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, 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 0-27910
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 February 7, 1997
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,
1996 (unaudited) and June 30, 1996
Unaudited Consolidated Statements of Income for the three months
ended December 31, 1996 and 1995 and for the six months ended
December 31, 1996 and 1995
Unaudited Consolidated Statements of Cash Flows for the six
months ended December 31, 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
December 31, June 30,
1996 1996*
------------ -------------
ASSETS (unaudited)
Cash and cash equivalents:
Interest-bearing.................................... $ 4,103,137 $ 1,109,583
Noninterest-bearing ................................ 296,624 793,769
----------- ------------
4,399,761 1,903,352
Investment securities, available for sale ................... 11,193,327 14,628,089
Loans receivable, net ....................................... 47,523,117 42,905,699
Accrued interest receivable ................................. 525,196 465,789
Federal Home Loan Bank stock ................................ 433,200 369,100
Premises and equipment, net ................................. 529,477 543,606
Foreclosed real estate ...................................... 29,174 --
Other assets ................................................ 28,092 75,308
----------- ------------
Total assets........................................ $64,661,344 $ 60,890,943
=========== ============
LIABILITIES
Deposits .................................................... $45,648,023 $ 44,176,448
Borrowed funds .............................................. 7,654,227 5,504,742
Advance from borrowers for
taxes and insurance ................................ 179,963 218,506
Accrued expenses and other liabilities ...................... 501,323 443,082
----------- ------------
Total liabilities .................................. 53,983,536 50,342,778
----------- ------------
STOCKHOLDERS' EQUITY Common stock:
Common stock ....................................... 6,575 6,575
Additional paid-in capital ......................... 6,180,292 6,172,680
Retained earnings ........................................... 5,010,050 4,941,449
Unrealized (loss) on investment securities,
available for sale, net of income taxes ............ (36,459) (68,209)
Unearned shares,
employee stock ownership plan ...................... (482,650) (504,330)
----------- ------------
Total stockholders' equity ......................... 10,677,808 10,548,165
----------- ------------
Total liabilities and
stockholders' equity.............................. $64,661,344 $ 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 Six Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
------------------------ ------------------------
Interest income:
Loans receivable:
First mortgage loans ............................ $ 867,905 $ 735,510 $1,684,667 $1,470,137
Consumer and other loans ............................ 156,382 116,331 294,049 221,198
Investment securities:
Taxable .................................... 235,065 171,424 467,440 349,747
Nontaxable ................................. 5,433 19,547 10,867 34,814
---------- ---------- ---------- ----------
Total interest income ...................... 1,264,785 1,042,812 2,457,023 2,075,896
---------- ---------- ---------- ----------
Interest expense:
Deposits ............................................ 552,349 569,581 1,104,851 1,132,812
Borrowed funds ...................................... 88,727 95,694 163,201 169,995
---------- ---------- ---------- ----------
Total interest expense ..................... 641,076 665,275 1,268,052 1,302,807
---------- ---------- ---------- ----------
Net interest income ........................ 623,710 377,537 1,188,971 773,089
Provision for loan loss ...................................... 3,000 6,000 6,000 9,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan loss .................. 620,710 371,537 1,182,971 764,089
---------- ---------- ---------- ----------
Noninterest income:
Security gains, net ................................. -- 18,907 388 18,907
Loan origination - commitment fees .................. 903 4,845 2,116
Service charges and fees ............................ 26,373 18,879 57,353 30,777
Insurance commissions ............................... 34,116 18,890 47,511 26,437
Other ............................................... 9,642 1,378 19,207 2,833
---------- ---------- ---------- ----------
Total noninterest income ................... 72,725 58,957 129,304 81,070
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits ........................... 199,853 135,693 359,566 279,341
Occupancy and equipment ............................. 36,857 46,571 71,905 78,693
SAIF deposit insurance premium....................... 30,435 28,039 357,153 57,187
Data processing ..................................... 23,901 17,226 37,561 42,329
Other ............................................... 97,649 64,643 228,158 113,629
---------- ---------- ---------- ----------
Total noninterest expense .................. 388,695 292,172 1,054,343 571,179
---------- ---------- ---------- ----------
Income before income taxes ................. 304,740 138,322 257,932 273,980
Income tax expense ........................................... 109,991 45,258 92,545 92,183
---------- ---------- ---------- ----------
Net income ................................. $ 194,749 $ 93,064 $ 165,387 $ 181,797
========== ========== ========== ==========
Earnings per common share
subsequent to conversion $ 0.32 n/a $ 0.27 n/a
========== ========= ========== ==========
Dividends per common share $ 0.10 n/a $ 0.18 n/a
========== ========= ========== ==========
