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 December 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
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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
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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 508,553 shares outstanding as of February 10, 2002
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 December 31, 2001 (unaudited) and June 30, 2001
Unaudited Consolidated Statements of Income for the
three months and six months ended December 31,
2001 and 2000
Unaudited Consolidated Statements of Comprehensive
Income for the three months and six months ended
December 31, 2001 and 2000
Unaudited Consolidated Statements of Cash Flows for
the six months ended December 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
Item 1. Consolidated Financial Statements
Washington Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
December 31, June 30,
2001 2001 *
------------------------------
(unaudited)
ASSETS
- ---------------------------------------------------------------------
Cash and cash equivalents:
Interest-bearing .................................................. $ 4,716,615 $ 2,462,282
Noninterest-bearing ............................................... 984,588 679,041
Investment securities:
Held to maturity .................................................. 1,150,203 1,142,599
Available-for-sale ................................................ 18,483,409 22,090,836
Federal funds sold .................................................. 2,441,000 3,350,000
Loans receivable, net of allowance for loan losses
of $717,110 at December 31, 2001 and $607,833
at June 30, 2001 .................................................. 83,509,316 84,095,349
Accrued interest receivable ......................................... 1,652,520 1,517,702
Federal Home Loan Bank stock ........................................ 1,757,400 1,756,200
Foreclosed real estate .............................................. 255,606 145,949
Premises and equipment, net ......................................... 1,124,579 986,635
Goodwill ............................................................ 1,091,402 1,091,402
Other assets ........................................................ 161,667 373,855
------------------------------
Total assets ................................................ $ 117,328,304 $ 119,691,850
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing ........................................... $ 4,795,219 $ 4,107,003
Interest-bearing .............................................. 73,255,599 68,797,275
------------------------------
Total deposits 78,050,818 72,904,278
Federal funds purchased ............................................. -- 1,500,000
Borrowed funds ...................................................... 26,174,455 32,334,794
Advances from borrowers for taxes and insurance ..................... 226,653 244,377
Accrued expenses and other liabilities .............................. 702,982 754,975
------------------------------
Total liabilities ........................................... 105,154,909 107,738,424
------------------------------
Redeemable common stock held by ESOP ................................ 359,154 336,980
------------------------------
Stockholders' Equity
Common Stock:
Common Stock ...................................................... 6,511 6,511
Additional Paid-in Capital ........................................ 6,154,788 6,175,332
Retained Earnings ................................................... 8,559,734 8,175,145
Accumulated other comprehensive gain (loss) ....................... (41,159) (29,669)
Cost of common shares acquired for the treasury (142,580 at
December 31, 2001 and 134,162 at June 30, 2001) ................... (2,223,854) (2,070,600)
Deferred compensation .............................................. (26,716) (21,093)
Maximum cash obligation related to ESOP shares .................... (359,154) (336,980)
Unearned ESOP shares ................................................ (255,910) (282,200)
------------------------------
Total stockholders' equity .................................. 11,814,241 11,616,446
------------------------------
Total liabilities and stockholders' equity .................. $ 117,328,304 $ 119,691,850
==============================
<FN>
* Condensed from audited financial statements
</FN>
See Notes to Financial Statements.
