FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission file number 0-25076
Washington Bancorp
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1446740
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 East Main Street, Washington, Iowa 52353
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (319)653-7256
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange act of 1934 during the past 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. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $.01 par value 555,834 shares outstanding as of May 10, 2000
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition
at March 31, 2000 (unaudited) and June 30, 1999
Unaudited Consolidated Statements of Income for the three
months ended March 31, 2000 and 1999 and for the nine months
ended March 31, 2000 and 1999
Unaudited Consolidated Statements of Comprehensive Income for
the three months ended March 31, 2000 and 1999 and for the
nine months ended March 31, 2000 and 1999
Unaudited Consolidated Statements of Cash Flows for the nine
months ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Signatures
Exhibits
Item 1. Consolidated Financial Statements
Washington Bancorp and Subsidiaries
March 31, June 30,
2000 1999*
-----------------------------
(Unaudited)
ASSETS
Cash and cash equivalents:
Interest-bearing $ 1,556,373 $ 901,346
Noninterest-bearing 1,133,022 1,656,084
Investment securities:
Held to maturity 973,916 760,520
Available for sale 23,800,842 20,695,366
Fed funds, sold - - 1,340,000
Loans receivable, net of allowance for
loan losses of $503,344 in March 2000
and $472,187 in June 1999 81,181,923 72,779,177
Accrued interest receivable 1,240,798 1,190,600
Federal Home Loan Bank stock 1,490,150 860,000
Foreclosed real estate 269,832 235,914
Premises and equipment, net 832,102 874,551
Goodwill, net 1,209,604 1,280,526
Other assets 656,692 409,996
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Total assets $114,345,254 $102,984,080
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 3,179,191 $ 2,596,143
Interest-bearing 70,430,006 73,093,323
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Total deposits 73,609,197 75,689,466
Borrowed funds 28,910,480 15,706,290
Advances from borrowers for taxes and
insurance 111,147 223,033
Accrued expenses and other liabilities 769,653 464,638
-----------------------------
Total liabilities 103,400,477 92,083,427
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Redeemable common stock held by ESOP 224,304 189,972
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Stockholders' Equity:
Preferred stock - - - -
Common stock 6,511 6,511
Additional paid-in capital 6,165,687 6,150,310
Retained earnings 7,104,221 6,384,863
Unrealized loss on securities (499,676) (235,778)
Treasury shares (1,459,645) (946,435)
Deferred compensation (27,314) (79,098)
Maximum cash obligation ESOP (224,304) (189,972)
Unearned ESOP shares (345,007) (379,720)
-----------------------------
Total stockholders' equity 10,720,473 10,710,681
-----------------------------
Total liabilities and stock-
holders' equity $114,345,254 $102,984,080
=============================
* Condensed from audited financial statements.
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Income
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
----------------------- -----------------------
Interest income:
Loans receivable:
First mortgage loans ...................... $1,088,641 $ 937,944 $3,182,342 $2,948,121
Consumer and other loans .................. 590,747 486,893 1,731,538 1,463,305
Investment securities:
Taxable ................................... 398,742 361,647 1,108,571 1,048,014
Non-taxable ............................... 19,583 19,641 50,652 61,088
Total interest income ................ 2,097,713 1,806,125 6,073,103 5,520,528
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Interest expense:
Deposits ...................................... 814,716 853,990 2,499,256 2,560,475
Borrowed funds ................................ 378,005 211,363 921,810 666,717
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Total interest expense ............... 1,192,721 1,065,353 3,421,066 3,227,192
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Net interest income .................. 904,992 740,772 2,652,037 2,293,336
Provision for loan losses .......................... 31,000 18,000 70,500 74,000
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Net interest income after
provision for loan losses .......... 873,992 722,772 2,581,537 2,219,336
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Noninterest income:
Security gains, net ........................... - - 3,961 - - 15,205
Loan origination and commitment fees .......... 684 2,792 4,700 6,155
Service charges and fees ...................... 91,735 62,944 276,653 207,968
Insurance commisions .......................... 26,546 15,782 52,596 37,554
Investment center ............................. 12,205 - - 18,621 - -
Other ......................................... 478 8,615 23,682 18,949
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Total noninterest income ............. 131,648 94,094 376,252 285,831
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Noninterest expense:
Compensation and benefits ..................... 285,644 320,140 869,883 900,259
Occupancy and equipment ....................... 55,172 56,850 167,331 170,403
