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 September 30, 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
Washington Bancorp
(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
--------------------------------------------------
(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[ ] 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 November 10, 1996
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 September
30, 1996 (unaudited) and June 30, 1996
Unaudited Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995
Unaudited Consolidated Statements of Cash Flows for the three
months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
Part II. Other Information
Items 1 through 6
Signatures
Washington Bancorp and Subsidiary
Consolidated Statements of Financial Condition
September 30, June 30,
1996 1996*
------------- ------------
ASSETS (Unaudited)
Cash and cash equivalents:
Interest-bearing................................. $ 2,295,989 $ 1,109,583
Noninterest-bearing .............................. 243,254 793,769
------------ ------------
2,539,243 1,903,352
Investment securities, available for sale ................. 12,759,186 14,628,089
Loans receivable, net ..................................... 45,521,697 42,905,699
Accrued interest receivable ............................... 624,773 465,789
Federal Home Loan Bank stock .............................. 369,100 369,100
Premises and equipment, net ............................... 532,346 543,606
Foreclosed real estate .................................... 29,174 --
Other assets .............................................. 88,730 75,308
------------ ------------
Total assets.................................... $ 62,464,249 $ 60,890,943
============ ============
LIABILITIES
Deposits $....................................... $ 46,393,391 $ 44,176,448
Borrowed funds ............................................ 4,729,723 5,504,742
Advance from borrowers for
taxes and insurance .............................. 95,907 218,506
Accrued expenses and other liabilities .................... 459,241 443,082
Accrued SAIF assessment ................................... 294,310 --
------------ ------------
Total liabilities ................................ 51,972,572 50,342,778
------------ ------------
STOCKHOLDERS' EQUITY Common stock:
Common stock ..................................... 6,575 6,575
Additional paid-in capital ....................... 6,174,168 6,172,680
Retained earnings ......................................... 4,859,487 4,941,449
Unrealized (loss) on investment securities,
available for sale, net of income taxes .......... (55,063) (68,209)
Unearned shares,
employee stock ownership plan .................... (493,490) (504,330)
------------ ------------
Total stockholders' equity ....................... 10,491,677 10,548,165
------------ ------------
Total liabilities and
stockholders' equity ....................... $ 62,464,249 $ 60,890,943
============ ============
*Condensed from audited financial statements
See Notes to Consolidated Financial Statements
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Income
Three Months
Ended September 30,
------------------------
1996 1995
------------------------
Interest income:
Loans receivable:
First mortgage loans ........................... $ 816,762 $ 734,627
Consumer and other loans ........................ 137,668 104,867
Investment securities:
Taxable ......................................... 232,375 178,323
Nontaxable ...................................... 5,433 15,267
---------- ----------
Total interest income ........................... 1,192,238 1,033,084
---------- ----------
Interest expense:
Deposits ................................................. 552,502 563,231
Borrowed funds ........................................... 74,474 74,301
---------- ----------
Total interest expense .......................... 626,976 637,532
---------- ----------
Net interest income ............................. 565,262 395,552
Provision for loan loss ......................... 3,000 3,000
---------- ----------
Net interest income after
provision for loan loss ....................... 562,262 392,552
---------- ----------
Noninterest income:
Security gains(losses), net .............................. 388 - -
Loan origination and commitment fees ..................... 2,251 1,213
Service charges and fees ................................. 30,980 11,898
Insurance commissions .................................... 13,395 7,547
Other .................................................... 9,565 1,455
---------- ----------
Total noninterest income ........................ 56,579 22,113
---------- ----------
Noninterest expense:
Compensation and benefits ................................ 159,713 143,648
Occupancy and equipment .................................. 35,048 32,122
SAIF deposit insurance premium ........................... 326,718 29,148
Data processing .......................................... 13,660 25,103
Other .................................................... 130,509 48,986
---------- ----------
Total noninterest expense ....................... 665,648 279,007
---------- ----------
Income(loss) before income taxes ................ (46,807) 135,658
Income tax expense(credit) ........................................ (17,446) 46,925
---------- ----------
Net income(loss) ................................ $ (29,361) $ 88,733
========== ==========
Earnings(loss) per common share
subsequent to conversion ................................. $ (0.05) n/a
========== ==========
Dividends per common share
$ 0.08 n/a
========== ==========
Weighted average common shares .................................... 607,628 n/a
========== ==========
See Notes to Consolidated Financial Statements ....................
