risk to the BIF will pay the lowest assessment rates, while undercapitalized banks, who present the highest risk, will pay the highest rates. FDICIA contained other significant provisions that require the federal banking regulators to establish standards for safety and soundness for depository institutions and their holding companies in three areas: (i) operational and managerial; (ii) asset quality, earnings and stock valuation; and (iii) management compensation. The legislation also required that risk-based capital requirements contain provisions for interest rate risk, credit risk and risks of nontraditional activities. FDICIA also imposed expanded accounting and audit reporting requirements for depository institutions. In addition, FDICIA imposed numerous restrictions on state-chartered banks, including those which generally limit investments and activities to those permitted to national banks, and contains several consumer banking law provisions. The provisions of FDICIA are being phased in over several years. While final rules have been issued on most provisions, others have yet to be issued. Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 - On September 30, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was signed into law. Effective September 30, 1995, adequately capitalized bank holding companies are permitted to acquire banks in any state subject to certain concentration limits and other conditions. Also, on a phased-in basis over three years from the date of its enactment, other limitations on interstate bank mergers, consolidations and branching will be eased, subject to a state's ability to "opt in" or "opt out" of certain provisions of the law by passage of state law. In 1995, Rhode Island passed legislation to "opt in" to interstate merger and branching provisions that effectively eliminated state law barriers. Dividend Restrictions - The Corporation's revenues consist of cash dividends paid to it by the Bank. Such payments are restricted pursuant to various state and federal regulatory limitations. Reference is made to Note 16 to the Corporation's Consolidated Financial Statements included in its 1995 Annual Report to Shareholders incorporated herein by reference for additional discussion of the Corporation's ability to pay dividends. -6- Capital Guidelines - Regulatory guidelines have been established that require bank holding companies and banks to maintain minimum ratios of capital to risk- adjusted assets. Banks are required to have minimum core capital (Tier 1) of 4% and total risk-adjusted capital (Tier 1 and Tier 2) of 8%. For the Corporation, Tier 1 capital is essentially equal to shareholders' equity excluding the net unrealized gain on securities available for sale. Tier 2 capital consists of a portion of the allowance for loan losses (limited to 1.25% of total risk- weighted assets). As of December 31, 1995, net risk-weighted assets amounted to $344.9 million, the Tier 1 capital ratio was 14.08% and the total risk-based capital ratio was approximately 15.34%. The Tier 1 leverage ratio is defined as Tier 1 capital (as defined under the risk-based capital guidelines) divided by average assets (net of intangible assets and excluding the effects of accounting for securities available for sale under SFAS No. 115). The minimum leverage ratio is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk (including no undue interest rate risk), excellent asset quality, high liquidity and strong earnings. Other banking organizations are expected to have ratios of at least 4 - 5%, depending on their particular condition and growth plans. Higher capital ratios could be required if warranted by the particular circumstances or risk profile of a given banking organization. The Corporation's Tier 1 leverage ratio was 8.99% as of December 31, 1995. The Federal Reserve has not advised the Corporation of any specific minimum Tier 1 leverage capital ratio applicable to it. GUIDE 3 STATISTICAL DISCLOSURES - ------------------------------- The following tables contain additional consolidated statistical data about the Corporation and its subsidiary. I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential ------------------------------------------------------------- A. Average balance sheets are presented on page 21 of the Corporation's 1995 Annual Report to Shareholders under the caption "Average Balances/Net Interest Margin (Fully Taxable Equivalent Basis)", and are incorporated herein by reference. Nonaccrual loans are included in average loan balances. Average balances are based upon daily averages. B. An analysis of net interest earnings, including interest earned and paid, average yields and costs, and net yield on interest-earning assets is presented on page 21 of the Corporation's 1995 Annual