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Income
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
-------------------------------------------------
Interest and dividend income:
Loans, including fees:
First mortgage loans ................................... $1,108,224 $1,175,109 $2,233,644 $2,327,200
Consumer and other loans ............................... 739,910 683,215 1,500,743 1,373,568
Investment securities:
Taxable ................................................ 296,122 371,685 602,756 727,139
Nontaxable ............................................. 19,876 17,256 40,500 32,973
Federal Home Loan Bank stock ............................. 17,522 32,946 35,583 59,621
-------------------------------------------------
Total interest income .............................. 2,181,654 2,280,211 4,413,226 4,520,501
-------------------------------------------------
Interest expense:
Deposits ................................................. 788,394 890,685 1,604,672 1,736,209
Borrowed funds ........................................... 408,242 484,128 826,211 995,688
-------------------------------------------------
Total interest expense ............................. 1,196,636 1,374,813 2,430,883 2,731,897
-------------------------------------------------
Net interest income ................................ 985,018 905,398 1,982,343 1,788,604
Provision for loan losses .................................. 97,500 30,000 157,500 64,000
-------------------------------------------------
Net interest income after provision
for loan losses .................................... 887,518 875,398 1,824,843 1,724,604
-------------------------------------------------
Noninterest income:
Security gains ........................................... 84,639 -- 84,639 --
Service charges and fees ................................. 146,625 113,136 278,851 226,457
Insurance commissions .................................... 20,837 12,051 33,647 27,244
Investment commissions ................................... 8,117 6,551 21,957 17,306
Other .................................................... 17,512 13,572 20,099 27,048
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Total noninterest income ........................... 277,730 145,310 439,193 298,055
-------------------------------------------------
Noninterest expense:
Compensation and benefits ................................ 396,409 295,285 764,529 604,596
Occupancy and equipment .................................. 61,038 79,044 131,797 141,529
FDIC deposit insurance premium ........................... 3,329 8,653 6,870 19,967
Data processing .......................................... 30,735 29,456 58,840 50,076
Goodwill amortization .................................... -- 23,640 -- 47,281
Other .................................................... 196,331 155,014 359,166 296,067
-------------------------------------------------
Total noninterest expense .......................... 687,842 591,092 1,321,202 1,159,516
-------------------------------------------------
Income before income taxes ......................... 477,406 429,616 942,834 863,143
Income tax expense ......................................... 159,585 188,106 315,163 359,737
-------------------------------------------------
Net income ......................................... $ 317,821 $ 241,510 $ 627,671 $ 503,406
=================================================
Earnings per common share
Basic .................................................... $ 0.66 $ 0.48 $ 1.29 $ 1.00
Diluted .................................................. $ 0.64 $ 0.48 $ 1.25 $ 0.98
Dividends per common share ................................. $ -- $ -- $ 0.50 $ 0.50
Weighted average common shares for:
Basic earnings per share ................................. 484,470 499,714 487,841 504,204
Diluted earnings per share ............................... 497,820 506,933 500,436 511,506
See Notes to Financial Statements
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
-----------------------------------------------
Net income .................................................. $ 317,821 $ 241,510 $ 627,671 $ 503,406
Other comprehensive income(loss),
Net of income taxes:
Unrealized holding gains (losses) arising during
the period, net of income taxes ......................... (76,683) 71,221 41,578 181,537
Reclassification adjustments for net losses (gains)
realized in net income, net of income taxes ............. (53,068) -- (53,068) --
-----------------------------------------------
Comprehensive income ................................ $ 188,070 $ 312,731 $ 616,181 $ 684,943
===============================================
See Notes to Financial Statements
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Six Months Ended December 31, 2001 and 2000
2001 2000
------------------------------
Cash Flows from Operating Activities
Net income .......................................................... $ 627,671 $ 503,406
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and discounts on debt securities ......... 120,072 9,282
Amortization of goodwill .......................................... -- 47,281
Provision for loan losses ......................................... 157,500 64,000
(Gain) on sale of investment securities ........................... (84,639) --
Proceeds from loans sold .......................................... 1,495,000 --
Loans originated for sale ......................................... (1,495,000) --
Loss on sale of foreclosed real estate ............................ 5,205 21,218
Depreciation ...................................................... 58,177 51,238
Compensation under stock awards ................................... 18,565 9,835
ESOP contribution expense ......................................... 46,270 32,829
(Increase) in accrued interest receivable ......................... (134,818) (148,737)
(Increase)decrease in other assets ................................ 228,313 276,971
Increase(decrease) in accrued expenses and other liabilities ...... (60,161) 185,832
-------------------------------
Net cash provided by operating activities .................... 982,155 1,053,155
-------------------------------
Cash Flows from Investing Activities
Held-to-maturity securities:
Purchases ......................................................... (7,800) --
Available-for-sale securities:
Sales ............................................................. 2,000,000 --
Maturities and calls .............................................. 7,302,743 1,050,000
Purchases ......................................................... (5,750,000) --
Federal funds sold, net ............................................. 909,000 (815,000)
Purchase of Federal Home Loan Bank stock ............................ (1,200) (26,600)
Loans made to customers, net ........................................ 313,671 (659,677)
Purchase of premises and equipment .................................. (196,121) (152,132)
-------------------------------
Net cash provided by (used in) investing activities ........... 4,570,293 (603,409)
-------------------------------
Cash Flows from Financing Activities
Net increase in deposits ............................................ 5,146,540 256,710
Proceeds from Federal Home Loan Bank advances ....................... 3,680,000 248,350,000
Principal payments on Federal Home Loan Bank advances ............... (9,840,338) (248,337,488)
Federal funds purchased, net ........................................ (1,500,000) --
Net (decrease) in advances from borrowers for taxes and insurance ... (17,724) (46,162)
Acquisition of common stock ....................................... (295,027) (394,081)
Stock options exercised ........................................... 77,063 --
Dividends paid .................................................... (243,082) (252,158)
-------------------------------
Net cash (used in) financing activities ...................... (2,992,568) (423,179)
-------------------------------
Increase in cash and cash equivalents ................... 2,559,880 26,567
Cash and cash equivalents:
Beginning ........................................................... 3,141,323 2,849,385
-------------------------------
Ending ............................................................. $ 5,701,203 $ 2,875,952
===============================
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Six Months Ended December 31, 2001 and 2000
2001 2000
-----------------------
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ...................... $1,184,210 $1,190,749
Interest paid on other obligations ............... $ 826,211 $ 988,875
Income taxes, net of refunds ..................... $ 322,815 $ 364,800
Supplemental Schedule of Noncash Investing and
Financing Activities
Transfers from loans to foreclosed real estate ..... $ 169,891 $ 271,681
Contract sales of foreclosed real estate ........... $ 55,000 $ 371,800
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 three and six month periods ended
December 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 accounting principles generally accepted in the United
States of America 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,
2001 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 was being amortized by the straight-line method over 15 years. Beginning
July 1, 2001 goodwill was no longer amortized, but will be 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. In accordance with SEC Accounting Series
Release 268, the Company's maximum cash obligation related to these shares is
classified outside of 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. Quantitative measures established by regulation
to ensure capital adequacy require the Company and the Banks to maintain minimum
amounts and ratios (set forth in the following table) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and
of Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2001 and 2000, that the Company and the Banks met
all capital adequacy requirements to which they are subject.
As of December 31, 2001, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the following table. There
are no conditions or events since the notification that management believes have
changed the Banks' category. The Company's and the Banks' actual capital amounts
and ratios as of December 31, 2001 and 2000 are also presented in the table.
Minimum To Be Well
Capitalized Under
Minimum Capital Prompt Corrective
Actual Requirement Action Provisions
Amount Ratio Amount Ratio Amount Ratio
-------------- -------------- -------------------
December 31, 2001
Total capital to risk
Weighted assets:
Consolidated ....................... 11,814 15.36% 6,153 8.00% N/A N/A
Washington ......................... 8,180 13.23% 4,946 8.00% 6,182 10.00%
Rubio .............................. 3,712 24.69% 1,202 8.00% 1,504 10.00%
Tier 1 capital to risk
Weighted assets:
Consolidated ....................... 10,764 13.99% 3,077 4.00% N/A N/A
Washington ......................... 8,235 13.32% 2,473 4.00% 3,709 6.00%
Rubio .............................. 2,608 17.35% 601 4.00% 902 6.00%
Tier 1 capital to Average assets:
Consolidated ....................... 10,764 9.15% 4,707 4.00% N/A N/A
Washington ......................... 8,235 8.87% 3,517 4.00% 4,644 5.00%
Rubio .............................. 2,608 10.81% 724 4.00% 1,206 5.00%
December 31, 2000
Total capital to risk
Weighted assets:
Consolidated ....................... 10,852 13.71% 6,333 8.00% N/A N/A
Washington ......................... 7,456 11.70% 5,097 8.00% 6,371 10.00%
Rubio .............................. 3,567 23.09% 1,236 8.00% 1,545 10.00%
Tier 1 capital to risk
Weighted assets:
Consolidated ....................... 9,780 12.35% 3,167 4.00% N/A N/A
Washington ......................... 7,637 11.99% 2,548 4.00% 3,823 6.00%
Rubio .............................. 2,513 15.91% 618 4.00% 927 6.00%
Tier 1 capital to Average assets:
Consolidated ....................... 9,780 8.39% 4,660 4.00% N/A N/A
Washington ......................... 7,637 8.26% 3,699 4.00% 4,624 5.00%
Rubio .............................. 2,513 11.04% 683 4.00% 1,138 5.00%
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, simultaneous with the completion of the conversion of
Washington Federal to the stock form of organization through the sale and
issuance of its common stock to the Company, Washington Bancorp completed the
initial public offering of its common stock. 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.
