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, 2001
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
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Washington Bancorp
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1446740
- ------------------------------- -------------------
(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 issuers classes of common
equity, as of the latest practicable date.
Common Stock, $.01 par value 515,971 shares outstanding as of May 10, 2001
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, 2001 (unaudited) and June 30, 2000
Unaudited Consolidated Statements of Income for the
three months and nine months ended March 31, 2001
and 2000
Unaudited Consolidated Statements of Comprehensive
Income for the three months and nine months ended
March 31, 2001 and 2000
Unaudited Consolidated Statements of Cash Flows for
the nine months ended March 31, 2001 and 2000
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
Part II. Other Information
Items 1 through 6
Signatures
Exhibits
Part 1. Financial Information
Item 1. Consolidated Financial Statements
Washington Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
March 3 June 30,
2001 2000 *
----------------------------
(unaudited)
ASSETS
Cash and cash equivalents:
Interest-bearing ................................... $ 2,088,947 $ 1,859,278
Noninterest-bearing ................................ 752,197 990,107
Investment securities:
Held to maturity ............................... 5,844,936 774,629
Available for sale ............................. 15,162,410 21,602,351
Federal funds, sold .................................. 850,000 110,000
Loans receivable, net of allowance for loan losses
of $663,691 at March 31, 2001 and $647,605
at June 30, 2000 ............................... 84,825,408 83,988,473
Accrued interest receivable .......................... 1,283,272 1,463,838
Federal Home Loan Bank Stock ......................... 1,756,200 1,729,600
Foreclosed real estate ............................... 173,201 271,302
Premises and equipment, net .......................... 931,495 818,228
Goodwill, net ........................................ 1,115,042 1,185,964
Other assets ......................................... 373,216 628,668
----------------------------
Total assets ................................... $115,156,324 $115,422,438
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing ............................ $ 4,067,903 $ 4,145,248
Interest -bearing .............................. 71,716,234 69,151,849
----------------------------
Total deposits ................................. 75,784,137 73,297,097
Borrowed funds ....................................... 26,896,800 30,193,250
Advances from borrowers for taxes and insurance ...... 108,678 249,683
Accrued expenses and other liabilities ............... 743,167 632,003
----------------------------
Total liabilities .............................. 103,532,782 104,372,033
----------------------------
Redeemable common stock held by ESOP ................. 316,082 228,947
----------------------------
Stockholders' Equity
Common Stock:
Common Stock ................................... 6,511 6,511
Additional Paid-in Capital ..................... 6,167,242 6,169,796
Retained Earnings .................................... 7,866,966 7,333,909
Accumulated other comprehensive loss ................ (51,234) (447,899)
Treasury shares (133,662 at March 31, 2001 and
103,399 at June 30,2 000) .......................... (2,062,905) (1,658,017)
Deferred compensation ................................ (7,693) (21,060)
Maximum cash obligation related to ESOP shares ....... (316,082) (228,947)
Unearned ESOP shares ................................. (295,345) (332,835)
----------------------------
Total stockholders' equity ..................... 11,307,460 10,821,458
----------------------------
Total liabilities and stockholders' equity ..... $115,156,324 $115,422,438
============================
<FN>
*Condensed from audited financial statements See Notes to Financial Statements.