Report to Shareholders under the caption "Average Balances/Net Interest Margin (Fully Taxable Equivalent Basis)", and is incorporated herein by reference. Interest income is reported on the fully taxable-equivalent basis. Tax exempt income is converted to a fully taxable equivalent basis by assuming a 34% marginal 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. Interest on nonaccrual loans is included in the analysis of net interest earnings to the extent that such interest income has been recognized in the Consolidated Statements of Income. See Guide 3 Item III.C.1. -7- C. An analysis of rate/volume changes in interest income and interest expense is presented on page 22 of the Corporation's 1995 Annual Report to Shareholders under the caption "Volume/Rate Analysis - Interest Income and Expense (Fully Taxable Equivalent Basis)", and is incorporated herein by reference. The net change attributable to both volume and rate has been allocated proportionately. II. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE ------------------------------------------------------------- A. The carrying amounts of securities held to maturity as of the dates indicated are presented in the following table: <TABLE> <CAPTION> December 31, 1995 1994 1993 ------------------------------------------------------------------------- <S> <C> <C> <C> U.S. Treasury obligations and obligations of U.S. government- sponsored agencies $ -- $20,413,017 $19,419,860 Mortgage-backed securities 13,947,011 21,696,508 25,401,432 States and political subdivisions 14,925,980 10,387,091 7,676,540 ---------- ---------- ---------- $28,872,991 $52,496,616 $52,497,832 ========== ========== =========== </TABLE> The carrying amounts of securities available for sale as of the dates indicated are summarized in the table below. Effective January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). The Statement requires that securities available for sale be reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of tax, until realized. Therefore, the carrying value of securities available for sale at December 31, 1995 and 1994 presented below is equal to market value. Prior to the adoption of SFAS No. 115, securities available for sale were carried at the lower of aggregate cost, adjusted for amortization of premium or accretion of discount in the case of debt securities, or market value. During the fourth quarter of 1995, the Corporation transferred a pool of debt securities with a book value of $37.1 million, consisting primarily of U.S. Treasury and government agency obligations and mortgage-backed securities, from the held-to-maturity category to the available-for-sale category. The transfer was made in response to a special report issued by the Financial Accounting Standards Board which allowed enterprises a one- time opportunity to reassess the appropriateness of their securities classifications under SFAS No. 115. -8- <TABLE> <CAPTION> December 31, 1995 1994 1993 ------------------------------------------------------------------------- <S> <C> <C> <C> U.S. Treasury obligations and obligations of U.S. government- sponsored agencies $37,877,528 $24,533,220 $25,120,650 Mortgage-backed securities 30,026,897 -- -- Corporate debt securities -- -- 1,000,000 Corporate stocks 17,647,910 9,076,095 8,143,093 ---------- ---------- ---------- $85,552,335 $33,609,315 $34,263,743 ========== ========== =========== </TABLE> B. Maturities of debt securities as of December 31, 1995 are presented in the following tables. Mortgage-backed securities are included based on their weighted average maturities, adjusted for anticipated future prepayments. Yields on tax exempt obligations were not computed on a tax equivalent basis. <TABLE> <CAPTION> Mortgage- States and backed Political Total Debt Securities Held to Maturity Securities Subdivisions Securities --------------------------- ---------- ------------ ---------- <S> <C> <C> <C> Due in 1 year or less: Amount $ 1,244,432 $ 3,488,507 $ 4,732,939 Yield 7.45% 4.20% 5.06% After 1 but within 5 years: Amount 3,588,817 8,718,416 12,307,233 Yield 7.39 4.24 5.16 After 5 but within 10 years: Amount 3,414,764 2,419,743 5,834,507 Yield 7.40 4.38 6.15 After 10 years: Amount 5,698,998 299,314 5,998,312 Yield 7.67 5.03 7.54 ---------- ---------- ---------- Totals: Amount $13,947,011 $14,925,980 $28,872,991 Yield 7.51% 4.27% 5.84% ========== ========== ========== </TABLE> -9- <TABLE> <CAPTION> Weighted Amortized Fair average Securities Available for Sale Cost Value yield ----------------------------- ---------- --------- -------- <S> <C> <C> <C> U.S. Treasury obligations and obligations of U.S. government- sponsored agencies due: In 1 year or less $ 9,513,569 $ 9,595,620 6.78% After 1 but within 5 years 27,342,389 27,519,409 5.97 