SAIF/BIF deposit insurance premium ............ 15,638 14,292 46,144 43,473
Data processing ............................... 27,723 22,989 76,018 65,805
Goodwill ...................................... 23,640 23,640 70,921 70,921
Other ......................................... 136,346 141,187 437,639 426,510
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Total noninterest expense ............ 544,163 579,098 1,667,936 1,677,371
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Income before income taxes ........... 461,477 237,768 1,289,853 827,796
Income tax expense ................................. 176,199 84,619 503,299 307,059
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Net income ........................... $ 285,278 $ 153,149 $ 786,554 $ 520,737
=================================================
Earnings per common share
Basic ......................................... $ 0.53 $ 0.27 $ 1.42 $ 0.92
=================================================
Diluted ....................................... $ 0.52 $ 0.27 $ 1.39 $ 0.90
=================================================
Dividends per common share ......................... $ - - $ 0.12 $ 0.12 $ 0.36
=================================================
Weighted average common shares for:
Basic earnings per share ...................... 541,763 560,073 554,715 563,817
=================================================
Diluted earnings per share .................... 548,549 573,926 563,894 578,744
=================================================
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---------------------- ---------------------
Net income ....................................... $ 285,278 $ 153,149 $ 786,554 $ 520,737
Gross unrealized (losses) on
securities available for sale ............... (77,040) (65,559) (421,938) (24,355)
Less reclassification adjustments for
gains included in net income ................ - - (3,961) - - (15,315)
Income tax expense related to items
of other comprehensive income ............... 28,642 26,320 158,040 14,877
---------------------- ---------------------
Comprehensive income ............................. $ 236,880 $ 109,949 $ 522,656 $ 495,944
====================== =====================
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2000 and 1999
2000 1999
--------------------------
Cash Flows From Operating Activities:
Net income $ 786,554 $ 520,737
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums and discouns
on debt securities 24,190 (51,599)
Amortization of goodwill 70,921 70,921
Provision for loan losses 70,500 74,000
(Gain) on sale of investments - - (15,205)
(Gain) on sale of foreclosed real estate (7,606) (9,899)
Depreciation 68,498 55,450
Compensation under stock awards 22,615 46,524
ESOP contribution expense 47,909 55,937
Deferred income tax 14,000 (76,153)
(Increase) in accrued interest receivable (50,198) (118,576)
(Increase) decrease in other assets 52,713 (103,158)
Increase in accrued expenses and other
liabilities 149,648 14,187
-------------------------
Net cash provided by operating activities 1,249,744 463,166
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Cash Flows From Investing Activities
Held to maturity securities:
Purchases (215,000) - -
Available for sale securities:
Sales - - 1,800,000
Maturities and calls 1,350,000 20,050,432
Purchases (4,900,000) (23,660,000)
Federal funds sold, net 1,340,000 (2,923,186)
Purchases of Federal Home Loan Bank stock (630,150) (47,600)
Loans made to customers, net (8,499,558) (4,642,706)
Sale of premises and equipment 17,578 - -
Purchase of premises and equipment (43,627) (151,133)
--------------------------
Net cash (used in) investing activities (11,580,757) (9,574,193)
--------------------------
Cash Flows From Financing Activities
Net increase (decrease) in deposits (2,080,269) 11,076,487
Proceeds from Federal Home Loan Bank
advances 304,400,000 6,250,000
Principal payments on Federal Home Loan Bank
advances (291,195,810) (6,954,423)
Net increase (decrease) in advances from
borrowers for taxes and insurance (111,886) (111,320)
Acquisition of common stock (481,860) (684,125)
Dividends paid (67,197) (204,502)
--------------------------
$10,462,978 $ 9,372,117
--------------------------
Net increase in cash and cash equivalents 131,965 261,090
Cash and cash equivalents:
Beginning 2,557,430 3,306,374
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Ending $ 2,689,395 $ 3,567,464
==========================
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest paid to depositors $ 2,105,351 $ 2,169,304
Interest paid on other obligations 909,495 666,717
Income taxes, net of refunds 313,780 334,312
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfers from loans to foreclosed real
estate $ 114,811 $ 360,667
Contract sales of foreclosed real estate 75,250 173,233
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Notes to Consolidated Financial Statements
Principles of consolidation. The accompanying consolidated financial statements
include the accounts of Washington Bancorp, Washington Federal Savings Bank
("Washington Federal"), Washington Federal's wholly-owned subsidiary, Washington
Financial Services, Inc., which is a discount brokerage firm, and Rubio Savings
Bank of Brighton, Iowa ("Rubio Savings Bank"). All significant intercompany
balances and transactions have been eliminated in consolidation.