Weighted average common shares 608,712 n/a 608,170 n/a
========== ========= ========== ===========
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows
Six Months
Ended December 31,
1996 1995
-------------------------
Cash Flows from Operating Activities
Net income ....................................... $ 165,387 $ 181,797
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and
discounts on debt securities ................ 36,392 57,065
Provision for loan loss .......................... 6,000 9,000
(Gain) on sale of investment securities .......... (388) (18,907)
(Gain) on sale of foreclosed real estate ......... (13,585) --
Depreciation ..................................... 28,285 45,196
ESOP contribution expense ........................ 29,292 --
Deferred income taxes ............................ (16,798) 16,347
(Increase)decrease in accrued
interest receivable ..................... (59,407) 23,260
(Increase)decrease in other assets ............... 47,216 (152,944)
Increase(decrease) in accrued expenses
and other liabilities ................... 55,988 (18,984)
----------- -----------
Net cash provided by operating activities ........ 278,382 141,830
----------- -----------
Cash Flows from Investing Activities
Held to maturity securities:
Maturities and calls ............................. -- 166,988
Available for sale securities:
Sales ............................................ 911 2,904,617
Maturities and calls ............................. 8,593,648 1,143,374
Purchases ........................................ (5,145,000) --
Loans made to customers, net ............................ (4,639,007) (708,607)
Purchase of FHLB Stock .................................. (7,200) (64,100)
Purchase of premises and equipment ...................... (14,156) (14,921)
----------- -----------
Net cash provided by(used in) investing activities (1,267,704) 3,484,251
----------- -----------
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows (Continued)
Six Months
Ended December 31,
---------------------------
1996 1995
---------------------------
Cash Flows From Financing Activities
Net increase in deposits................................................ $ 1,471,575 $ 1,602,093
Proceeds from Federal Home Loan Bank advances........................... 41,900,000 14,820,000
Principal payments on
Federal Home Loan Bank advances ............................... (39,750,514) (18,996,834)
Net(decrease) in advances from borrowers for
taxes and insurance ........................................... (38,543) (2,190)
Payment of cash dividends .............................................. (96,787) --
------------ ------------
Net cash provided by(used in)
financing activities ................................. 3,485,731 (2,576,931)
------------ ------------
Net increase in cash
and cash equivalents ................................. 2,496,409 1,049,150
Cash and cash equivalents:
Beginning .............................................................. 1,903,352 1,658,043
------------ ------------
Ending ................................................................. $ 2,707,193 $ 4,339,761
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors.................................... $ 872,644 $ 900,605
Interest paid on other obligations ............................ 163,201 169,995
Income taxes, net of refunds .................................. 78,100 134,400
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfer from loans to foreclosed real estate........................... $ 106,289 $ --
Contract sales of foreclosed real estate ............................... 90,700 --
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 periods and six month
periods ended December 31, 1996 and 1995, 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 $156,000. 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 paid 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 assessment totalled $294,310. 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
totalling $5,806 was 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 December 31, 1996 and six months ended December 31,
1996 is calculated by dividing net income by the weighted average number of
shares outstanding. Earnings per share is not applicable for the three months
ended December 31, 1995 nor the six months ended December 31, 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 December 31, 1996 the capital requirements of the Bank under
FIRREA and its actual capital ratios. As of December 31, 1996 the Bank
substantially exceeded all current regulatory capital requirement standards.
At December 31, 1996
---------------------
Amount Percent
------ --------
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level .............. $8,251 12.8%
Requirement ................ 970 1.5%
------ ----
Excess ..................... $7,281 11.3%
====== ====
Core Capital:
Capital Level .............. $8,251 12.8%
Requirement ................ 1,941 3.0%
------ ----
Excess ..................... $6,158 9.8%
====== ====
Risk-Based Capital:
Capital Level .............. $8,447 21.1%
Requirement ................ 3,195 8.0%
------ ----
Excess ..................... $5,252 13.1%
====== ====
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 the Bank was assessed a
65.7 basis-point, one-time SAIF fee which totalled $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 $5,806 credit for the fourth quarter overpayment was applied toward the
first quarter 1997 assessment billing. The Bank will be charged 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 $64.7 million at December 31, 1996. This net increase is
primarily due an increase in net loans receivable funded by a decrease in
available-for-sale investment securities and an increase in borrowed funds.