After 10 years 490,738 762,499 13.02 ---------- ---------- ------ Total 37,346,696 37,877,528 6.27 ---------- ---------- ------ Mortgage-backed securities due: In 1 year or less 3,512,499 3,508,734 7.50 After 1 but within 5 years 9,619,183 9,612,547 7.50 After 5 but within 10 years 9,199,652 9,106,160 6.91 After 10 years 7,693,274 7,799,456 7.35 ---------- ---------- ------ Total 30,024,608 30,026,897 7.28 ---------- ---------- ------ Total debt securities due: In 1 year or less 13,026,068 13,104,354 6.98 After 1 but within 5 years 36,961,572 37,131,956 6.37 After 5 but within 10 years 9,199,652 9,106,160 6.91 After 10 years 8,184,012 8,561,955 7.69 ---------- ---------- ------ Total debt securities $67,371,304 $67,904,425 6.72% ========== ========== ====== </TABLE> C. Not applicable. -10- III. LOAN PORTFOLIO -------------- A. The following table sets forth the composition of the Corporation's loan portfolio for each of the past five years. Amounts for years prior to 1995 have been restated to reflect the adoption of SFAS #114. <TABLE> <CAPTION> December 31, 1995 1994 1993 1992 1991 -------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Residential real estate: Mortgages $167,510,929 $170,366,731 $153,506,179 $142,322,653 $168,505,925 Homeowner construction 3,071,177 6,933,793 6,120,171 5,124,603 4,482,367 ----------- ----------- ----------- ----------- ----------- Total residential real estate 170,582,106 177,300,524 159,626,350 147,447,256 172,988,292 ----------- ----------- ----------- ----------- ----------- Commercial: Mortgages 58,837,483 56,014,628 49,194,243 41,952,619 40,962,685 Construction and development 5,968,404 12,089,966 10,719,271 11,923,274 18,644,654 Other 96,830,889 103,334,837 103,721,694 100,013,004 97,988,349 ----------- ----------- ----------- ----------- ----------- Total commercial 161,636,776 171,439,431 163,635,208 153,888,897 157,595,688 ----------- ----------- ----------- ----------- ----------- Installment 54,240,010 45,186,245 34,100,374 32,645,643 36,720,803 ----------- ----------- ----------- ----------- ----------- $386,458,892 $393,926,200 $357,361,932 $333,981,796 $367,304,783 =========== =========== =========== =========== =========== </TABLE> B. An analysis of the maturity and interest rate sensitivity of Real Estate Construction and Other Commercial loans as of December 31, 1995 follows: Maturity analysis: <TABLE> <CAPTION> One Year One to five After five or Less Years Years Total ---------- ---------- ---------- ----------- <S> <C> <C> <C> <C> Construction and development (*) $ 4,185,017 1,713,275 3,141,289 $ 9,039,581 Commercial - other 36,439,799 41,351,186 19,039,904 96,830,889 ---------- ---------- ---------- ----------- $40,624,816 43,064,461 22,181,193 $105,870,470 ========== ========== ========== =========== <FN> (*) Includes homeowner construction and commercial construction and development. Maturities of homeowner construction loans are included based on their contractual conventional mortgage repayment terms following the completion of construction. </TABLE> Sensitivity to changes in interest rates for all such loans due after one year is as follows: <TABLE> <CAPTION> Floating or Predetermined Adjustable Rates Rates Totals ------------- ---------- ---------- <S> <C> <C> <C> Principal due after one year $ 8,259,200 $56,986,453 $65,245,654 ========== ========== ========== </TABLE> -11- C. Risk Elements Reference is made to the caption "Asset Quality" included in Management's Analysis of Financial Statements on pages 26-28 of the Corporation's 1995 Annual Report to Shareholders incorporated herein by reference. Included therein is a discussion of the Corporation's credit review and collection practices. Also included therein is information concerning nonperforming assets at December 31, 1995 and the Corporation's ongoing efforts to reduce the level of nonperforming assets. 1. Nonaccrual, Past Due and Restructured Loans. (a). Nonaccrual loans as of the dates indicated were as follows: <TABLE> <CAPTION> December 31, 1995 1994 1993 1992 1991 -------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $8,573,656 $10,911,999 $16,221,963 $21,306,840 $24,149,690 ========= ========== ========== ========== ========== </TABLE> For the years 1992 through 1995, loans, with the exception of credit card loans and certain well-secured residential mortgage loans, were placed on nonaccrual status and interest recognition was suspended when such loans were 90 days or more overdue with respect to principal and/or interest. Loans were also placed on nonaccrual status when, in the opinion of management, full collection of principal and interest was doubtful. Interest previously accrued, but not collected on such loans was reversed against current period income. Cash receipts on