</FN>
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Income
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- ------------------------
2001 2000 2001 2000
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Interest and dividend income:
Loans, including fees:
First mortgage loans ............................. $1,148,803 $1,088,641 $3,476,003 $ 3,182,342
Consumer and other loans ......................... 692,559 590,747 2,066,128 1,731,538
Investment securities:
Taxable .......................................... 331,961 377,899 1,059,100 1,056,180
Nontaxable ....................................... 15,534 19,583 48,507 50,652
Federal Home Loan Bank stock ......................... 15,039 20,843 74,660 52,391
--------------------------------------------------
Total interest income ...................... 2,203,896 2,097,713 6,724,398 6,073,103
--------------------------------------------------
Interest expense:
Deposits ............................................. 876,442 814,716 2,612,652 2,499,256
Borrowed funds ....................................... 413,743 378,005 1,409,430 921,810
--------------------------------------------------
Total interest expense ..................... 1,290,185 1,192,721 4,022,082 3,421,066
--------------------------------------------------
Net interest income ........................ 913,711 904,992 2,702,316 2,652,037
Provision for loan losses .................................. 37,500 31,000 101,500 70,500
-------------------------------------------------
Net interest income after provision
for loan losses ....................... 876,211 873,992 2,600,816 2,581,537
-------------------------------------------------
Noninterest income:
Gains on investment securities ....................... 14,614 -- 14,614 --
Service charges and fees ............................. 121,426 92,419 347,883 281,353
Insurance commissions ................................ 28,161 26,546 55,405 52,596
Investment commissions ............................... 10,308 12,205 27,613 18,621
Other ................................................ 744 478 27,793 23,682
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Total noninterest income ................... 175,253 131,648 473,308 376,252
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Noninterest expense:
Compensation and benefits ............................ 343,179 285,644 947,782 869,883
Occupancy and equipment .............................. 62,475 55,172 214,714 167,331
FDIC deposit insurance premium ....................... 8,986 15,638 28,953 46,144
Data processing ...................................... 33,699 27,723 83,774 76,018
Goodwill amortization ................................ 23,640 23,640 70,921 70,921
Other ................................................ 146,806 136,346 432,158 437,639
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Total noninterest expense .................. 618,785 544,163 1,778,302 1,667,936
-------------------------------------------------
Income before taxes ........................ 432,679 461,477 1,295,822 1,289,853
Income tax expense ......................................... 150,871 176,199 510,607 503,299
--------------------------------------------------
Net income ................................. $ 281,808 $ 285,278 $ 785,215 $ 786,554
==================================================
Earnings per common share
Basic ................................................ $ 0.58 $ 0.53 $ 1.58 $ 1.42
Diluted .............................................. $ 0.57 $ 0.52 $ 1.56 $ 1.39
Dividends per common share ................................. $ -- $ -- $ 0.50 $ 0.12
Weighted average common shares for:
Basic earnings per share ............................. 484,780 541,763 497,822 554,715
Diluted earnings per share ........................... 492,953 548,549 504,835 536,894
See Notes to Financial Statements
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ -----------------------
2001 2000 2001 2000
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Net income .................................................... $ 281,808 $ 285,278 $ 785,215 $ 786,554
Other comprehensive income(loss),
Unrealized holding gains (losses) arising during
the period, net of income taxes ..................... 224,043 (48,398) 405,580 (263,898)
Reclassification adjustment for net (gains)
included in net income, net of income taxes ......... (8,915) -- (8,915) --
---------------------------------------------------
Other comprehensive income (loss) ............................. 215,128 (48,398) 396,665 (263,898)
---------------------------------------------------
Comprehensive income ........................... $ 496,936 $ 236,880 $1,181,880 $ 522,656
===================================================
See Notes to Financial Statements
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2001 and 2000
2001 2000
------------------------------
Cash Flows from Operating Activities
Net income ............................................................... $ 785,215 $ 786,554
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of premiums and discounts on debt securities ............ 39,906 24,190
Amortization of goodwill ............................................. 70,921 70,921
Provision for loan losses ............................................ 101,500 70,500
(Gain) on sale of investment securities .............................. (14,614) --
(Gain) loss on sale of foreclosed real estate ........................ 21,387 (7,606)
Depreciation ......................................................... 67,284 68,498
Compensation under stock awards ...................................... 8,428 22,615
ESOP contribution expense ............................................ 51,560 47,909
Deferred income tax .................................................. -- 14,000
(Increase) decrease in accrued interest receivable ................... 180,566 (50,198)
Decrease in other assets ............................................. 1,846 52,713
Increase accrued expenses and other liabilities ...................... 111,164 149,648
------------------------------
Net cash provided by operating activities ................... 1,425,163 1,249,744
------------------------------
Cash Flows from Investing Activities
Held-to-maturity securities:
Purchases ............................................................ (5,105,000) (215,000)
Available-for-sale securities:
Maturities and calls ................................................. 9,100,000 1,350,000
Sales ................................................................ 3,014,614 --
Purchases ............................................................ (5,015,000) (4,900,000)
Federal funds sold, net .................................................. (740,000) 1,340,000
Purchase of Federal Home Loan Bank stock ................................. (26,600) (630,150)
Loans made to customers, net ............................................. (861,720) (8,499,558)
Sale of premises and equipment ........................................... -- 17,578
Purchase of premises and equipment ....................................... (180,551) (43,627)
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Net cash provided by (used in) investing activities ......... 185,743 (11,580,757)
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Cash Flows from Financing Activities
Net increase (decrease) in deposits ...................................... 2,487,040 (2,080,269)
Proceeds from Federal Home Loan Bank advances ............................ 276,750,000 304,400,000
Principal payments on Federal Home Loan Bank advances .................... (280,046,450) (291,195,810)
Net (decrease) in advances from borrowers for taxes and insurance ........ (141,005) (111,886)
Acquisition of common stock for the treasury ............................. (465,894) (481,860)
Issuance of treasury stock upon exercise of stock options ................ 49,320 --
Dividends paid ........................................................... (252,158) (67,197)
-----------------------------
Net cash provided by (used in) financing activities .................... (1,619,147) 10,462,978
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Net increase in cash and cash equivalents .............................. (8,241) 131,965
Cash and cash equivalents:
Beginning ................................................................ 2,849,385 2,557,430
------------------------------
Ending ................................................................... $ 2,841,144 $ 2,689,395
==============================
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2001 and 2000
2001 2000
-----------------------
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ................ $2,060,379 $2,105,351
Interest paid on other obligations ......... $1,409,195 $ 909,495
Income taxes, net of refunds ............... $ 527,800 $ 313,780
Supplemental Schedule of Noncash Investing and
Financing Activities
Transfers from loans to foreclosed real estate . $ 401,636 $ 114,811
Contract sales of foreclosed real estate ....... $ 478,350 $ 75,250
See Notes to Financial Statements.