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows
Three Months
Ended September 30,
--------------------------
1996 1995
----------- -----------
Cash Flows from Operating Activities
Net income(loss) ................................. $ (29,361) $ 88,733
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and
discounts on debt securities ................ 19,415 17,232
Provision for loan loss .......................... 3,000 3,000
(Gain) on sale of investment securities .......... (388) - -
(Gain) loss on sale of foreclosed real estate .... (7,720) - -
Depreciation ..................................... 12,910 15,116
ESOP contribution expense ........................ 12,328 - -
Deferred income taxes ............................ (109,778) 2,369
(Increase)in accrued interest receivable ......... (158,984) (33,675)
(Increase)decrease in other assets ............... 4,813 (60,060)
Increase in accrued expenses
and other liabilities ................... 99,814 18,335
Increase in accrued SAIF assessment .............. 294,310 - -
----------- -----------
Net cash provided by operating activities 140,359 51,050
----------- -----------
Cash Flows from Investing Activities
Held to maturity securities:
Maturities and calls ............................. - - 90,000
Available for sale securities:
Sales ............................................ 911 - -
Maturities and calls ............................. 2,015,000 800,000
Purchases ........................................ (145,000) - -
Loans made to customers, net .............................. (2,640,452) (926,036)
Purchase of premises and equipment ........................ (1,650) (13,870)
----------- -----------
Net cash (used in) investing activities . (771,191) (49,906)
----------- -----------
Cash Flows from Financing Activities
Net increase in deposits ......................... $ 2,216,943 $ 2,062,070
Proceeds from Federal Home
Loan Bank advance ....................... 8,500,000 5,520,000
Principal payments on
Federal Home Loan Bank advances ......... (9,275,019) (6,593,196)
Net(decrease) in advances from borrowers for
taxes and insurance ..................... (122,599) (92,786)
Payment of cash dividends ........................ (52,602) - -
----------- -----------
Net cash provided by financing activities 1,266,723 896,088
----------- -----------
Net increase in cash and cash equivalents 635,891 897,232
Cash and cash equivalents:
Beginning ........................................ 1,903,352 1,658,043
----------- -----------
Ending ........................................... $ 2,539,243 $ 2,555,275
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ............. $ 514,732 $ 552,048
Interest paid on other obligations ...... 74,474 74,301
Income taxes, net of refunds ............ 39,050 67,200
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfer from loans to foreclosed real estate .... $ 60,454 - -
Contract sales of foreclosed real estate ......... 39,000 - -
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Notes to Consolidated Financial Statements
Basis of presentation. Interim Financial Information (unaudited): The financial
statements and notes related thereto for the three month period ended September
30, 1996, 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, 1996 and all related
amendments and exhibits (including all financial statements and notes therein),
filed by the Company with the Securities and Exchange Commission.
Principles of consolidation. The accompanying consolidated financial statements
include the accounts of Washington Bancorp("Washington" or the "Company"),
Washington Federal Savings Bank(the "Bank"), and its wholly-owned subsidiary
Washington Financial Services, Inc., which is a discount brokerage firm. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Organization. On March 11, 1996, Washington Bancorp sold 604,917 shares of
common stock at $10.00 per share and simultaneously invested $3,089,356 for all
the outstanding common shares of Washington Federal Savings Bank in a
transaction accounted for like a pooling of interests.
Prior to March 11, 1996, the Bank was a federally chartered mutual savings bank.
After a reorganization, effective March 11, 1996, the Bank became a federally
chartered stock savings bank and 100% of the Bank's common stock is owned by
Washington Bancorp.
Recapture of Bad Debt Reserves. Prior to the enactment, on August 20, 1996, of
the Small Business Job Protection Act of 1996 (the "1996 Act"), for federal
income tax purposes, thrift institutions such as the Bank, which met certain
definitional tests primarily relating to their assets and the nature of their
business, were permitted to establish tax reserves for bad debt, and to make
annual additions thereto, which additions could, within specified limitations,
be deducted in arriving at their taxable income. The Bank's deduction with
respect to "qualifying loans," which are generally loans secured by certain
interests in real property, could be computed using an amount based on a
six-year moving average of the Bank's actual loss experience (the "Experience
Method"), or a percentage equal to 8% of the Bank's taxable income ( the "PTI
Method"), computed without regard to this deduction and with additional
modifications and reduced by the amount of any permitted addition to the
non-qualifying reserve.
Under the 1996 Act, the PTI Method was repealed and the Bank will be required to
use the Experience Method of computing additions to its bad debt reserve for
taxable years beginning with the Banks taxable year beginning January 1, 1996.