nonaccrual loans were recorded as interest income, or as a reduction of principal if full collection of the loan was doubtful or if impairment of the collateral was identified. Loans were removed from nonaccrual status when they had been current as to principal and interest for a period of time, the borrower had demonstrated an ability to comply with repayment terms, and when, in management's opinion, the loans were considered to be fully collectible. In years prior to 1992, commercial loans were placed on nonaccrual status and interest recognition was suspended when they were 90 days or more overdue. Residential mortgages and consumer loans were placed on nonaccrual status when, in management's judgment, the probability of collection was deemed insufficient to warrant further income recognition. For the year ended December 31, 1995, the gross interest income that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms was approximately $598,000. Interest recognized on these loans amounted to approximately $458,000. There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at December 31, 1995. -12- (b). Loans contractually past due 90 days or more and still accruing for the dates indicated were as follows: <TABLE> <CAPTION> December 31, 1995 1994 1993 1992 1991 -------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $256,276 $24,124 $22,455 $42,648 $6,064,648 ======= ====== ====== ====== ========= </TABLE> (c). Restructured accruing loans for the dates indicated were as follows: <TABLE> <CAPTION> December 31, 1995 1994 1993 1992 1991 ----------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $ --- $364,824 $ --- $1,476,000 $1,522,282 ======= ======== ========= ========= ========= </TABLE> Restructured accruing loans include those for which concessions, such as reduction of interest rates other than normal market rate adjustments or deferral of principal or interest payments, have been granted due to a borrower's financial condition. Interest on restructured loans is accrued at the reduced rate. Loans restructured during 1995 amounted to approximately $1,632,000, all of which are included in nonaccrual loans reported in Section III.C.1.(a) above. 2. Potential Problem Loans. Potential problem loans consist of certain accruing commercial loans that were less than 90 days past due at December 31, 1995, but were identified by management of the Bank as potential problem loans. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve as a result of collection efforts, while the credit quality of other loans may deteriorate, resulting in some amount of losses. These loans are not included in the analysis of nonaccrual, past due and restructured loans in III.C.1 above. At December 31, 1995, potential problem loans amounted to approximately $7.1 million. The Corporation's loan policy provides guidelines for the review of such loans in order to facilitate collection. Depending on future events, the potential problem loans referred to above, and others not currently identified, could be classified as nonperforming in the future. 3. Foreign Outstandings. None 4. Loan Concentrations. The Corporation has no concentration of loans which exceed 10% of its total loans except as disclosed by types of loan in Section III.A. D. Other Interest-Bearing Assets: None -13- IV. SUMMARY OF LOAN LOSS EXPERIENCE ------------------------------- A. The allowance for loan losses is available for future credit losses inherent in the loan portfolio. The level of the allowance is based on management's ongoing review of the growth and composition of the loan portfolio, net charge-off experience, current and expected economic conditions, and other pertinent factors. Loans (or portions thereof) deemed to be uncollectible are charged against the allowance and recoveries of amounts previously charged off are added to the allowance. Loss provisions charged to earnings are added to the allowance to bring it to the desired level. Loss experience on loans is presented in the following table for the years indicated. Amounts for years prior to 1995 have been restated to reflect the adoption of SFAS #114. Analysis of the Allowance for Loan Losses ----------------------------------------- <TABLE> <CAPTION> December 31, 1995 1994 1993 1992 1991 -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance at beginning of year $9,327,942 $9,089,775 $7,872,351 $6,474,272 $8,487,196 Charge-offs (domestic): Residential: Mortgages 301,182 158,526 203,472 260,848 331,130 Homeowner construction -- -- -- -- -- Commercial: Mortgages 795,858 405,624 927,720 24,154 2,097,532 Construction and development 526,224 9,250 -- 114,315 1,312,452 Other 1,451,066 512,020 374,424 2,522,916 2,928,730 Installment 341,737 250,840 378,575 494,756 771,705 --------- --------- --------- --------- --------- Total