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, 1996
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 33-98778
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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 incorporation (I.R.S. Employer
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 codes: (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 [ ] No [X] The issuer has been subject to such filing requirements
since March 11, 1996.
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 657,519 shares outstanding as to May 10, 1996
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Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
INDEX
Page
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Part I. Financial Information
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 1996 and
June 30, 1995
Consolidated Statements of Income for the three
months and nine months ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for the nine
months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis and Results of
Operations
Part II. Other Information
Items 1 through 6
Signatures
WASHINGTON BANCORP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
1996 1995
----------- -----------
ASSETS
Cash and cash equivalents:
Interest-bearing ............................... $13,182,575 $ 1,289,842
Noninterest-bearing ............................ 248,400 368,201
----------- -----------
13,430,975 1,658,043
Investment securities:
Held to maturity ............................... 0 3,077,341
Available for sale ............................. 6,650,423 8,439,858
Loans receivable, net ............................. 41,454,944 40,434,734
Accrued interest receivable ....................... 431,592 421,262
Federal Home Loan Bank stock ...................... 369,100 361,900
Premises and equipment, net ....................... 535,407 572,677
Other assets ...................................... 118,512 134,500
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Total assets .......................... $62,990,953 $55,100,315
=========== ===========
LIABILITIES
Deposits .......................................... $49,019,178 $42,949,799
Borrowed funds .................................... 3,029,291 7,230,215
Advance payments from borrowers for taxes
and insurance .................................. 104,339 199,834
Accrued expenses and other liabilities ............ 457,759 320,311
----------- -----------
52,610,567 50,700,159
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STOCKHOLDERS' EQUITY
Common stock
Common stock ................................... 6,575 0
Additional paid-in capital ..................... 6,172,138 0
Retained earnings ................................. 4,795,516 4,500,027
Unrealized loss of securities available for sale .. (67,823) (99,871)
Deferred compensation related to ESOP debt
guarantee ..................................... (526,020) 0
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Total stockholders' equity ............ 10,380,386 4,400,156
----------- -----------
Total liabilities and stockholders'
equity $62,990,953 $55,100,315
=========== ===========
WASHINGTON BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Nine Months
Ended March 31, Ended March 31,
-------------------------- --------------------------
1996 1995 1996 1995
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Interest income:
First mortgage loans ............................ $ 743,806 $ 684,499 $2,213,943 $2,050,582
Consumer and other loans ........................ 117,619 106,943 338,818 315,459
Investment securities:
Taxable ....................................... 164,339 166,647 514,086 517,595
Non-taxable ................................... 6,055 18,004 40,868 52,157
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Total interest income .................. 1,031,819 976,093 3,107,715 2,935,793
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Interest expense:
Deposits ........................................ 560,651 504,420 1,693,464 1,406,954
Borrowed funds .................................. 41,487 61,532 211,482 170,965
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Total interest expense ................. 602,138 565,952 1,904,946 1,577,919
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Net interest income .................... 429,681 410,141 1,202,769 1,357,874
Provision for loan loss ............................ 3,000 0 12,000 0
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Net income after provision
for loan loss ...................... 426,681 410,141 1,190,769 1,357,874
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Noninterest income:
Security gains .................................. 13,627 0 32,534 0
Loan originations and commitments ............... 5,326 931 7,441 3,047
Bank service charges ............................ 27,465 26,866 58,242 88,896
Other ........................................... 11,028 10,519 40,317 41,313
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Total noninterest income ............... 57,446 38,316 138,534 133,256
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Noninterest expense:
Compensation and benefits ....................... 139,244 148,019 418,565 451,069
Occupancy and equipment ......................... 33,000 29,594 111,672 111,013
SAIF deposit insurance .......................... 29,079 27,629 86,266 86,664
Data processing ................................. 22,593 17,164 64,922 52,657
Other ........................................... 80,583 69,719 194,250 241,212