In addition, the Bank will be required to recapture (i.e., take into income)
over a six-year period, beginning with the Bank's taxable year beginning January
1, 1996, the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of December 31, 1995 over the greater of (a) the
balance of such reserves as of December 31, 1987 (or over a lesser amount if the
Bank's portfolio decreased since December 31, 1987) or (b) an amount that would
have been the balance of such reserves as of December 31, 1995 had the Bank
always computed the additions to its reserves using the six-year moving average
Experience Method. However, under the 1996 Act, such recapture requirements will
be suspended for each of the two successive taxable years beginning January 1,
1996 in which the Bank originates a minimum amount of certain residential loans
during such years that is not less than the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding January 1,
1996. This legislation will result in the Bank's recapture of reserves with the
aggregate tax liability of approximately $88,000. Since the Bank has already
provided a deferred income tax liability of this amount for financial reporting
purposes, there will be no adverse impact to the Bank's financial condition or
results of operations from the enactment of this legislation.
Deposit Insurance Funds Act of 1996. In response to the SAIF/BIF assessment
disparity, the Deposit Insurance Funds Act of 1996 (the "Funds Act") was enacted
into law on September 30, 1996. The Funds Act amended the Federal Deposit
Insurance Act (the "FDIA") in several ways to recapitalize the SAIF and reduce
the disparity in the assessment rates for the BIF and the SAIF. The Funds Act
authorized the FDIC to impose a special assessment on all institutions with
SAIF-assessable deposits in the amount necessary to recapitalize the SAIF. As
implemented by the FDIC, institutions with SAIF-assessable deposits will pay a
special assessment, subject to adjustment, of 65.7 basis points on the Savings
Association Insurance Fund (SAIF) deposits held as of March 31, 1995. Washington
Federal Savings Bank's estimated assessment totals $294,310. Although the
assessment will not be collected until November 27, 1996, the Office of Thrift
Supervision(OTS), in accordance with generally accepted accounting principles,
advised in Notice SN96-11 that the special SAIF assessment be accrued as of
September 30, 1996 and that the amount be reported as a component of operating
income in the quarter ended September 30, 1996. The Funds Act provides that the
amount of special assessment will be deductible for federal income tax purposes
for the taxable year in which the special assessment is paid.
The SAIF-assessable base for the fourth quarter of 1996 was assessed at a rate
of 23 to 31 basis points as part of the regular annual deposit insurance
assessment. In view of the recapitalization of the SAIF, the FDIC proposed a
reduction of the assessment rate for the SAIF-assessable deposits for periods
beginning October 1, 1996. Overpayment of the fourth quarter assessments will be
refunded or credited using regular quarterly payment procedures. Beginning
January 1, 1997 the SAIF-assessable base will range from 0 to 27 basis points,
the same risk-based assessment as BIF members. The Funds Act expanded the base
of the payments on the bonds (the "FICO bonds") issued in the late 1980s by the
Financing Corporation to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation to include the deposits of both SAIF- and BIF-insured
deposits beginning January 1, 1997. Until December 31, 1999, or such earlier
date on which the last savings association ceases to exist, the rate of
assessment for BIF-assessable deposits will be one-fifth of the rate imposed on
SAIF-assessable deposits. The anticipated FICO assessments of 6.4 basis points
on SAIF members and 1.3 basis points on BIF members will be added to the regular
assessment.
The Funds Act also provides for the merger of the SAIF and BIF on January 1,
1999, with such merger being conditioned upon the prior elimination of the
thrift charter. The Secretary of the Treasury is required to conduct a study of
relevant factors with respect to the development of a common charter for all
insured depository institutions and abolition of separate charters for banks and
thrifts and to report the Secretary's conclusions and findings to the Congress
on or before March 31, 1997.
Earnings per common share. The earnings per common share amounts were computed
using the weighted average number of shares outstanding during the periods
presented. In accordance with Statement of Position 93-6, shares owned by the
ESOP that have not been committed to be released are not considered outstanding
for the purpose of computing earnings per share. Earnings per share information
for the three months ended September 30, 1996 is calculated by dividing net
income (loss) by the weighted average number of shares outstanding. Earnings per
share is not applicable for the three months ended September 30, 1995 because
the Bank was a mutual association at that time.
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 September 30, 1996 the capital requirements of the Bank under
FIRREA and its actual capital ratios. As of September 30, 1996 the Bank
substantially exceeded all current regulatory capital requirement standards.