charge-offs 3,416,067 1,336,260 1,884,191 3,416,989 7,441,549 --------- --------- --------- --------- --------- Recoveries (domestic): Residential: Mortgages 114,083 21,329 2,278 -- 272 Homeowner construction -- -- -- -- -- Commercial: Mortgages 13,384 21,830 84,351 200 -- Construction and development -- 10,948 20,756 29,424 100,997 Other 217,078 188,722 174,976 192,844 23,981 Installment 128,096 74,686 44,847 62,524 103,375 --------- --------- --------- --------- --------- Total recoveries 472,641 317,515 327,208 284,992 228,625 --------- --------- --------- --------- --------- Net charge-offs 2,943,426 1,018,745 1,556,983 3,131,997 7,212,924 Additions charged to earnings 1,400,000 1,256,912 2,774,407 4,530,076 5,200,000 --------- --------- --------- --------- --------- Balance at end of period $7,784,516 $9,327,942 $9,089,775 $7,872,351 $6,474,272 ========= ========= ========= ========= ========= Net charge-offs to average loans .75% .27% .45% .87% 1.93% ======== ========= ========= ========= ========= </TABLE> -14- B. The following table presents the allocation of the allowance for loan losses. Amounts for years prior to 1995 have been restated to reflect the adoption of SFAS #114. <TABLE> <CAPTION> December 31, 1995 1994 1993 1992 1991 -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Residential: Mortgages $1,066,281 1,134,916 1,136,341 1,132,855 1,225,000 % of these loans to all loans 43.4% 43.2% 43.0% 42.6% 45.9% Homeowner construction 19,412 44,047 33,661 35,222 -- % of these loans to all loans .8% 1.8% 1.7% 1.5% 1.2% Commercial: Mortgages 1,640,176 1,364,993 1,246,070 1,253,447 1,305,509 % of these loans to all loans 15.2% 14.2% 13.8% 12.6% 11.1% Construction and development 133,754 275,681 150,110 247,535 494,694 % of these loans to all loans 1.5% 3.1% 3.0% 3.6% 5.1% Other 2,245,789 2,870,242 2,890,785 2,899,120 2,453,753 % of these loans to all loans 25.1% 26.2% 29.0% 29.9% 26.7% Installment 911,069 862,323 561,177 694,390 726,000 % of these loans to all loans 14.0% 11.5% 9.5% 9.8% 10.0% Unallocated 1,768,035 2,775,740 3,071,631 1,609,782 269,316 --------- --------- --------- --------- --------- $7,784,516 9,327,942 9,089,775 7,872,351 6,474,272 100.0% 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ========= ========= </TABLE> V. DEPOSITS -------- A. Average deposit balances outstanding and the average rates paid thereon are presented in the following table: <TABLE> <CAPTION> 1995 1994 1993 --------------------- -------------------- -------------------- Average Average Average Average Average Average Amount Rate Paid Amount Rate Paid Amount Rate Paid ----------- --------- ---------- --------- ---------- --------- <S> <C> <C> <C> <C> <C> <C> Demand deposits $ 55,189,000 -- 49,369,000 -- 40,097,000 -- Savings deposits: Regular 92,739,000 2.69% 98,851,000 2.70% 79,567,000 2.83% NOW accounts 55,831,000 1.39% 57,834,000 1.36% 58,930,000 1.84% Money market accounts 30,096,000 2.23% 40,101,000 2.17% 59,473,000 2.74% ----------- ----------- ----------- Total savings 178,666,000 2.21% 196,786,000 2.20% 197,970,000 2.51% Time deposits 224,169,000 5.25% 183,950,000 4.30% 176,148,000 4.60% ----------- ----------- ----------- Total deposits $458,024,000 430,105,000 414,215,000 =========== =========== =========== </TABLE> -15- B. Not Applicable C. Not Applicable D. The maturity schedule of time deposits in amounts of $100,000 or more at December 31, 1995 was as follows: <TABLE> <CAPTION> Over 3 Over 6 3 months through through Over 12 or less 6 months 12 months months Total ---------- --------- --------- --------- ---------- <S> <C> <C> <C> <C> <C> Time remaining until maturity: $15,257,004 2,873,657 7,174,196 3,644,067 28,948,924 ========== ========= ========= ========= ========== </TABLE> E. Not applicable VI. RETURN ON EQUITY AND ASSETS --------------------------- <TABLE> <CAPTION> 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> Return on average assets 1.44% 1.25% 1.01% Return on average shareholders' equity 15.47% 14.11% 12.92% Dividend payout ratio 33.97% 33.02% 34.30% Average equity to average total assets 9.31% 8.84% 7.81% </TABLE> VII. SHORT-TERM BORROWINGS --------------------- The average balance of short-term borrowings during the reported periods was less than 30% of shareholders' equity at the end of each reported period. ITEM 2. PROPERTIES - ------------------ As of December 31, 1995 the Corporation was operating six facilities including its main office located in Westerly, Rhode Island and five branch banking facilities located in Westerly, Charlestown, Narragansett, Richmond and Block Island, Rhode Island. All sites are owned, except for the Block Island branch facility, which is leased. The main office premises, containing the corporate offices and a banking