In November 2001, Washington Bancorp announced a voluntary odd lot
program to holders of less than 100 shares to sell their common shares back to
the Company for cash. The shares submitted through the program will be purchased
at $19.00 per share and the transaction will not be subject to commission
charges. Odd lot holders who decide to participate must sell all their shares
and the decision is irrevocable. The program is being offered to provide
shareholders of less than 100 shares an opportunity to realize the value of
their investment and will also reduce the Company's expense of administering the
shares on an ongoing basis. Upon completion of the transaction, the number of
registered holders may be less than 300. As a result, Washington Bancorp may be
eligible to deregister its common stock. The elimination of costs associated
with SEC-reporting and other related requirements would further reduce the
expense of administering the common stock. The expiration date of this offer has
been extended to February 15, 2002.
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. To
meet customer demand for long term fixed rate mortgages, Washington Federal has
an agreement with a third-party mortgage provider. When a long-term fixed rate
mortgage is requested by the customer, the loan is originated by Washington
Federal on behalf of the third-party mortgage provider on an individual
loan-by-loan basis. The third-party mortgage provider funds 100% of the loan and
retains the servicing rights. Washington 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 $2.4 million from $119.7
million at June 30, 2001 to $117.3 million at December 31, 2001. The decrease
was primarily due to a $3.6 million decrease in investment securities, a
$909,000 decrease in federal funds sold, a $586,000 decrease in loans
receivable, and a $212,000 decrease in other assets, partially offset by a $2.6
million increase in cash and cash equivalents, a $138,000 increase in premises
and equipment, a $135,000 increase in accrued interest receivable, and a
$110,000 increase in foreclosed real estate.
Loans receivable, net. Loans receivable, net decreased $586,000 from $84.1
million at June 30, 2001 to $83.5 million at December 31, 2001. This decrease is
primarily due to an increase in customer demand for long-term fixed rate 1-4
family mortgage loans, which are not currently offered by the Company. To meet
this demand the Company has an arrangement with a third-party loan provider,
through which $1.5 million in 1-4 family long-term fixed rate loans were
originated in the six months ended December 31, 2001. None of these loans are
retained in the Company's portfolio.
The Company's non-performing assets were $1.9 million or 1.63% of total assets
at December 31, 2001 as compared to $714,000 or 0.60% of total assets at June
30, 2001 primarily due to an increase in loans past due. It is the Company's
policy to provide for probable losses in the Company's loan portfolio. A
provision for loan losses is charged to operations based on management's
evaluation of the probable losses that may be incurred in the Company's loan
portfolio. Such evaluation, which includes a review of all loans of which full
collectibility of interest and principal may not be reasonably assured,
considers the Company's past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, current experience level of
the Company's lending personnel, and current economic conditions.
The Company's reserve for loan loss requirement is calculated by first
evaluating loans for impairment. Loans evaluated for impairment include
borrowers with an excess of $300,000 in total outstanding loan balances, loans
over ninety days past due, loans classified by internal processes or by
examiners, loans on non-accrual status, and other loans that may be adversely
affected by current economic conditions. The required allowance for loan loss on
the non-homogenous loans is established by considering either the present value
of future cash flows or the fair value of collateral less the cost to sell such
collateral in comparison to the current loan balance. The remainder of the loan
portfolio is segmented into groups with similar risk characteristics. Each
segment is assigned a loss measurement based on historical loss ratios adjusted
for current industry and economic conditions. The loss measurement is applied to
the current loan balance of each group to establish the required level of
allowance for loan losses. At December 31, 2001, the allowance for loan losses
was $717,000 or 0.86% of loans receivable, net compared to $626,000 or 0.74% of
loans receivable, net at December 31, 2000. The allowance for loan loss as a
percentage of non-performing assets was 37.32% at December 31, 2001, compared to
78.17% at December 31, 2000. Management feels that the current level of
allowance for loan losses is adequate to cover probable losses.