Washington Bancorp and Subsidiaries
Notes to Financial Statements
Principles of consolidation. The accompanying consolidated financial statements
include the accounts of Washington Bancorp, Washington Federal Savings
Bank("Washington Federal"), WFSB'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 nine month period ended March 31,
2001, 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, 2000 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.
Foreclosed real estate. Real estate properties acquired through loan foreclosure
are initially recorded at the lower of cost or fair value less estimated selling
expenses at the date of foreclosure. Costs relating to development and
improvement of property are capitalized, whereas costs relating to holding
property are expensed.
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, 2001 the capital requirements of Washington Federal
under FIRREA and its actual capital ratios. As of March 31, 2001 Washington
Federal exceeded all current regulatory capital requirement standards.
At March 31, 2001
----------------------
Amount Percent
----------------------
(Dollars in thousands)
Tangible Capital:
Capital Level ....................... $7,790 8.42%
Requirement ......................... 1,388 1.50%
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Excess .............................. $6,402 6.92%
=====================
Core Capital:
Capital Level ....................... $7,790 8.42%
Requirement ......................... 3,700 4.00%
---------------------
Excess .............................. $4,090 4.42%
=====================
Risk-Based Capital:
Capital Level ....................... $8,244 13.10%
Requirement ......................... 5,035 8.00%
---------------------
Excess .............................. $3,209 5.10%
=====================
The following table summarizes the capital requirements of Rubio Savings Bank of
Brighton. As of March 31, 2001 Rubio exceeded all current regulatory capital
requirement standards.
At March 31, 2001
----------------------
Amount Percent
----------------------
(Dollars in thousands)
Tier 1 or Leverage Capital:
Capital Level ......................... $2,580 11.59%
Requirement ........................... 668 3.00%
----------------------
Excess ................................ $1,912 8.59%
======================
Tier 1 Risk-based Capital:
Capital Level ......................... $2,580 17.75%
Requirement ........................... 581 4.00%
----------------------
Excess ................................ $1,999 13.75%
======================
Risk-Based Capital:
Capital Level ......................... $2,762 19.01%
Requirement ........................... 1,163 8.00%
----------------------
Excess ................................ $1,599 11.01%
======================
Item 2. Management's Discussion and Analysis
Forward-Looking Statements
When used in this Form 10-QSB or future filings by the Company with the
Securities and Exchange Commission, in the Company'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. The Company 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 the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from those anticipated or
projected.
The Company 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 Federal Deposit Insurance Corporation ("FDIC").
In March 1996, Washington Federal converted to the stock form of organization
through the sale and issuance of its common stock to the Company. On June 24,
1997, Washington 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, Washington Federal opened a branch office, Wellman Federal
Savings, in Wellman, Iowa. In September 2000, Washington Federal opened a branch
office, Richland Federal Savings, in Richland, Iowa. The principal assets of
Washington Bancorp are Washington Federal and Rubio Savings Bank (collectively,
the "Banks"). 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.