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Total noninterest expense .............. 304,499 292,125 875,675 942,615
----------------------------------------------------------
Income before income taxes ............. 179,628 156,332 453,628 548,515
Income tax expense ................................. 65,936 51,630 158,139 199,634
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Net income ............................. $ 113,692 $ 104,702 $ 295,489 $ 348,881
==========================================================
Average shares outstanding ......................... 657,519 n/a 657,519 n/a
Earnings per share ................................. $ 0.17 n/a $ 0.45 n/a
WASHINGTON BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months
Ended March 31,
---------------------------
1996 1995
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Cash Flows from Operating Activities
Net income ................................................. $ 295,489 $ 348,881
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................... 60,845 47,681
Provision for loan losses .............................. 12,000 0
Net amortization of premiums and discounts on
debt securities ..................................... 61,801 76,899
(Gain) loss on sale of securities available for sale ... (32,534) 0
(Gain) loss on sale of foreclosed real estate .......... (10,328) 0
Deferred taxes ......................................... 16,347 12,521
Change in assets and liabilities:
Federal Home Loan Bank stock dividend .................. (7,200) 0
(Increase) decrease in accrued interest receivable ..... (10,330) 37,325
Decrease in other assets ............................... 6,549 90,610
Increase in income taxes payable ....................... 9,439 32,321
Increase in accrued expenses and
other liabilities ................................... 101,872 36,743
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Net cash provided by operating activities ......... 514,278 672,653
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Cash Flows from Investing Activities
Held to maturity securities:
Principal collected on mortgage-backed securities ...... 166,988 259,817
Available for sale securities:
Proceeds from sales and calls .......................... 3,518,244 150,000
Proceeds from maturities ............................... 2,050,000 1,650,000
Purchases of investment securities ..................... (890,000) (600,000)
Principal collected on mortgage-backed securities ...... 43,554 0
Purchase of Federal Home Loan Bank stock ................... 0 (39,600)
Net (increase) in loans receivable ......................... (1,032,210) (1,718,790)
Purchase of premises and equipment ......................... (23,575) (81,564)
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Net cash provided by (used in) investing activities 3,833,001 (380,137)
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Cash Flows from Financing Activities:
Net increase in deposits ................................... 6,069,379 1,063,423
Proceeds from Federal Home Loan Bank advances .............. 14,320,000 36,615,000
Principal payments on Federal Home Loan Bank advances ...... (18,520,924) (37,380,760)
Net (decrease) in advances from borrowers .................. (95,495) (91,209)
Net proceeds from issuance of common stock ................. 5,652,693 0
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Net cash provided by financing activities ......... 7,425,653 206,454
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Net increase in cash and cash equivalents ......... $11,772,932 $ 498,970
Cash and cash equivalents:
Beginning .................................................. 1,658,043 734,864
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Ending ..................................................... $13,430,975 $ 1,233,834
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Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ............................ $ 1,650,441 $ 1,370,246
Interest paid on other obligations ..................... 211,482 170,965
Income taxes, net of refunds ........................... 134,446 162,988
Supplemental Schedule of Noncash Investing and Financing
Activities:
Transfers from loans to foreclosed real estate ......... 0 33,152
Contract sales of foreclosed real estate ............... 0 60,233
Transfer of held-to-maturity securities to available-for-sale . 2,907,058 9,919,066
WASHINGTON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements reflects all adjustments, consisting of normal recurring
accruals, which are necessary for a fair presentation. The results of operations
for the interim periods are not necessarily indicative of the results which may
be expected for an entire year.
Principles of Consolidation
The consolidated financial statements include the accounts of Washington Bancorp
(the Company), Washington Federal Savings Bank (the Bank) and its wholly owned
subsidiary Washington Federal Services, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
Stock Conversion
On March 11, 1996, Washington Bancorp. sold 657,519 shares of common stock at
$10 per share and simultaneously purchased all the outstanding common shares of
Washington Federal Savings Bank for $3,089,356 in a transaction accounted for as
a purchase pooling of interests.
Regulatory Capital Requirements
Pursuant to the Financial Institutions 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,
1996, the capital requirements of the Bank under FIRREA and its actual capital
ratios. As of March 31, 1996, the Bank substantially exceeded all current
regulatory capital standards.