Investment securities. Investment securities decreased $3.6 million from $23.2
million at June 30, 2001 to $19.6 million at December 31, 2001 primarily due to
the maturity or call of $7.3 million, the sale of $2.0 million, the decrease in
the market value of the portfolio of $19,000, and the amortization of premiums
and discounts of $35,000, partially offset by the purchase of $5.8 million. 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 December 31, 2001 than their carrying value.
Deposits. Deposits increased $5.1 million from $72.9 million at June 30, 2001 to
$78.0 million at December 31, 2001. Transaction and savings deposits increased
as a percentage of total deposits from $25.9 million or 35.5% at June 30, 2001
to $27.9 million or 35.8% at December 31, 2001. Certificates of deposit
decreased as a percentage of total deposits from $47.0 million or 64.5% at June
30, 2001 to $50.1 million or 64.2% at December 31, 2001.
Total stockholders' equity. Total stockholders' equity increased $197,000 from
$11.6 million at June 30, 2001 to $11.8 million at December 31, 2001. The
increase is primarily due to net income of $628,000, proceeds from the exercise
of stock options of $77,000, the allocation of ESOP shares of $46,000, and the
amortization of deferred compensation of $19,000, partially offset by $295,000
for the repurchase of 16,768 shares of the Company's common stock, dividends
paid to shareholders of $243,000, the change in the maximum cash obligation on
allocated ESOP shares of $22,000, and the change in net unrealized loss in the
available for sale securities of $112,000.
Results of Operations - Three Months Ended December 31, 2001 As Compared To The
Three Months Ended December 31, 2000
Performance summary. Net income increased $76,000 to $318,000 for the three
months ended December 31, 2001 from $242,000 for the three months ended December
31, 2000. The increase is primarily due to an increase in noninterest income of
$132,000, an increase in net interest income of $80,000, and a decrease in
income tax expense of $29,000, partially offset by an increase in provision for
loan loss of $68,000 and an increase in noninterest expense of $97,000. For the
three months ended December 31, 2001 the annualized return on average assets was
1.07% compared to 0.83% for the three months ended December 31, 2000, while the
annualized return on average equity was 10.80% for the three months ended
December 31, 2001 compared to 9.00% for the three months ended December 31,
2000.
Net interest income. Net interest income increased $80,000 to $985,000 for the
three months ended December 31, 2001 from $905,000 for the three months ended
December 31, 2000. The increase is primarily due to the decrease of $178,000 in
interest expense to $1.2 million for the three months ended December 31, 2001
from $1.4 million for the three months ended December 31, 2000 partially offset
by a decrease in interest income of $99,000 to $2.2 million for the three months
ended December 31, 2001 from $2.3 million for the three months ended December
31, 2000.
For the three months ended December 31, 2001, the average yield on
interest-earning assets was 7.68% compared to 8.18% for the three months ended
December 31, 2000. The average cost of interest-bearing liabilities was 4.69%
for the three months ended December 31, 2001 compared to 5.46% for the three
months ended December 31, 2000. The average balance of interest earning assets
increased $2.3 million to $113.7 million for the three months ended December 31,
2001 from $111.4 million for the three months ended December 31, 2000. During
this same period, the average balance of interest-bearing liabilities increased
$1.2 million to $102.0 million for the three months ended December 31, 2001 from
$100.8 million for the three months ended December 31, 2000.
Due to the decrease in the average cost of interest-bearing liabilities and
partially offset by the decrease in the average rate of return on the interest
earning assets, the average interest rate spread was 2.99% for the three months
ended December 31, 2001 compared to 2.72% for the three months ended December
31, 2000. The average net interest margin was 3.47% for the three months ended
December 31, 2001 compared to 3.24% for the three months ended December 31,
2000.