At September 30, 1996
-----------------------
Amount Percent
------ -------
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level .............. $8,033 12.8%
Requirement ................ 938 1.5%
------ -----
Excess ..................... $7,095 11.3%
Core Capital:
Capital Level .............. $8,033 12.8%
Requirement ................ 1,875 3.0%
------ -----
Excess ..................... $6,158 9.8%
Risk-Based Capital:
Capital Level .............. $8,224 19.8%
Requirement ................ 3,322 8.0%
------ -----
Excess ..................... $4,902 11.8%
Part I - Financial Information
Item 2. Management's Discussion and Analysis
General
Washington Bancorp ("Washington" or the "Company") is an Iowa corporation which
was organized in October 1995 by Washington Federal Savings Bank ("Washington
Federal" or the "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, the Bank 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, the Bank converted to the stock form of organization through the
sale and issuance of its common stock to the Company. The principal asset of the
Company is the outstanding stock of the Bank, its wholly-owned subsidiary. The
Company presently has no separate operations and its business consists primarily
of the business of the Bank. All references to the Company, unless otherwise
indicated at or before March 11, 1996 refer to the Bank.
Washington 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 also makes commercial
loans, consumer loans, automobile loans, and has occasionally been a purchaser
of fixed-rate mortgage-backed securities.
In anticipation of possible federal legislation that may inhibit future
branching opportunities for savings associations, Washington Federal filed
applications with the Office of Thrift Supervision ("OTS") on October 20, 1995
for three branch offices. These applications have been approved and are valid
through February 1997. Although management has not made a determination to open
any branch offices, the purpose of the applications is to possibly preserve
Washington Federal's branching opportunities. No assurance can be given that the
applications will satisfy the legislation nor that Washington Federal will open
any branch offices.
Under the Deposit Insurance Funds Act of 1996 and in accordance with generally
accepted accounting principles, the 65.7 basis-point, one-time SAIF assessment
was accrued as of September 30, 1996. The Bank's estimated assessment is
$294,310. Until October 1, 1996 the Bank was assessed at a rate of 23 basis
points for the protection of FDIC insurance. Effective October 1, 1996 the
annual assessment rate was reduced and a credit for the fourth quarter
overpayment will be applied toward the first quarter 1997 assessment billing.
The Bank anticipates an annual SAIF assessment rate of 6.4 basis points
beginning January 1, 1997.
Financial Condition
Total assets. Total consolidated assets have increased from $60.9 million at
June 30, 1996 to $62.5 million at September 30, 1996. This net increase is
primarily due an increase in loans funded by seasonal fluctuations in the
deposits.
Loans receivable. Loans receivable, net increased from $42.9 million at June 30,
1996 to $45.5 million at September 30, 1996. This increase is primarily due to
the Bank's continued emphasis on serving the mortgage needs of our customers.
The average first mortgage loan balance rose from $34,510 at June 30, 1996 to
$35,692 at September 30, 1996. There was also a notable increase in commercial
lending as a result of an active solicitation program, the Bank's reputation
within the community and current commercial credit customers recommending the
Bank's services to others.
Investment securities. Available-for-sale securities decreased from $14.6
million at June 30, 1996 to $12.8 million at September 30, 1996. This decrease
is primarily due to the maturity of $2.0 million which were used to fund loan
activity and decrease FHLB borrowings. The portfolio of available-for-sale
securities is comprised primarily of investment securities carrying fixed
interest rates. The fair value of these securities is subject to changes in
interest rates. The fair value of these securities was less on September 30,
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.
Accrued interest receivable. Accrued interest receivable increased from $466,000
at June 30, 1996 to $625,000 at September 30, 1996. The increase is primarily
due to the level of accrued interest on available-for-sale securities with
semi-annual interest payments.
Deposits. Deposits increased from $44.2 million at June 30, 1996 to $46.3
million at September 30, 1996. Interest credited to customer accounts totalled
$418,000, while deposits exceeded withdrawals by $1,799,000. This is primarily
due to the seasonal fluctuation in the cash position of a local governmental
agency. Transaction and savings deposits rose as a percentage of total deposits
from $16.0 million or 34.6% at June 30, 1996 to $18.4 million or 37.6% at
September 30, 1996. As a result of the increase in transaction and savings
deposits, certificates of deposit decreased as a percentage of total deposits
from 65.4% ($30.3 million) at June 30, 1996 to 62.4% ($30.6 million) at
September 30, 1996.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) decreased from $5.5 million at June 30, 1996 to
$4.7 million at September 30, 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 total deposits. The majority of
the borrowings are long-term advances that are paying off through monthly
amortization.