At March 1996
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Amount Percent
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(Dollars in Thousands)
(unaudited)
Tangible Capital:
Capital level .................................. $7,881 12.8%
Requirement .................................... 923 1.5
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Excess ......................................... $6,958 11.3%
====================
Core Capital:
Capital level .................................. $7,881 12.8%
Requirements ................................... 1,847 3.0
--------------------
Excess ......................................... $6,034 9.8%
====================
Fully Phased-In Risk-Based Capital:
Capital level .................................. $8,019 20.4%
Requirement .................................... 3,146 8.0
--------------------
Excess ......................................... $4,873 12.4%
====================
Earnings Per Share
Earnings per share is calculated using the weighted average number of shares of
common stock outstanding for the three and nine months ended March 31, 1996.
Earnings per share information for the three- and nine-month periods ended March
31, 1995 is not presented because the Company's stock was issued on March 11,
1996 and, therefore, was not outstanding for the entire period presented.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis and Results of Operations
General
Washington Bancorp ("Corporation") was organized by Washington Federal Savings
Bank ("Bank") for the purpose of acquiring all of the capital stock of the Bank
to be issued in connection with the Bank's conversion from mutual to stock form,
which was consummated on March 11, 1995, (the "Conversion"). The Company was
incorporated under Iowa law. The Company is a savings and loan holding company
and is subject to regulation of the Office of Thrift Supervision ("OTS"), the
Federal Deposit Insurance Corporation ("FDIC") and the Securities and Exchange
Commission ("SEC"). Headquartered in Washington, Iowa, the Company conducts
business from its main office located at 102 East Main Street and maintains a
drive-thru located at 220 East Washington. The Bank's deposits are insured up to
the applicable limits under the Savings Association Insurance Fund ("SAIF") of
the FDIC. The Bank is also a member of the Federal Home Loan Bank of Des Moines,
Iowa ("FHLB").
The Bank is primarily engaged in the business of attracting funds in the form of
deposits, and investing such funds in loans secured by real estate, primarily
one- to four-family residential mortgage loans. The Bank also invests excess
funds in U. S. Treasury and agency securities, high quality corporate
obligations and certificates of deposits. To a lessor extent, the Bank does
invest in local loans on multi-family, commercial real estate and construction
loans, commercial loans, as well as consumer loans. Management believes that its
investment in other investment securities enable the Bank to maintain adequate
liquidity levels, maintain a balance of high quality, diversified investments,
provide collateral for short- and long-term borrowings at profitable levels, in
addition to allowing sources of assets to pledge for public deposits. This
philosophy provides low administrative costs, lessens the burden of credit risk
and allows for proper management of interest rate risk.
Financial Condition
Total Assets. Total consolidated assets have increased from $55.1 million at
June 30, 1995 to $63.0 million at March 31, 1996. This net increase was
primarily due to the conversion from a mutual to a stock corporation.
Loans Receivable. Loans receivable, net increased from $40.4 million at June 30,
1995 to $41.5 million at March 31, 1996. The increase is primarily due to
Washington Federal Savings Bank's continued emphasis of serving the mortgage
needs of our customers. Also, the average mortgage loan balance increased from
$27,455 at June 30, 1995 to $29,566 at March 31, 1996.
Investment Securities. Held-to-maturity securities decreased from $3.1 million
at June 30, 1995 to none at March 31, 1996. Available-for-sale securities
decreased from $8.4 million at June 30, 1995 to $6.7 million at March 31, 1996.
The decrease in held-to-maturity investments is primarily due to the one-time
allowance to reclassify securities from held-to-maturity to available-for-sale.
Therefore, in December 1995, the Bank reclassified all the investment securities
to available-for-sale. The decrease in available-for-sale securities is
primarily due to the maturity of $2.1 million and the sale of $3.5 million.
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 change in interest rates and the fair value of these
securities was less at March 31, 1996 than their carrying value due to an
increase in interest rates since the purchase date of the securities. Therefore,
the total balance of available-for-sale securities is offset by the gross effect
of the unrealized loss.