facility, consists of a five story building and an adjacent two story building. The buildings, which are connected, contain approximately 50,000 square feet of space, 42,000 square feet of which is occupied by the Corporation. The remaining space is leased to merchant and professional tenants under short-term lease arrangements and could be used for expansion of the Corporation's offices. The main office location also contains a three level retail parking garage with 80,000 square feet of space. The Corporation has made a substantial investment in its branch office facilities. The Charlestown banking office opened in 1988 in a newly constructed facility. The Narragansett banking office began operations in June -16- 1989 in a building which had been acquired in 1988 and was completely renovated. A major renovation and expansion of the Richmond banking office was completed in January of 1990. The Richmond site also contains a separate building operated as a restaurant by a restaurant chain under a long-term lease. In 1996, the Corporation plans to expand its existing Trust and Investment department facility and construct a new branch office in North Kingstown, Rhode Island. The total cost of these projects is expected to be approximately $4 million. These facilities expansion plans, along with existing structures, are adequate to meet the Corporation's facilities needs in the forseeable future. ITEM 3. LEGAL PROCEEDINGS - ------------------------- Neither the Corporation nor its subsidiary is a party to any material pending legal proceedings, other than routine litigation incidental to their business activities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1995. -17- EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ The following is a list of all executive officers of the Corporation and the Bank with their titles, ages, and length of service with the Corporation. Years of Officers of the Corporation Age service (1) - --------------------------- --- ---------- Joseph J. Kirby Chief Executive Officer 64 33 John C. Warren President and Chief Operating 50 0 Officer Joseph H. Potter Executive Vice President 62 37 David V. Devault, CPA Vice President and Chief Financial Officer 41 9 Louis J. Luzzi Vice President and Treasurer 54 35 Harvey C. Perry, II Vice President and Secretary 45 21 (1) Includes years of service with the Bank. Joseph H. Potter and Louis J. Luzzi are first cousins. Joseph J. Kirby joined the Bank in 1963 as an Investment Officer. He was elected Vice President and Investment Officer in 1965 and Executive Vice President in 1972. He was elected President in 1982 and was named Chief Executive Officer in February, 1996. John C. Warren joined the Bank and the Corporation in 1996 as President and Chief Operating Officer. He served as President and Chief Executive Officer of Sterling Bancshares Corporation from 1990 to 1994 and as Chairman from 1993 to 1994. Joseph H. Potter joined the Bank in 1958 and was elected Secretary in 1967. He was elected Vice President and Secretary in 1973 and Executive Vice President in 1982. David V. Devault joined the Bank in 1986 as Controller. He was elected Vice President and Chief Financial Officer of the Corporation and the Bank in 1987. He was elected Senior Vice President and Chief Financial Officer of the Bank in 1990. Prior to joining the Bank he was a Senior Manager with the firm of KPMG Peat Marwick LLP. Louis J. Luzzi joined the Bank in 1960 and was elected Assistant Vice President in 1969. He was elected Vice President in 1979 and Vice President and Treasurer in 1983. Harvey C. Perry, II joined the Bank in 1974 and was elected Assistant Trust Officer in 1977, Trust Officer in 1981 and Secretary and Trust Officer in 1982. He was elected Vice President and Secretary of the Corporation and the Bank in 1984, and Senior Vice President and Secretary of the Bank in 1990. -18- Years Officers of the Bank Age of service - -------------------- --- ---------- Vernon F. Bliven Senior Vice President - 46 23 Human Resources Robert G. Cocks, Jr. Senior Vice President - Lending 51 3 Louis W. Gingerella, Jr. Senior Vice President - 43 5 Credit Administration B. Michael Rauh, Jr. Senior Vice President - 36 4 Retail Banking Vernon F. Bliven joined the Bank in 1972 and was elected Assistant Vice President in 1980, Vice President in 1986 and Senior Vice President - Human Resources in 1993. Robert G. Cocks, Jr. joined the Bank in 1992 as Senior Vice President - Lending. Prior to joining the Bank he served as Executive Vice President at Bay Bank South from 1987 to 1991. From 1991 to 1992 he worked as an independent consultant. Louis W. Gingerella, Jr. joined the Bank in 1990 as Vice President - Credit Administration. He was elected Senior Vice President - Credit Administration in 