Provision for loan loss. Provision for loan loss increased $68,000 to $98,000
for the three months ended December 31, 2001 from $30,000 for the three months
ended December 31, 2000. The primary reason for the increase in the provision
was an increase in loans past due and an increase in loans with more risk
characteristics such as nonresidential real estate, commercial and agriculture
loans. Despite this increase, the Company's loan portfolio remains primarily
residential mortgage loans and the Company has experienced a minimal amount of
charge-offs in the past three years.
Noninterest income. Noninterest income increased $132,000 to $277,000 for the
three months ended December 31, 2001 from $145,000 for the three months ended
December 31, 2000. The increase is primarily due an increase in security gains
of $85,000, an increase in service charges and fees of $33,000, an increase in
insurance commissions of $9,000, an increase in other noninterest income of
$4,000 and an increase in investment commissions of $2,000.
Security gains increased primarily due to the gain realized from the sale of
corporate bonds during the period of declining interest rates. 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,
and an increase in overdraft fee income. Insurance commissions increased
primarily due to an increase in the level of credit life and disability sales on
loan products as well as commissions from the sale of agricultural insurance
products. Other noninterest income increased primarily due to the farm subsidy
payments received by the Company on agricultural real estate held for
investment. Investment commissions increased primarily due to the increase in
sales.
Noninterest expense. Noninterest expense increased $97,000 to $688,000 for the
three months ended December 31, 2001 from $591,000 for the three months ended
December 31, 2000. The increase is primarily due to a $101,000 increase in
compensation and benefits, a $36,000 increase in other noninterest expense, and
a $1,000 increase in data processing, partially offset by a $23,000 decrease in
the amortization of goodwill, and an $18,000 decrease in occupancy and
equipment.
Compensation and benefits increased primarily due to the increase in salaries
and benefits due to regular salary adjustments. Other noninterest expense
increased primarily due to costs associated with an advertising campaign, the
costs associated with the disposition of real estate owned, and an increase in
processing fees with correspondent bank due to a lower earnings credit because
of the current interest rate environment. Data processing increased primarily
due to an increase in the usage of services offered by Washington Federal's main
data processing provider.
In accordance with the Financial Accounting Standards Board Statement No. 142,
the Company re-evaluated the goodwill that resulted from the purchase of Rubio
Savings Bank of Brighton in 1998. As a result of the re-evaluation, management
had determined that the goodwill is not impaired. The goodwill will be tested
for impairment on an annual basis at December 31.
Income tax expense. Income tax expense decreased $29,000 to $160,000 for the
three months ended December 31, 2001 from $188,000 for the three months ended
December 31, 2000. The decrease is primarily due the decrease in non-deductible
expenses, the increase in non-taxable income and the decrease in the Company's
internal accrual rate.
Results of Operations - Six Months Ended December 31, 2001 As Compared To The
Six Months Ended December 31, 2000
Performance summary. Net income increased $124,000 to $628,000 for the six
months ended December 31, 2001 from $503,000 for the six months ended December
31, 2000. The increase is primarily due to an increase in net interest income of
$194,000, an increase in noninterest income of $141,000, and a decrease in
income tax expense of $45,000 partially offset by an increase in noninterest
expense of $162,000, and an increase in provision for loan loss of $94,000. For
the six months ended December 31, 2001 the annualized return on average assets
was 1.07% compared to 0.86% for the six months ended December 31, 2000, while
the annualized return on average equity was 10.79% for the six months ended
December 31, 2001 compared to 9.23% for the six months ended December 31, 2000.
Net interest income. Net interest income increased $194,000 to $2.0 million for
the six months ended December 31, 2001 from $1.8 million for the six months
ended December 31, 2000. The increase is primarily due to the decrease of
$301,000 in interest expense to $2.4 million for the six months ended December
31, 2001 from $2.7 million for the six months ended December 31, 2000 partially
offset by a decrease in interest income of $107,000 to $4.4 million for the six
months ended December 31, 2001 from $4.5 million for the six months ended
December 31, 2000.
For the six months ended December 31, 2001, the average yield on
interest-earning assets was 7.95% compared to 8.16% for the six months ended
December 31, 2000. The average cost of interest-bearing liabilities was 4.89%
for the six months ended December 31, 2001 compared to 5.43% for the six months
ended December 31, 2000. The average balance of interest-earning assets
increased $200,000 to $111.0 million for the six months ended December 31, 2001
from $110.8 million for the six months ended December 31, 2000. During this same
period, the average balance of interest-bearing liabilities decreased $1.3
million to $99.3 million for the six months ended December 31, 2001 from $100.6
million for the six months ended December 31, 2000.