Basis of presentation. Interim Financial Information (unaudited): The financial
statements and notes related thereto for the three month period ended March 31,
2000 and for the nine month period ended March 31, 2000, are unaudited, but in
the opinion of management include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations. The operating results for the interim
periods are not indicative of the operating results to be expected for a full
year or for other interim periods. Not all disclosures required by generally
accepted accounting principles necessary for a complete presentation have been
included. It is recommended that these consolidated condensed financial
statements be read in conjunction with the Annual Report on Form 10-KSB for the
year ended June 30, 1999 and all related amendments and exhibits (including all
financial statements and notes therein), filed by the Company with the
Securities and Exchange Commission.
Goodwill. Goodwill resulting from the Company's acquisition of Rubio Savings
Bank is being amortized by the straight-line method over 15 years. Goodwill is
periodically reviewed for impairment based upon an assessment of future
operations to ensure that it is appropriately valued.
Redeemable common stock held by ESOP. The Company=s maximum cash obligation
related to these shares is classified outside stockholders= equity because the
shares are not readily traded and could be put to the Company for cash. The
maximum cash obligation represents the approximate market value of the allocated
ESOP shares at the end of the reporting period.
Regulatory capital requirements. Pursuant to the Financial Information Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), savings institutions must meet
three separate minimum capital-to-asset requirements. The following table
summarizes, as of March 31, 2000 the capital requirements of Washington Federal
under FIRREA and its actual capital ratios. As of March 31, 2000 Washington
Federal exceeded all current regulatory capital requirement standards.
At March 31, 2000
-----------------------
Amount Percent
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(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level ............... $7,227 7.89%
Requirement ................. 1,374 1.50%
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Excess ...................... $5,853 6.39%
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Core Capital:
Capital Level ............... $7,227 7.89%
Requirement ................. 3,664 4.00%
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Excess ...................... $3,563 3.89%
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Risk-Based Capital:
Capital Level ............... $7,607 12.26%
Requirement ................. 4,964 8.00%
-----------------------
Excess ...................... $2,643 4.26%
-----------------------
The following table summarizes the capital requirements of Rubio Savings Bank of
Brighton. As of March 31, 2000 Rubio Savings Bank substantially exceeded all
current regulatory capital requirement standards.
At March 31, 2000
----------------------
Amount Percent
----------------------
(Dollars in thousands)
(unaudited)
Tier 1 or Leverage Capital:
Capital Level .................. $2,376 10.47%
Requirement .................... 681 3.00%
----------------------
Excess ......................... $1,695 7.47%
----------------------
Tier 1 Risk-based Capital:
Capital Level .................. $2,376 16.55%
Requirement .................... 574 4.00%
----------------------
Excess ......................... $1,802 12.55%
----------------------
Risk-Based Capital:
Capital Level .................. $2,478 17.26%
Requirement .................... 1,149 8.00%
----------------------
Excess ......................... $1,329 9.26%
----------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
When used in this Form 10-QSB or future filings by Washington Bancorp
with the Securities and Exchange Commission, in Washington Bancorp's press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," "believe," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Washington Bancorp wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made, and to advise readers that various
factors, including regional and national economic conditions, changes in levels
of market interest rates, credit risks of lending activities, and competitive
and regulatory factors, could affect Washington Bancorp's financial performance
and could cause Washington Bancorp's actual results for future periods to differ
materially from those anticipated or projected.