1992. Prior to joining the Bank he held the position of Senior Vice President with Bank of New England since 1988. B. Michael Rauh, Jr. joined the Bank in 1991 as Vice President - Marketing and was promoted in 1993 to Senior Vice President - Retail Banking. Prior to joining the Bank he was Executive Vice President with the advertising agency of Chaffee & Partners since 1989. -19- PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------- The Corporation's common stock has traded on the NASDAQ Small-Cap Market since June 19, 1992. Previously, the Corporation's common stock had been listed on the NASDAQ Over-The-Counter Market system since June 1987. The quarterly common stock price ranges and dividends paid per share for the years ended December 31, 1995 and 1994 are presented in the following table. The stock prices are based on the high and low sales prices during the respective quarter. Stock price and dividend amounts for the first and second quarters of 1994 have been restated to reflect a 3-for-2 stock split paid in the form of a stock dividend on August 31, 1994. <TABLE> <CAPTION> 1995 Quarters 1 2 3 4 - -------------------------------------------------------------------- <S> <C> <C> <C> <C> Stock prices: high 22.50 27.50 28.00 30.00 low 19.00 20.50 26.00 26.00 Cash dividend declared .22 .22 .24 .24 <CAPTION> 1994 Quarters 1 2 3 4 - -------------------------------------------------------------------- <S> <C> <C> <C> <C> Stock prices: high 19.17 22.50 24.00 24.00 low 16.67 17.67 21.33 19.75 Cash dividend declared .16 .17 .20 .20 </TABLE> The Corporation will continue to review future common stock dividends based on profitability, financial resources and economic conditions. The Corporation has recorded consecutive quarterly dividends for over one hundred years. On March 21, 1996, the Corporation's Board of Directors declared a cash dividend of $.26 per share, an increase of 8.3% over the previous dividend amount. The dividend is payable April 15, 1996 to shareholders of record as of April 1, 1996. The Corporation's primary source of funds for dividends paid to shareholders is the receipt of dividends from the Bank. A discussion of the restrictions on the advance of funds or payment of dividends to the Corporation is included in Note 16 to the Consolidated Financial Statements included in the 1995 Annual Report to Shareholders which is incorporated herein by reference. At December 31, 1995 there were 1,257 holders of record of the Corporation's common stock. -20- ITEM 6. SELECTED FINANCIAL DATA - ------------------------------- Selected consolidated financial data for the five years ended December 31, 1995 appears under the caption "Five Year Summary of Selected Consolidated Financial Data" on page 18 of the Corporation's 1995 Annual Report to Shareholders which is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- The information required by this Item appears under the caption "Management's Analysis of Financial Statements" on pages 19-32 of the Corporation's 1995 Annual Report to Shareholders which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - --------------------------------------------------- The financial statements and supplementary data are contained in the Corporation's 1995 Annual Report to Shareholders, filed as Exhibit 13, on the pages indicated in the following table, and are incorporated herein by reference. Page of 1995 Annual Report ------------- Consolidated Balance Sheets 33 Consolidated Statements of Income 34 Consolidated Statements of Changes in Shareholders' Equity 35 Consolidated Statements of Cash Flows 36 Notes to Consolidated Financial Statements 37 Parent Company Financial Statements 53 Independent Auditors' Report 55 Summary of Unaudited Quarterly Financial Information 56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ---------------------------------------------------------- None. -21- PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------------------------------- Required information regarding directors is presented under the caption "Nominee and Director Information" in the Corporation's Proxy Statement dated March 18, 1996 prepared for the 1996 Annual Meeting of Shareholders and incorporated herein by reference. Required information regarding executive officer of the Corporation is included in Part I under the caption "Executive Officers of the Registrant". Information required with respect to compliance with Section 16(a) of the Exchange Act appears under the caption "Compliance with Section 16(a) of the Exchange Act" in the Corporation's Proxy Statement dated March 18, 1996 prepared for the 1996 Annual Meeting of Shareholders which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - ------------------------------- The information required by this Item