Advances from borrowers for taxes and insurance. The total balance in advances
from borrowers for taxes and insurance decreased from $219,000 at June 30, 1996
to $96,000 at September 30, 1996. The decrease is primarily due to the payment
of the first installment of the 1996-97 county real estate tax bills due
September 30, 1996.
Accrued SAIF assessment. In accordance with generally accepted accounting
principles the one-time SAIF assessment of $294,310 is shown as an outstanding
liability on the September 30, 1996 balance sheet.
Total stockholders' equity. Total stockholders' equity decreased $56,000 when
comparing June 30, 1996 to September 30, 1996. The decrease is primarily due to
the cash dividend paid to stockholders' on August 15, 1996 totalling $53,000 and
the net loss in this quarter due to the SAIF assessment. This decrease was
partially offset by the decrease in unearned shares of the ESOP and the decrease
in unrealized loss on available-for-sale securities.
Results of Operations - Three Months Ended September 30, 1996 As Compared To The
Three Months Ended September 30, 1995 Performance summary. Net earnings
decreased $118,000 to ($29,000) for the three months ended September 30, 1996
from $89,000 for the three months ended September 30, 1995. The decrease is
primarily due to the accounting as of September 30, 1996 for the one-time SAIF
assessment as a component of operating income and an increase of $92,000 in
noninterest expense. This was partially offset by an increase of $159,000 in
interest income, a decrease of $11,000 in interest expense, an increase of
$34,000 in noninterest income, and a decrease of $64,000 in income tax expense.
For the three months September 30, 1996 the return on average assets was (.19%)
compared to .65% for the three months ended September 30, 1995, while the return
on average equity was (1.12%) for the three months ended September 30, 1996
compared to 8.01% for the three months ended September 30, 1995.
Net interest income. Net interest income increased $169,000 to $565,000 for the
three months ended September 30, 1996 from $396,000 for the three months ended
September 30, 1995. The increase is primarily due to the increase of $159,000 in
interest income to $1,192,000 for the three months ended September 30, 1996 from
$1,033,000 for the three months ended September 30, 1995. Interest expense fell
$11,000 to $627,000 for the three months ended September 30, 1996 from $638,000
for the three months ended September 30, 1995.
For the three months ended September 30, 1996 the average yield on
interest-earning assets was 8.16% compared to 7.71% for the three months ended
September 30, 1995. The average cost of interest-bearing liabilities was 4.99%
for the three months ended September 30, 1996 compared to 5.14% for the three
months ended September 30, 1995. The average balance of interest earning assets
increased $4.8 million to $58.4 million for the three months ended September 30,
1996 from $53.6 million for the three months ended September 30, 1995. During
this same period, the average balance of interest-bearing liabilities increased
$700,000 to $50.2 million for the three months ended September 30, 1996 from
$49.5 million for the three months ended September 30, 1995.
Due to the increase in yield on the interest-earning assets and the decrease in
rates paid on the interest-bearing liabilities, the average interest rate spread
was 3.17% for the three months ended September 30, 1996 compared to 2.57% for
the three months ended September 30, 1995. The average net interest margin
(annualized net interest income divided by total average assets) was 3.66% for
the three months ended September 30, 1996 compared to 2.96% for the three months
ended September 30, 1995.
Noninterest income. Noninterest income increased $34,000 to $57,000 for the
three months ended September 30, 1996 from $22,000 for the three months ended
September 30, 1995. The $19,000 increase in service charges and fees is due
primarily to the $11,000 increase of overdraft fees when comparing the three
months ended September 30, 1996 to the three months ended September 30, 1995 as
a result of more stringent guidelines on overdrawn accounts. The $6,000 increase
in insurance commissions to $13,000 for the three months ended September 30,
1996 from $7,000 for the period ended September 30, 1995 is a result of the
increased sales of credit insurance products on the loan portfolio. The $8,000
increase in other noninterest income is due primarily to a gain on real estate
sold in the three months ended September 30, 1996.