Washington Bancorp is investigating the possibility of de-registering with the
SEC in an effort to reduce expenses. De-registering will result in de-listing
with Nasdaq and reduce the expenses associated with the SEC reporting
requirements. In order to de-register, Washington Bancorp must first have fewer
than 300 record holders. Washington Bancorp's shares trade infrequently and are
widely held in the local area of Washington, Iowa. Therefore the negative impact
for the liquidity of the shares is expected to be minimal.
Washington Federal attracts deposits from the general public in its local market
area and uses such deposits primarily to invest in 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 United States treasury securities, mortgage-backed securities,
federal agency bonds, corporate bonds, agricultural loans, commercial loans,
consumer loans, and automobile loans.
Rubio 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, agricultural operating loans, commercial loans, one- to- four
family residential real estate loans, and farm real estate loans. Rubio also
invests in United States treasury securities, commercial real estate loans,
automobile loans and consumer loans.
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 decreased $266,000 from $115.4 million
at June 30, 2000 to $115.1 million at March 31, 2001. The decrease was primarily
due to a $1,370,000 decrease in investment securities, a $255,000 decrease in
other assets, a $181,000 decrease in accrued interest receivable, a $98,000
decrease in foreclosed real estate, a $71,000 decrease in goodwill, and an
$8,000 decrease in cash, partially offset by an $837,000 increase in loans
receivable, a $740,000 increase in federal funds sold, a $113,000 increase in
premises and equipment, and a $27,000 increase in Federal Home Loan Bank stock.
Loans receivable. Loans receivable increased $837,000 from $84.0 million at June
30, 2000 to $84.8 million at March 31, 2001. This increase is primarily due to
increased loan demand in the Company's market area. The Company's non-performing
assets were $664,000 or 0.58% of total assets at March 31, 2001 as compared to
$648,000 or 0.57% of total assets at June 30, 2000.
Investment securities. Investment securities decreased $1.4 million from $22.4
million at June 30, 2000 to $21.0 million at March 31, 2001 primarily due to the
call of $8.4 million, the maturity of $750,000, the sale of $3.0 million and the
net amortization of premiums paid for the securities of $40,000 partially offset
by the purchase of $10.1 million and an increase in the market value of the
portfolio of $650,000. The portfolio of available- for- sale securities is
comprised primarily of investment securities carrying fixed interest rates. The
aggregate fair value of these securities was less on March 31, 2001 than their
carrying value.
Deposits. Deposits increased $2.5 million from $73.3 million at June 30, 2000 to
$75.8 million at March 31, 2001. Transaction and savings deposits decreased as a
percentage of total deposits from $26.6 million or 36.3% at June 30, 2000 to
$26.9 million or 35.5% at March 31, 2001. Certificates of deposit increased as a
percentage of total deposits from $46.7 million or 63.7% at June 30, 2000 to
$48.9 million or 64.5% at March 31, 2001.
Total stockholders' equity. Total stockholders' equity increased $486,000 from
$10.8 million at June 30, 2000 to $11.3 million at March 31, 2001. The increase
is primarily due to net income of $785,000, the change in net unrealized loss in
the available for sale securities of $397,000, the allocation of ESOP shares of
$52,000, the exercise of stock options of $49,000, and the amortization of
deferred compensation of $8,000, partially offset by $466,000 in payments for
the repurchase of 34,208 shares of the Company's common stock, the dividends
paid to shareholders of $252,000, and the change in the maximum cash obligation
on allocated ESOP shares of $87,000.
Results of Operations - Three Months Ended March 31, 2001 As Compared To The
Three Months Ended March 31, 2000
Performance summary. Net earnings decreased $3,000 to $282,000 for the three
months ended March 31, 2001 from $285,000 for the three months ended March 31,
2000. The decrease is primarily due to an increase in interest expense of
$97,000, an increase in noninterest expense of $75,000, and an increase in
provision for loan loss of $7,000, partially offset by an increase in interest
income of $106,000, an increase in noninterest income of $44,000, and a decrease
in income tax expense of $25,000. For the three months ended March 31, 2001 the
annualized return on average assets was 0.98% compared to 1.03% for the three
months ended March 31, 2000, while the annualized return on average equity was
10.44% for the three months ended March 31, 2001 compared to 10.62% for the
three months ended March 31, 2000.
Net interest income. Net interest income increased $9,000 to $914,000 for the
three months ended March 31, 2001 from $905,000 for the three months ended March
31, 2000. The increase is primarily due to the increase of $106,000 in interest
income to $2.2 million for the three months ended March 31, 2001 from $2.1
million for the three months ended March 31, 2000 offset by an increase in
interest expense of $97,000 to $1.3 million for the three months ended March 31,
2001 from $1.2 million for the three months ended March 31, 2000.