Deposits. Deposits increased $6.1 million to $49.0 million at March 31, 1996
from $42.9 million at June 30, 1995. Interest credited to customer accounts
during the period from June 30, 1995 to March 31, 1996 totaled $1,239,000, while
deposits exceeded withdrawals by $4,830,000. Management believes that the net
increase in deposits is mainly due to the conversion from a mutual to a stock
corporation. Also, a governmental agency was responsible for a large temporary
deposit at the end of March due to seasonal fluctuations in their cash position.
Transactions and Savings Deposits rose as a percentage of total deposits from
$12.6 million or 29.3% at June 30, 1995 to $18.6 million or 38% at March 31,
1996. As a result of the Transactions and Savings Deposits increase, the
Certificates of Deposit dropped as a percentage of total deposits from $30.3
million or 70.5% at June 30, 1995 to $30.4 million or 62% at March 31, 1996
although total dollars in Certificates of Deposit rose.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) decreased $4.2 million from $7.2 million at June
30, 1995 to $3 million at March 31, 1996. The decrease is primarily due to the
decreased need to borrow to fund loan activity because of the reduction in
investment security holdings and the increase in equity due to the conversion
from a mutual to a stock corporation. The remaining FHLB advances are long-term
low-interest advances that are paying off through monthly amortization.
Total Equity. Total equity increased from $4.4 million at June 30, 1995 to $10.4
million at March 31, 1996. This increase is primarily the result of the issuance
of 657,519 shares of common stock at the price of $10.00 per share, less
$396,500 in closing cost.
RESULTS OF OPERATIONS - Nine Months Ended March 31, 1996
Performance Summary. Net income for the nine months ended March 31, 1996
decreased by $53,392 or 15.3% to $295,489 from $348,881 for the nine months
ended March 31, 1995. The decrease for the nine months ended March 31, 1996 was
primarily due to an increase in interest expense of $327,027 and an increase in
provisions for loan loss of $12,000. This increased expense was partially offset
by an increase in interest income of $171, 922, a decrease in non-interest
expense of $66,940, and a decrease in income tax expense of $41,495. For the
nine months ended March 31, 1996 and 1995, the returns on average assets were
.71% and 87%, respectively, while returns on average equity were 7.69% and
10.81%, respectively.
Net Interest Income. Net interest income for the nine months ended March 31,
1996 decreased $155,105 as compared to the nine months ended March 31, 1995.
This reflects an increase of $171,922 in interest income to $3,107,715 from
$2,935,793 and an increase of $327,027 in interest expense from to $1,904,946
from $1,577,919. The net decrease was primarily due to the cost of the Bank's
interest-bearing liabilities increasing more rapidly than the yield on the
interest-earning assets. In addition, the Bank borrowed from the FHLB to meet
the loan demand.
For the nine months ended March 31, 1996 the average yield on interest-earning
assets was 7.65% compared to 7.54% for the nine months ended March 31, 1995. The
average cost of interest-bearing liabilities was 5.09% for the nine months ended
March 31, 1996 an increase from 4.33% for the nine months ended March 31, 1995.
Due to the higher funding costs and the higher yield on interest-earning assets
and average interest rate spread was 2.56% for the nine months ended March 31,
1996 and 3.21% for the nine months ended March 31, 1995. The average net
interest margin was 2.89% for the nine months ended March 31, 1995 and 3.39% for
the nine months ended March 31, 1996.
Provision for Loan Loss. During the nine months ended March 31, 1996 the
provision for loan loss was $12,000 compared to none for the nine months ended
March 31, 1995. The Bank's loan portfolio consists primarily of residential
mortgage loans and it has experienced little change in the composition of the
loan portfolio. The allowance for loan losses of $210,695 or .51% of loans
receivable, net at March 31, 1996, compared to $207,000 or .50% of loans
receivable, net at June 30, 1995.
Non-Interest Income. For the nine months ended March 31, 1996, non-interest
income increased $5,278 compared to the nine months ended March 31, 1995 due
primarily to a gain in securities sold offset by a net decrease in bank service
charges. Management is committed to realigning the Bank's service charges to be
more competitive with other financial service corporations in the same asset
size, yet remaining conscious of the needs of the customers.