Washington Bancorp does not undertake, and specifically disclaims any
obligations, to revise any forward-looking statements to reflect the occurrence
of anticipated or unanticipated events or circumstances after the date of such
statements.
General
Washington Bancorp is an Iowa corporation which was organized in
October 1995 by Washington Federal Savings Bank for the purpose of becoming a
savings and loan holding company. Washington Federal is a federally chartered
savings bank headquartered in Washington, Iowa. Originally chartered in 1934,
Washington Federal converted to a federal savings bank in 1994. Its deposits are
insured up to the applicable limits by the FDIC.
In March 1996, Washington Federal converted to the stock form of
organization through the sale and issuance of its common stock to Washington
Bancorp. On June 24, 1997, Washington Bancorp entered into a merger agreement to
acquire Rubio Savings Bank of Brighton, Iowa. Rubio Savings Bank is held as a
separate subsidiary of Washington Bancorp. In January 1998, Washington Bancorp
became a bank holding company upon the completion of its acquisition of Rubio
Savings Bank. In December 1998, Wellman Federal Savings, a full-service branch
of Washington Federal was opened in Wellman, Iowa. In July 1999, Washington
Federal formed a collaborative relationship with Eagle One Financial Services,
LLC, to provide financial planning services and the sale of annuities, mutual
funds, stocks and bonds. The principal assets of Washington Bancorp are
Washington Federal and Rubio Savings Bank. Washington Bancorp presently has no
separate operations and its business consists primarily of the business of the
Banks. All references to Washington Bancorp, unless otherwise indicated at or
before March 11, 1996 refer to Washington Federal.
The Company is investigating the possibility of de-registering the
stock in an effort to reduce expenses. In order to de-register from NASDAQ the
Company must first receive permission from the SEC to de-list the company. These
efforts will be achievable when there are fewer than 300 record holders. The
Company's shares trade infrequently and are widely held in the local area of
Washington, Iowa. Therefore no negative impact for the liquidity of the shares
is expected.
Washington Federal attracts deposits from the general public in its
local market area and uses such deposits primarily to invest in owner occupied
one- to -four family residential loans secured by owner occupied properties and
non-residential properties, as well as construction loans on such properties.
Washington Federal also invests in federal agency bonds, corporate bonds,
agricultural loans, commercial loans, consumer loans, and automobile loans.
Washington Federal filed an application with the Office of Thrift
Supervision (the "OTS") on August 19, 1998 to branch into Richland, Iowa, a
small rural community of 500, which currently has a branch of a large regional
bank. The branch application approval has been extended by the OTS until October
1, 2000. Washington Federal plans to open the branch office on September 1,
2000.
Rubio Savings Bank attracts deposits from the general public in its
local market area and the businesses in the Brighton area. The deposits are
primarily invested in federal agency bonds, corporate bonds, agricultural
operating loans, commercial loans, one- to- four family residential real estate
loans, and farm real estate loans. Rubio Savings Bank also makes commercial real
estate loans, automobile loans and consumer loans.
In addition to the earnings per share ("EPS") information typically
disclosed, the Company provided "tangible" EPS as an alternative measure for
evaluating the Company's ability to grow its tangible capital. The Company's
tangible EPS is calculated by dividing the total of goodwill expense plus net
income by the weighted average number of diluted common shares outstanding. For
the three months ended March 31, 2000 the tangible EPS was $0.56 compared to
$0.31 for the three months ended March 31, 1999. For the nine months ended March
31, 2000 the tangible EPS was $1.52 compared to $1.02 for the nine months ended
March 31, 1999.
The executive office of the Company is located at 102 East Main Street,
Washington, Iowa 52353, telephone (319)653-7256.