For the three months ended March 31, 2001, the average yield on interest-earning
assets was 7.97% compared to 7.94% for the three months ended March 31, 2000.
The average cost of interest-bearing liabilities was 5.22% for the three months
ended March 31, 2001 compared to 4.97% for the three months ended March 31,
2000. The average balance of interest earning assets increased $4.6 million to
$110.6 million for the three months ended March 31, 2001 from $106.0 million for
the three months ended March 31, 2000. During this same period, the average
balance of interest-bearing liabilities increased $2.6 million to $98.9 million
for the three months ended March 31, 2001 from $96.3 million for the three
months ended March 31, 2000.
Due to the increase in the average cost of interest bearing liabilities, the
average interest rate spread was 2.76% for the three months ended March 31, 2001
compared to 2.97% for the three months ended March 31, 2000. The average net
interest margin was 3.31% for the three months ended March 31, 2001 compared to
3.42% for the three months ended March 31, 2000.
Provision for loan loss. Provision for loan loss increased $7,000 to $38,000 for
the three months ended March 31, 2001 from $31,000 for the three months ended
March 31, 2000. The primary reason for the increase in the provision was the
increased size of the loan portfolio. The Company's loan portfolio remains
primarily residential mortgage loans and has experienced a minimal amount of
charge-offs in the past three years. The allowance for loan losses was $664,000
or 0.78% of loans receivable, net at March 31, 2001 compared to $503,000 or
0.62% of loans receivable, net at March 31, 2000. The allowance for loan loss as
a percentage of non-performing assets was 101.53% at March 31, 2001, compared to
62.14% at March 31, 2000.
Noninterest income. Noninterest income increased $43,000 to $175,000 for the
three months ended March 31, 2001 from $132,000 for the three months ended March
31, 2000. The increase is primarily due an increase in service charges and fees
of $29,000 and an increase in gains on security investments of $14,000.
Service charges and fees increased primarily due to an increase in loan fees and
charges resulting from mortgage loans refinancing into secondary market loan
products, an increase in overdraft fee income, income from a new check printing
service, and an increase in safe deposit box fees. The gains on security
investments was due to the sale of two United States Treasury Notes.
Noninterest expense. Noninterest expense increased $75,000 to $619,000 for the
three months ended March 31, 2001 from $544,000 for the three months ended March
31, 2000. The increase is primarily due to a $58,000 increase in compensation
and benefits, a $10,000 increase in other noninterest expense, a $7,000 increase
in occupancy and equipment, and a $6,000 increase in data processing partially
offset by a $6,000 decrease in FDIC insurance premium.
Compensation and benefits increased primarily due to the increase in salaries
and benefits due to regular salary adjustments offset by a decrease in cost of
retirement benefits due the consolidation of plans. Other noninterest expense
increased primarily due to costs associated with new check printing services, an
increase in costs associated with the disposition of real estate owned, and an
increase in postage expenses. Occupancy and equipment increased primarily due to
the costs associated with opening the Richland, Iowa branch in September 2000.
Data processing increased primarily due to an increase in the usage of services
offered by the main data processing provider. FDIC insurance premiums decreased
primarily due to the decrease in Washington Federal's regulatory premium rate.
Results of Operations - Nine months Ended March 31, 2001 As Compared To The Nine
Months Ended March 31, 2000
Performance summary. Net income decreased $1,000 to $785,000 for the nine months
ended March 31, 2001 from $786,000 for the nine months ended March 31, 2000. The
decrease is primarily due to an increase in noninterest expense of $110,000, an
increase in the provision for loan loss of $31,000 and an increase in income tax
expense of $7,000, partially offset by an increase in noninterest income of
$53,000, and an increase in net interest income of $50,000. For the nine months
ended March 31, 2001, the annualized return on average assets was 0.90% as
compared to 0.97% for the nine months ended March 31, 2000. The annualized
return on average equity was 9.63% for the nine months ended March 31, 2001, as
compared to 9.74% for the nine months ended March 31, 2000.
Net interest income. Net interest income increased $50,000 to $2.7 million for
the nine months ended March 31, 2001 from $2.7 million for the nine months ended
March 31, 2000. The increase is primarily due to the increase of $651,000 in
interest income to $6.7 million for the nine months ended March 31, 2001 from
$6.1 million for the nine months ended March 31, 2000, which was partially
offset by an increase in interest expense of $601,000 to $4.0 million for the
nine months ended March 31, 2001 from $3.4 million for the nine months ended
March 31, 2000.