Non-Interest Expense. For the nine months ended March 31, 1996, non-interest
expense has decreased $66,940 compared to the nine months ended March 31, 1995.
This decrease is due primarily to a decrease in compensation and benefits.
RESULTS OF OPERATIONS - Three Months Ended March 31, 1996
Performance Summary. On March 11, 1996 Washington Bancorp issued 657,519 shares
of stock. Therefore, during this period, the effects of the increase in capital
are becoming apparent. Net income for the three months ended March 31, 1996
increased by $8,990 or 8.6% to $113,692 from $104,702 for the three months ended
March 31, 1995. The increase for the three months ended March 31, 1996 was
primarily due to the continued increase in both interest and non-interest income
of $55,726 and $19,130, respectively. Offsetting this were increases in interest
expense, non-interest expense, and provision for loan loss by $36,186, $12,374,
and $3,000, respectively. For the three months ended March 31, 1996 and March
31, 1995 the returns of average assets were .81% and .78%, respectively, while
the returns on average equity were 8.88% and 9.73%, respectively.
Net Interest Income. The net interest income increased $19,540 when comparing
the three months ended March 31, 1996 with the three months ended March 31,
1995. This increase is primarily due to the continued increase in loan interest
income. Also, because of the conversion from a mutual to a stock company there
has been a reduction in the need for FHLB borrowings to fund loan activity,
therefore interest expense on FHLB borrowings has decreased.
For the three months ended March 31, 1996 the average yield on interest-earning
assets was 7.46% compared to 7.47% for the three months ended March 31, 1995.
The average cost of interest-bearing liabilities was 4.84% for the three months
ended March 31, 1996 compared to 4.66% for the three months ended March 31,
1995.
Due to the increase in total balance on interest earning assets as a result of
the conversion net interest margin was 3.09% for the three months ended March
31, 1995 and 2.91% for the three months ended March 31, 1996, although the
average interest rate spread was 2.62% for the three month period ended March
31, 1996, and 2.81% for the three months ended March 31, 1995.
Non-interest Income. For the three months ended March 31, 1996 net non-interest
income increased $19,130 as compared to the three months ended March 31, 1995.
This is primarily due to a net gain in the sale of available for sale securities
and an increase in mortgage loan origination fees.
Non-interest Expense. For the three months ended March 31, 1996 net non-interest
expense increased $12,374 as compared to the three months ended March 31, 1995.
This reflects the increased cost of being a public company due to the increased
need for auditing and legal services. Offsetting this increase was a decrease in
compensation and benefits which again is due to attrition and the restructure of
the staffing as compared to the three months ended March 31, 1995.
Liquidity and Capital Resources. The Bank's principal sources of funds are
deposits, amortization and prepayment of loan principal, borrowings, sale and
maturities of investment securities, and operations. 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 Bank generally manages the pricing of its 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 its competitors, and, when necessary,
to supplement deposits with longer term and/or less expensive alternative
sources of funds.
Federal regulations historically have required the Bank 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 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the proceeding calendar month. Liquid assets for purposes 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. The Bank has historically maintained its
liquidity ratio at levels in excess of those required. At March 31, 1996, the
Bank's liquidity ratio was 20.77%. This is largely a result of the increase in
cash due to the conversion from a mutual to a public company. As of March 31,
1996, the proceeds from the conversion were placed in short-term competitive
yielding investments.
Liquidity management is both a daily and long-term responsibility of management.
The Bank adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest0-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 Bank requires funds beyond its ability to generate them
internally, it has additional borrowing capacity with the FHLB and collateral
eligible for reverse repurchase agreements.
The Bank anticipates that it will have sufficient funds available to meet
current loan commitments. At March 31, 1996, the Bank had outstanding
commitments to extend credit which amounted to $1,813,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
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 Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is 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
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(Registrant)
Date May 14, 1996 /s/ Stan Carlson
------------------- --------------------------------------------------
Stan Carlson, President and Chief Executive Officer
Date May 14, 1996 /s/ Leisha A. Linge
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Leisha A. Linge, Controller and Treasurer