Financial Condition
Total assets. Total consolidated assets increased $11.3 million from $103.0
million at June 30, 1999 to $114.3 million at March 31, 2000. The increase was
primarily due to a $8.4 million increase in loans receivable, a $3.3 million
increase in investment securities, a $630,000 increase in Federal Home Loan Bank
stock, a $247,000 increase in other assets, a $129,000 increase in cash and cash
equivalents, a $50,000 increase in accrued interest receivable, and a $34,000
increase in foreclosed real estate partially offset by a $1.3 million decrease
in fed funds, sold , a $71,000 decrease in goodwill, net, and a $42,000 decrease
in premises and equipment. The increase was primarily funded by a $13.2 million
increase in borrowed funds partially offset by a $2.1 million decrease in
deposits.
Loans receivable. Loans receivable, net, increased $8.4 million from $72.8
million at June 30, 1999 to $81.2 million at March 31, 2000. This increase is
primarily due to increased loan demand in Washington Bancorp=s market area.
Washington Bancorp's non-performing assets were $810,000 or 0.71% of total
assets at March 31, 2000 as compared to $326,000 or 0.32% of total assets at
June 30, 1999. Non-performing assets have increased primarily due to the
acquisition of two real estate properties in-lieu of foreclosure. The Company is
in the process of liquidating the assets and no loss is expected.
Investment securities. Investment securities available-for-sale increased $3.1
million from $20.7 million at June 30, 1999 to $23.8 million at March 31, 2000.
Securities classified as held to maturity increased $213,000 from $761,000 at
June 30, 1999 to $974,000 at March 31, 2000. The portfolio of available-for-sale
securities is comprised primarily of investment securities carrying fixed
interest rates. The fair value of these securities is subject to changes in
interest rates. The fair value of these securities was less on March 31, 2000
than their carrying value due to an increase in market rates of interest since
the purchase date of the securities. Therefore, the total balance of available
for sale securities includes the gross effect of the unrealized loss.
Deposits. Deposits decreased $2.1 million from $75.7 million at June 30, 1999 to
$73.6 million at March 31, 2000. This decrease is primarily due to the
competitive pricing of certificate of deposit products and other investment
products available in our market area. Transaction and savings deposits
increased as a percentage of total deposits from $25.7 million or 34.0% at June
30, 1999 to $26.9 million or 36.6% at March 31, 2000. Certificates of deposit
decreased as a percentage of total deposits from $50.0 million or 66.0% at June
30, 1999 to $46.7 million or 63.4% at March 31, 2000.
FHLB borrowings. The total principal balance of advances from the Federal Home
Loan Bank of Des Moines (FHLB) increased $13.2 million from $15.7 million at
June 30, 1999 to $28.9 million at March 31, 2000. The increase is primarily due
to the increased need to borrow to fund loan growth activity and investment
activity. Washington Federal has utilized the FHLB advances for this growth in
an effort to control its cost of funds. The portfolio of borrowings contains
both long and short term borrowings.
Advances from borrowers for taxes and insurance. The total balance in advances
from borrowers for taxes and insurance decreased $112,000 from $223,000 at June
30, 1999 to $111,000 at March 31, 2000 primarily due to the payment of
semi-annual real estate taxes which were due March 31, 2000.
Total stockholders' equity. Total stockholders' equity increased $10,000 from
$10.7 million at June 30, 1999 to $10.7 million at March 31, 2000. The increase
is primarily due to net income of $787,000, the allocation of shares in the ESOP
of $48,000, and the amortization of deferred compensation under the Recognition
and Retention Plan of $23,000, partially offset by the purchase of 35,810 shares
of the Company's common stock at a total cost of $482,000, the net unrealized
loss in available- for- sale securities of $264,000, dividends paid of $67,000,
and the change in redeemable common stock held by the ESOP of $34,000.