For the nine months ended March 31, 2001, the average yield on interest-earning
assets was 8.09% compared to 7.89% for the nine months ended March 31, 2000. The
average cost of interest-bearing liabilities was 5.36% for the nine months ended
March 31, 2001 compared to 4.90% for the nine months ended March 31, 2000. The
average balance of interest-earning assets increased $8.3 million to $110.8
million for the nine months ended March 31, 2001 from $102.5 million for the
nine months ended March 31, 2000. During this same period, the average balance
of interest-bearing liabilities increased $7.1 million to $100.0 million for the
nine months ended March 31, 2001 from $92.9 million for the nine months ended
March 31, 2000.
The average interest rate spread was 2.73% for the nine months ended March 31,
2001 compared to 2.99% for the nine months ended March 31, 2000. The average net
interest margin was 3.25% for the nine months ended March 31, 2001 compared to
3.44% for the nine months ended March 31, 2000.
Provision for loan loss. Provision for loan loss increased $31,000 to $101,000
for the nine months ended March 31, 2001 from $70,000 for the nine months ended
March 31, 2000. The primary reason for the increase in the provision was the
increased size of the loan portfolio, particularly in nonresidential real
estate, commercial, and agriculture loans which are considered to carry a higher
risk of default than residential loans. Despite this increase, the Company's
loan portfolio remains primarily residential mortgage loans and has experienced
a minimal amount of charge-offs in the past three years. The allowance for loan
losses was $664,000 or 0.78% of loans receivable, net at March 31, 2001 compared
to $503,000 or 0.62% of loans receivable, net at March 31, 2000. The allowance
for loan loss as a percentage of non-performing assets was 101.53% at March 31,
2001, compared to 62.14% at March 31, 2000.
Noninterest income. Noninterest income increased $97,000 to $473,000 for the
nine months ended March 31, 2001 from $376,000 for the nine months ended March
31, 2000. The increase is primarily due to an increase in bank service charges
and fees of $67,000, an increase in gains from the sale of investment
securities, an increase in investment commission income of $9,000, an increase
in other noninterest income of $4,000, and an increase in insurance commissions
of $3,000.
Bank service charges and fees increased primarily due to an increase in
overdraft fee income as a result of a fee increase, loan fee income, income from
new check printing service and continued efforts to restructure deposit account
fee schedules. Gains on security investments was due to the sale of two United
States Treasury Notes. Investment commission income increased primarily due to
an increase in sales of mutual funds, annuities, and other investments to
individuals. Other fee income increased primarily due to an increase in rental
income on real estate property. Insurance commissions increased primarily due to
the fluctuations in the volume of sales of credit life and disability products.
Noninterest expense. Noninterest expense increased $110,000 to $1.8 million for
the nine months ended March 31, 2001 from $1.7 million for the nine months ended
March 31, 2000. The increase is primarily due to a $78,000 increase in
compensation and benefits, a $47,000 increase in occupancy and equipment, and an
$8,000 increase in data processing, partially offset by a $17,000 decrease in
FDIC insurance premium and a $5,000 decrease in other noninterest expense.
Compensation and benefits increased primarily due to the regular salary
adjustments and an increase in staff. Occupancy and equipment expense increased
primarily due to the cost of opening the Richland, Iowa branch in September
2000. FDIC insurance premiums decreased primarily due to the decrease in
Washington Federal's regulatory premium rate.
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. The Banks generally manage the pricing of the deposits to
maintain a steady deposit balance, but has 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, government
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, 2001, the Washington Federal's liquidity ratio was
12.71%.
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 the Banks require funds beyond their ability to generate them
internally, they have 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, 2001, Washington Federal had outstanding
commitments to extend credit which amounted to $2.5 million and Rubio Savings
Bank had outstanding commitments to extend credit which amounted to $870,000.
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 (listed by numbers corresponding to
the Exhibit Table of Item 601 on Regulation S-B)
11 Computation of Earnings Per Common Share
(b) Reports on Form 8-K
No reports in Form 8-K have been filed during the quarter for
which this report was filed.
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, 2001 /s/ Stan Carlson
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Stan Carlson, President and Chief
Executive Officer
Date May 10, 2001 /s/ Leisha A. Linge
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Leisha A. Linge, Executive Vice
President