appears under the caption "Compensation of Directors and Executive Officers - Executive Compensation" in the Corporation's Proxy Statement dated March 18, 1996 prepared for the 1996 Annual Meeting of Shareholders which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------- The information required by this Item appears under the caption "Nominee and Director Information" in the Corporation's Proxy Statement dated March 18, 1996 prepared for the 1996 Annual Meeting of Shareholders which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- The information required by this Item is incorporated herein by reference to the caption "Indebtedness and Other Transactions" of the Corporation's Proxy Statement dated March 18, 1996 prepared for the 1996 Annual Meeting of Shareholders. -22- PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------ (a) 1. The financial statements of Washington Trust Bancorp, Inc. required in response to this Item are listed in response to Item 8 of this Report and are incorporated herein by reference. 2. Financial Statement Schedules. All schedules normally required by Article 9 of Regulation S-K and all other schedules to the consolidated financial statements of the Corporation have been omitted because the required information is either not required, not applicable, or is included in the consolidated financial statements or notes thereto. (b) No reports on Form 8-K have been filed during the fourth quarter of the year ended December 31, 1995. (c) Exhibit Index. Exhibit Number -------------- 3.(i) Restated articles of incorporation **** 3.(ii) By-laws of the Corporation ** * 10.1 Supplemental Pension Benefit and Profit Sharing Plan **** * 10.2 Outside Director's Retainer Continuation Plan **** * 10.3 Plan for Deferral of Director's Fees **** * 10.4 Amended and Restated 1988 Stock Option Plan **** * 10.5 Short Term Incentive Plan *** 11 Computation of Earnings per share 13 1995 Annual Report to Shareholders 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors * Management contract or compensatory plan or arrangement. ** Incorporated herein by reference to Exhibit 3 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, previously filed with the Commission. *** Incorporated herein by reference to Exhibit 10 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993, previously filed with the Commission. **** Incorporated herein by reference to Exhibits 3(i), 10.1, 10.2, 10.3 and 10.4 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, previously filed with the Commission. (d) Financial Statement Schedules. None. -23- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) March 21, 1996 Joseph J. Kirby Date ________________ By ______________________________________ Joseph J. Kirby, Chairman, Chief Executive Officer and Director March 21, 1996 David V. Devault Date ________________ By ______________________________________ David V. Devault, Vice President, Chief Financial Officer and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 21, 1996 Gary P. Bennett Date ________________ ______________________________________ Gary P. Bennett, Director March 21, 1996 Steven J. Crandall Date ________________ ______________________________________ Steven J. Crandall, Director March 21, 1996 Richard A. Grills Date ________________ ______________________________________ Richard A. Grills, Director March 21, 1996 Larry J. Hirsch Date ________________ ______________________________________ Larry J. Hirsch, Director March 21, 1996 Katherine W. Hoxsie Date ________________ ______________________________________ Katherine W. Hoxsie, Director March 21, 1996 Mary E. Kennard Date ________________ ______________________________________ Mary E. Kennard, Director March 21, 1996 James W. McCormick, Jr. Date ________________ ______________________________________ James W. McCormick, Jr., Director March 21, 1996 Brendan P. O'Donnell Date ________________ ______________________________________ Brendan P. O'Donnell, Director March 21, 1996 Victor J. Orsinger Date ________________ ______________________________________ Victor J. Orsinger, II, Director March 21, 1996 Joseph H. Potter Date ________________ ______________________________________ Joseph H. Potter, Executive Vice President and Director March 21, 1996 Anthony J. Rose, Jr. Date ________________ ______________________________________ Anthony J. Rose, Jr., Director March 21, 1996 James P. Sullivan Date ________________ ______________________________________ James P. Sullivan, Director March 21, 1996 Neil H. Thorp Date ________________ ______________________________________ Neil H. Thorp, Director March 21, 1996 John C. Warren Date ________________ ______________________________________ John C. Warren, President, Chief Operating Officer and Director -25-