Results of Operations - Three Months Ended March 31, 2000 As Compared To
The Three Months Ended March 31, 1999
Performance summary. Net income increased $132,000 to $285,000 for the three
months ended March 31, 2000 from $153,000 for the three months ended March 31,
1999. The increase is primarily due to an increase in interest income of
$291,000, an increase in noninterest income of $38,000, a decrease in
noninterest expense of $35,000 which was partially offset by an increase in
interest expense of $127,000, an increase in income tax expense of $92,000, and
an increase in provision for loan losses of $13,000. For the three months ended
March 31, 2000, the annualized return on average assets was 1.03% as compared to
0.60% for the three months ended March 31, 1999. The annualized return on
average equity was 10.62% for the three months ended March 31, 2000, as compared
to 5.77% for the three months ended March 31, 1999.
Net interest income. Net interest income increased $164,000 to $905,000 for the
three months ended March 31, 2000 from $741,000 for the three months ended March
31, 1999. The increase is primarily due to the increase of $291,000 in interest
income to $2.1 million for the three months ended March 31, 2000 from $1.8
million for the three months ended March 31, 1999, which was partially offset by
an increase of $127,000 in interest expense to $1.2 million for the three months
ended March 31, 2000 from $1.1 million for the three months ended March 31,
1999.
For the three months ended March 31, 2000, the average yield on interest-earning
assets was 7.94% compared to 7.54% for the three months ended March 31, 1999.
The average cost of interest-bearing liabilities was 4.97% for the three months
ended March 31, 2000 compared to 4.93% for the three months ended March 31,
1999. The average balance of interest-earning assets increased $8.8 million to
$106.0 million for the three months ended March 31, 2000 from $97.2 million for
the three months ended March 31, 1999. During this same period, the average
balance of interest-bearing liabilities increased $8.7 million to $96.3 million
for the three months ended March 31, 2000 from $87.6 million for the three
months ended March 31, 1999.
Due to the increase in yield on the interest-earning assets and despite the
increase in rates paid on the interest-bearing liabilities, the average interest
rate spread was 2.97% for the three months ended March 31, 2000 compared to
2.61% for the three months ended March 31, 1999. The average net interest margin
was 3.42% for the three months ended March 31, 2000 compared to 2.61% for the
three months ended March 31, 1999.
Provision for loan loss. Provision for loan loss increased $13,000 to $31,000
for the three months ended March 31, 2000 compared to $18,000 for the three
months ended March 31, 1999. Washington Bancorp=s loan portfolio consists
primarily of residential mortgage loans and it has experienced a minimal amount
of charge-offs in the past three years. The allowance for loan losses was
$503,000 or 0.62% of loans receivable, net at March 31, 2000 compared to
$442,000 or 0.63% of loans receivable, net at March 31, 1999. The allowance for
loan loss as a percentage of non-performing assets was 62.14% at March 31, 2000,
as compared to 177.16% at March 31, 1999.
Noninterest income. Noninterest income increased $38,000 to $132,000 for the
three months ended March 31, 2000 from $94,000 for the three months ended March
31, 1999. The increase is primarily due to an increase in bank service charges
and fees of $29,000, an increase in investment center income of $12,000, and an
increase in insurance commissions of $11,000 which was partially offset by a
decrease in other noninterest income of $8,000, a decrease in security gains,
net of $4,000 and a decrease in loan origination and commitment fees of $2,000.
Bank service charges and fees increased $29,000 to $92,000 for the three months
ended March 31, 2000 from $63,000 for the three months ended March 31, 1999
primarily due to an increase in overdraft fee income and continued efforts in
restructuring fee schedules. Investment center income generated $12,000 in
income from the investment center opened in July of 1999. Insurance commissions
increased $11,000 to $27,000 for the three months ended March 31, 2000 from
$16,000 for the three months ended March 31, 1999 primarily due to fluctuations
in the volume of sales of credit life and disability products.
Noninterest expense. Noninterest expense decreased $35,000 to $544,000 for the
three months ended March 31, 2000 from $579,000 for the three months ended March
31, 1999. The decrease is primarily due to a $34,000 decrease in compensation
and benefits, a $5,000 decrease in other noninterest expense and a $2,000
decrease in occupancy and equipment expense which was partially offset by a
$5,000 increase in data processing expense, and a $1,000 increase in deposit
insurance premiums.