Due to the decrease in the average cost of interest-bearing liabilities and
partially offset by the decrease in the average rate of return on the
interest-earning assets, the average interest rate spread was 3.06% for the six
months ended December 31, 2001 compared to 2.73% for the six months ended
December 31, 2000. The average net interest margin was 3.57% for the six months
ended December 31, 2001 compared to 3.23% for the six months ended December 31,
2000.
Provision for loan loss. Provision for loan loss increased $94,000 to $158,000
for the six months ended December 31, 2001 from $64,000 for the six months ended
December 31, 2000. The primary reason for the increase in the provision was the
increase in required level of allowance for loan losses particularly due to an
increase in loans past due and an increase in loans with more risk
characteristics such as nonresidential real estate, commercial and agriculture
loans. Despite this increase, the Company's loan portfolio remains primarily
residential mortgage loans and the Company has experienced a minimal amount of
charge-offs in the past three years.
Noninterest income. Noninterest income increased $141,000 to $439,000 for the
six months ended December 31, 2001 from $298,000 for the six months ended
December 31, 2000. The increase is primarily due an increase in security gains
of $85,000, an increase in service charges and fees of $52,000, an increase in
insurance commissions of $6,000, and an increase in investment commissions of
$5,000, partially offset by a decrease in other noninterest income of $7,000.
Security gains increased primarily due to the gain realized from the sale of
corporate bonds during the period of declining interest rates. 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, and income from a new check and coupon book
printing service. Insurance commissions increased primarily due to an increase
in the level of credit life and disability sales on loan products as well as
commissions from the sale of agricultural insurance products. Investment
commissions increased primarily due to the increase in sales. Other noninterest
income decreased primarily due to a decrease in the gain and rental income on
the disposition of real estate owned, partially offset by the to the farm
subsidy payments received by the Company on agricultural real estate held for
investment.
Noninterest expense. Noninterest expense increased $162,000 to $1.3 million for
the six months ended December 31, 2001 from $1.2 million for the six months
ended December 31, 2000. The increase is primarily due to a $160,000 increase in
compensation and benefits, a $52,000 increase in other noninterest expense, and
a $9,000 increase in data processing, partially offset by a $47,000 decrease in
the amortization of goodwill, a $10,000 decrease in occupancy and equipment and
a $2,000 decrease in deposit insurance premiums.
Compensation and benefits increased primarily due to the increase in salaries
and benefits due to regular salary adjustments and an increase in the cost of
retirement benefits. Other noninterest expense increased primarily due to costs
associated with the Company's advertising campaign, the costs associated with
the disposition of real estate owned, an increase in processing fees with
correspondent bank due to a lower earnings credit because of the current
interest rate environment and the cost of supplies for the new check printing
services. Data processing increased primarily due to an increase in the usage of
services offered by Washington Federal's main data processing provider.
In accordance with the Financial Accounting Standards Board Statement No. 142,
the Company re-evaluated the goodwill that resulted from the purchase of Rubio
Savings Bank of Brighton in 1998. As a result of the re-evaluation, management
had determined that the goodwill is not impaired. The goodwill will be tested
for impairment on an annual basis at December 31.
Income tax expense. Income tax expense decreased $45,000 to $315,000 for the six
months ended December 31, 2001 from $360,000 for the six months ended December
31, 2000. The decrease is primarily due to the decrease in non-deductible
expenses, the increase in non-taxable income and the decrease in the Company's
internal accrual 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.
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 December 31, 2001, Washington Federal had
outstanding commitments to extend credit which amounted to $3.1 million and
Rubio Savings Bank had outstanding commitments to extend credit which amounted
to $1.2 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 (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 on 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 February 13, 2002 /s/ Stan Carlson
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Stan Carlson, President and Chief
Executive Officer
Date February 13, 2002 /s/ Leisha A. Linge
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Leisha A. Linge, Executive Vice
President