Loans receivable. Loans receivable, net increased from $42.9 million at June 30,
1996 to $47.6 million at December 31, 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
$36,266 at December 31, 1996. There was also a $1.5 million 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 $11.2 million at December 31, 1996. This decrease is
primarily due to the maturity or call of $8.6 million in available-for-sale
securities which were partially used to fund loan activity and partially
reinvested in available-for-sale securities. 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 December 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.
Accrued interest receivable. Accrued interest receivable increased from $466,000
at June 30, 1996 to $525,000 at December 30, 1996. The increase is primarily due
to the increase in loans receivable, net.
Deposits. Deposits increased from $44.2 million at June 30, 1996 to $45.6
million at December 31, 1996. Interest credited to customer accounts totalled
$873,000, while deposits exceeded withdrawals by $527,000. Transaction and
savings deposits increased as a percentage of total deposits from $13.9 million
or 31.4% at June 30, 1996 to $15.0 million or 32.8% at December 31, 1996. As a
result of the increase in transaction and savings deposits, certificates of
deposit decreased as a percentage of total deposits from 68.6% ($30.3 million)
at June 30, 1996 to 67.2% ($30.7 million) at December 31, 1996.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) increased from $5.5 million at June 30, 1996 to
$7.7 million at December 31, 1996. The increase is primarily due to the
increased need to borrow to fund loan activity.
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 $180,000 at December 31, 1996. The decrease is primarily due to the annual
escrow analysis on the Bank's mortgage loans which was processed in December,
1996.
Total stockholders' equity. Total stockholders' equity increased $130,000 when
comparing December 31, 1996 to June 30, 1996. The increase is primarily due to
the $165,387 net income for the six months ended December 31, 1996 offset by the
$96,787 cash dividend paid to shareholders on August 15, 1996 and November 15,
1996. The increase in equity was also due to the decrease in unearned shares of
the ESOP and the decrease in unrealized loss on available-for-sale securities.
Results of Operations - Six Months Ended December 31, 1996 As Compared To The
Six Months Ended December 31, 1995
Performance summary. Net earnings decreased $17,000 to $165,000 for the six
months ended December 31, 1996 from $182,000 for the six months ended December
31, 1995. The decrease is primarily due to the $294,000 one-time SAIF assessment
included in the $483,000 increase in noninterest expense. This was partially
offset by an increase of $381,000 in interest income, a $35,000 decrease in
interest expense and a $48,000 increase in noninterest income. For the six
months ended December 31, 1996 the annualized return on average assets was 0.53%
compared to 0.66% for the six months ended December 31, 1995, while the
annualized return on average equity was 3.13% for the six months ended December
31, 1996 compared to 8.21% for the six months ended December 31, 1995. The
decrease in the annualized return on average equity is due to the increase in
stockholders' equity from the conversion in March of 1996.
Net interest income. Net interest income increased $416,000 to $1.2 million for
the six months ended December 31, 1996 from $773,000 for the six months ended
December 30, 1995. The increase is primarily due to the increase of $381,000 in
interest income to $2.5 million for the six months ended December 31, 1996 from
$2.1 million for the six months ended December 31, 1995. Interest expense
decreased $35,000 when comparing the six months ended December 31, 1996 to the
six months ended December 31, 1995.
For the six months ended December 31, 1996 the average yield on interest-earning
assets was 8.22% compared to 7.78% for the six months ended December 31, 1995.
The average cost of interest-bearing liabilities was 5.21% for the six months
ended December 31, 1996 compared to 5.31% for the six months ended December 31,
1995. The average balance of interest-earning assets increased $6.4 million to
$59.7 million for the six months ended December 31, 1996 from $53.3 million for
the six months ended December 31, 1995. During this same period, the average
balance of interest-bearing liabilities decreased $344,000 to $48.7 million for
the six months ended December 31, 1996 from $49.0 million for the six months
ended December 31, 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 3.01% for the six months ended December 31, 1996 compared to 2.47% for the
six months ended December 31, 1995. The average net interest margin (annualized
net interest income divided by total average assets) was 3.79% for the six
months ended December 31, 1996 compared to 2.82% for the six months ended
December 31, 1995.