The $34,000 decrease in compensation and benefits to $286,000 for the three
months ended March 31, 2000 from $320,000 was primarily due to the
reorganization of staff among the three full-service banking locations. The
$5,000 decrease in other noninterest expense to $136,000 for the three months
ended March 31, 2000 from $141,000 for the three months ended March 31, 1999 was
primarily due to a decrease in office supply expense.
Results of Operations - Nine Months Ended March 31, 2000 As Compared To The Nine
Months Ended March 31, 1999
Performance summary. Net income increased $266,000 to $787,000 for the nine
months ended March 31, 2000 from $521,000 for the nine months ended March 31,
1999. The increase is primarily due to an increase in interest income of
$553,000, an increase in noninterest income of $90,000, a decrease in
noninterest expense of $9,000, and a decrease in provision for loan losses of
$4,000, which was partially offset by an increase in interest expense of
$194,000, and an increase in income tax expense of $196,000. For the nine months
ended March 31, 2000, the annualized return on average assets was 0.97% as
compared to 0.70% for the nine months ended March 31, 1999. The annualized
return on average equity was 9.74% for the nine months ended March 31, 2000, as
compared to 6.50% for the nine months ended March 31, 1999.
Net interest income. Net interest income increased $359,000 to $2.7 million for
the nine months ended March 31, 2000 from $2.3 million for the nine months ended
March 31, 1999. The increase is primarily due to the increase of $553,000 in
interest income to $6.1 million for the nine months ended March 31, 2000 from
$5.5 million for the nine months ended March 31, 1999, which was partially
offset by an increase in interest expense of $194,000 to $3.4 million of the
nine months ended March 31, 2000 from $3.2 million for the nine months ended
March 31, 1999.
For the nine months ended March 31, 2000, the average yield on interest-earning
assets was 7.89% compared to 7.77% for the nine months ended March 31, 1999. The
average cost of interest-bearing liabilities was 4.90% for the nine months ended
March 31, 2000 compared to 5.06% for the nine months ended March 31, 1999. The
average balance of interest-earning assets increased $7.8 million to $102.5
million for the nine months ended March 31, 2000 from $94.7 million for the nine
months ended March 31, 1999. During this same period, the average balance of
interest-bearing liabilities increased $7.8 million to $92.9 million for the
nine months ended March 31, 2000 from $85.1 million for the nine months ended
March 31, 1999.
Due to the increase in yield on interest-earning assets and the decrease in
rates paid on the interest-bearing liabilities, the average interest rate spread
was 2.99% for the nine months ended March 31, 2000 compared to 2.71% for the
nine months ended March 31, 1999. The average net interest margin was 3.44% for
the nine months ended March 31, 2000 compared to 3.23% for the nine months ended
March 31, 1999.
Provision for loan loss. Provision for loan loss decreased $3,000 for the nine
months ended March 31, 2000 to $71,000 from $74,000 for the nine months ended
March 31, 1999. Washington Bancorp=s loan portfolio consists primarily of
residential mortgage loans and it has experienced a minimal amount of
charge-offs in the past three years. The allowance for loan losses was $503,000
or 0.62% of loans receivable, net at March 31, 2000 compared to $442,000 or
0.63% of loans receivable, net at March 31, 1999. The allowance for loan loss as
a percentage of non-performing assets was 62.14% at March 31, 2000, as compared
to 177.16% at March 31, 1999.
Noninterest income. Noninterest income increased $90,000 to $376,000 for the
nine months ended March 31, 2000 from $286,000 for the nine months ended March
31, 1999. The increase is primarily due to an increase in bank service charges
and fees of $67,000, an increase in insurance commissions of $15,000, an
increase in investment center income of $19,000, an increase in other fee income
of $15,000, and an increase in other noninterest income of $5,000 which was
partially offset by a decrease in security gains, net of $15,000 and a decrease
in loan origination and commitment fee of $1,000.