Noninterest expense. Noninterest expense increased $386,000 to $665,000 for the
three months ended September 30, 1996 from $279,000 for the three months ended
September 30, 1995. This is primarily due to the $294,310 one-time SAIF
assessment that was accounted for as of September 30, 1996 as a component of
operating expense. Compensation and benefit expense increased $16,000 to
$160,000 for the three months ended September 30, 1996 from $144,000 for the
three months ended September 30, 1995. The increase represents normal salary
increases and increases in other employee benefits. Other noninterest expense
increased $82,000 to $131,000 for the three months ended September 30, 1996 from
$49,000 for the three months ended September 30, 1995 as a result of the
increase in operating costs since the formation of Washington Bancorp.
Liquidity and capital resources. The Bank's principal sources of funds are
deposits, amortization and prepayment of loan principal, borrowings, and the
sale and maturities of investment securities. While scheduled loan repayments
and maturing investments are relatively predictable, deposit flows and early
loan repayments are more influenced by interest rates, general economic
conditions, and competition, and, most recently, the restructuring of the thrift
industry. The 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 competition, and when necessary, to
supplement deposits with 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 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. The Bank has historically
maintained its liquidity ratio at levels in excess of those required. At
September 30, 1996, the Bank's liquidity ratio was 13.30%.
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 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 Bank requires funds beyond its ability to generate them
internally, it has additional borrowing capacity with the FHLB of Des Moines and
collateral eligible for reverse repurchase agreements.
The Bank anticipates that it will have sufficient funds available to meet
current loan commitments. At September 30, 1996, the Bank had outstanding
commitments to extend credit which amounted to $1,931,000.
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.
At the annual meeting on October 15, 1996 the stockholders of
Washington Bancorp re-elected two directors, ratified the adoption of
the 1996 Stock Option and Incentive Plan, ratified the Recognition and
Retention Plan (RRP), and ratified the appointment of McGladrey and
Pullen, LLP as the auditors for the fiscal year ending June 30, 1997.
Total voting by proxy was 600,890 of the 657,519 shares outstanding.
Directors, J. Richard Wiley and Richard L. Weeks were re-elected by 98%
of the voted proxies.
The 1996 Stock Option Plans was ratified by 88% of the voted proxies.
Pursuant to the 1996 Stock Option Plan, 65,751 shares of the Company's
Common Stock will be repurchased from the open market, upon approval of
the Office of Thrift Supervision, for issuance by the Company under the
Stock Option Plan. In general, the term of stock options will expire no
later than October 15, 2006. The Compensation Committee may grant
either "Incentive Stock Options" as defined under Section 422 of the
Code or stock options not intended to qualify as such ("non-qualified
stock options"). The initial awards are 32,874 shares to a four-person
executive group, and 19,726 shares to the seven-person non-executive
directorial group.
The Recognition and Retention Plan was ratified by 88% of the voted
proxies. Pursuant to the RRP, 26,300 shares of the Company's Common
Stock will be repurchased from the open market, upon approval of the
Office of Thrift Supervision, for issuance by the Company under the
RRP. In general, the RRP is administered by the Company's Compensation
Committee. RRP shares have been awarded to directors, officers and
employees and will vest in five equal annual installments, with the
first installment vesting on October 15, 1997. RRP Shares are subject
to forfeiture if the recipient ceases to remain in the continuous
service (as defined by the RRP) as an employee, officer or director. In
addition, the vesting of RRP Shares is subject to the Bank meeting its
fully phased-in capital requirements. The initial awards are 13,152
shares to a four-person executive group, and 7,889 shares to the
seven-person non-executive directorial group.
The appointment of McGladrey and Pullen, LLP as the corporate auditors
for the fiscal year ending June 30, 1996 was ratified by 99% of the
voted proxies.
Item 5. Other Information.
Employee Benefit Plans. In conjunction with the Bank's conversion to
stock ownership, the Company established an Employee Stock Ownership
Plan (ESOP) for eligible employees. The plan was established by
amending the Savings Bank's existing profit sharing plan. Employees of
the Bank are eligible to participate after they attain age 21 and
complete one year of service during which they work at least 1,000
hours. The Company issued 52,602 shares of common stock to the ESOP on
the date of the conversion and reorganization.
At September 30, 1996 the ESOP held 52,602 shares of the Company's
common stock, 3,253 of which were released for allocation and the
remaining 49,349 were unreleased (unearned) shares. The 49,349
unreleased (unearned) shares had a fair market value of approximately
$530,500 at September 30, 1996.
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 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 November 11, 1996 /s/ Stan Carlson
---------------------------------
Stan Carlson, President and Chief
Executive Officer
Date November 11, 1996 /s/ Leisha A. Linge
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Leisha A. Linge
Controller