Bank service charges and fees increased $67,000 to $277,000 for the nine months
ended March 31, 2000 from $208,000 for the nine months ended March 31, 1999
primarily due to an increase in overdraft fee income and continued efforts to
restructure fee schedules. Investment center income was $19,000 due to the
opening of an investment center in July 1999. Insurance commissions increased
$15,000 to $53,000 for the nine months ended March 31, 2000 from $38,000 for the
nine months ended March 31, 1999 primarily due to the fluctuations in the volume
of sales of credit life and disability products. Other fee income increased
$5,000 to $24,000 for the nine months ended March 31, 2000 from $19,000 for the
nine months ended March 31, 1999 primarily due to an increase in the gain and
income on real estate property and an increase in the penalty for early
withdrawal on certificates of deposit..
Noninterest expense. Noninterest expense decreased $9,000 to $1.7 million for
the nine months ended March 31, 2000 from $1.7 million for the nine months ended
March 31, 1999. The decrease is primarily due to a $30,000 decrease in
compensation and benefits and a $3,000 decrease in occupancy and equipment which
was partially offset by an $11,000 increase in other noninterest expense, a
$10,000 increase in data processing, and a $3,000 increase in deposit insurance
premiums.
Compensation and benefits decreased $30,000 to $870,000 for the nine months
ended March 31, 2000 from $900,000 for the nine months ended March 31, 1999
primarily due to the reorganization of staff among the three full-service
banking locations. Other noninterest expense increased $11,000 to $438,000 for
the nine months ended March 31, 2000 from $427,000 for the nine months ended
March 31, 1999 primarily due to the examination expense incurred at Rubio. Data
processing increased $10,000 to $76,000 for the nine months ended March 31, 2000
from $66,000 for the nine months ended March 31, 1999 primarily due to the cost
of changing and maintaining the communication technology with the data
processing center to frame relay from satellite.
Liquidity and capital resources. The Banks' principal sources of funds are
deposits, amortization and prepayment of loan principal, borrowings, and the
sale and maturity of investment securities. While scheduled loan repayments and
maturing investments are relatively predictable, deposit flows and early loan
repayments are more influenced by interest rates, general economic conditions,
and competition, and, most recently, the restructuring of the thrift industry.
The Banks generally manage the pricing of the deposits to maintain a steady
deposit balance, but have from time to time decided not to pay deposit rates
that are as high as those of the competition, and when necessary, to supplement
deposits with alternative sources of funds.
Federal regulations historically have required Washington Federal to maintain
minimum levels of liquid assets. The required percentage has varied from time to
time based upon economic conditions and savings flows and is currently 4% of net
withdrawable savings deposits and borrowings payable upon demand or in one year
or less during the proceeding calendar month. Liquid assets for the purpose of
this ratio include cash, certain time deposits, U.S. Government, other
governmental agency, and corporate securities and other obligations generally
having remaining maturities of less than five years. Washington Federal has
historically maintained its liquidity ratio at levels in excess of those
required. At March 31, 2000, Washington Federal's liquidity ratio was 16.89%.
Liquidity management is both a daily and long-term responsibility of management.
The Banks adjust their investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest-bearing deposits, and (iv) the objective of its
asset/liability management program. Excess liquidity is invested generally in
interest-bearing overnight deposits and other short-term government and agency
obligations. If Washington Federal requires funds beyond its ability to generate
them internally, it has additional borrowing capacity with the FHLB of Des
Moines and collateral eligible for reverse repurchase agreements.
The Banks anticipate that they will have sufficient funds available to meet
current loan commitments. At March 31, 2000, Washington Federal had outstanding
commitments to extend credit which amounted to $5.6 million and Rubio Savings
Bank had outstanding commitments to extend credit which amounted to $1.1
million.
Part II - Other Information
Item 1. Legal Proceedings.
None
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) Exhibits
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports in Form 8-K have been filed during the quarter
ended March 31, 2000
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Washington Bancorp
(Registrant)
Date May 10, 2000 /s/ Stan Carlson
------------ ------------------------------------
Stan Carlson, President and Chief
Executive Officer
Date May 10, 2000 /s/ Leisha A. Linge
------------ ------------------------------------
Leisha A. Linge, Vice President and
Treasurer