Noninterest income. Noninterest income increased $48,000 to $129,000 for the six
months ended December 31, 1996 from $81,000 for the six months ended December
31, 1995. The $27,000 increase in service charges and fees is primarily due to
the increase in overdraft fees when comparing the six months ended December 31,
1996 to the six months ended December 31, 1995 as a result of more stringent
guidelines on overdrawn accounts. The $21,000 increase in insurance commissions
to $48,000 for the six months ended December 31, 1996 from $26,000 for the
period ended December 31, 1995 is a result of the increased sales of credit
insurance products on the loan portfolio. The $17,000 increase in other
noninterest income is primarily due to the increase in gains on real estate sold
when comparing the six months ended December 31, 1996 to six months ended
December 31, 1995. There was a $2,000 increase in loan fees when comparing the
six months ended December 31, 1996 to December 31, 1995. These increases were
offset by a decrease of $19,000 in gains from the sale of available-for-sale
securities when comparing the six months ended December 31, 1996 to the six
months ended December 31, 1995.
Noninterest expense. Noninterest expense increased $483,000 to $1.1 million for
the six months ended December 31, 1996 from $571,000 for the six months ended
December 31, 1995. The $300,000 increase in SAIF deposit insurance premium is
primarily due to the $294,000 one-time SAIF assessment. Compensation and benefit
expense increased $80,000 to $359,000 for the six months ended December 31, 1996
from $279,000 for the six months ended December 31, 1995. The increase is
compensation is partially due to a $13,000 increase in fees paid to the credit
insurance brokers to $29,000 for the six months ended December 31, 1996 from
$16,000 for the six months ended December 31, 1995 as a result of increased
credit insurance sales. Also there were normal salary increases and increases in
other employee benefits totalling $64,000 which includes a $25,000 expense for
the Recognition and Retention Plan approved on October 15, 1996 at the Company's
annual meeting. Other noninterest expense increased $114,000 to $228,000 for the
six months ended December 31, 1996 from $114,000 for the six months ended
December 31, 1995 primarily as a result of the increase in operating costs since
the formation of Washington Bancorp. Also, this was partially a result of the
$12,000 increase in cost of real estate sold to $13,000 for the six months ended
December 31, 1996 from $1,000 for the six months ended December 31, 1995, as
well as a $9,000 increase in legal services to $11,000 for the six months from
$1,000 for the six months ended December 31, 1995 and a $36,000 increase in
auditing and accounting to $38,000 for the six months ended December 31, 1996
from $2,000 for the six months ended December 31, 1995. The increases were
offset by a $7,000 decrease in occupancy and equipment expense and a $5,000
decrease in data processing expense when comparing the six months ended December
31, 1996 to December 31, 1995.
Results of Operations - Three Months Ended December 31, 1996 As Compared To The
Three Months Ended December 31, 1995 Performance summary. Net earnings increased
$102,000 to $195,000 for the three months ended December 31, 1996 from $93,000
for the three months ended December 31, 1995. The increase is primarily due to
the increase of $222,000 in interest income, a decrease of $24,000 in interest
expense, and an increase of $14,000 in noninterest income. This was partially
offset by an increase of $96,000 in noninterest expense and an increase of
$65,000 in income tax expense. For the three months ended December 31, 1996 the
annualized return on average assets was 1.22% compared to .68% for the three
months ended December 31, 1995, while the annualized return on average equity
was 7.36% for the three months ended December 31, 1996 compared to 8.14% for the
three months ended December 31, 1995.
Net interest income. Net interest income increased $246,000 to $624,000 for the
three months ended December 31, 1996 from $378,000 for the three months ended
December 30, 1995. The increase is primarily due to the increase of $222,000 in
interest income to $1,265,000 for the three months ended December 31, 1996 from
$1,043,000 for the three months ended December 31, 1995. Interest expense fell
$24,000 to $641,000 for the three months ended December 31, 1996 from $665,000
for the three months ended December 31, 1995.
For the three months ended December 31, 1996 the average yield on
interest-earning assets was 8.28% compared to 7.83% for the three months ended
December 31, 1995. The average cost of interest-bearing liabilities was 5.14%
for the three months ended December 31, 1996 compared to 5.45% for the three
months ended December 31, 1995. The average balance of interest-earning assets
increased $7.8 million to $61.0 million for the three months ended December 31,
1996 from $53.2 million for the three months ended December 31, 1995. During
this same period, the average balance of interest-bearing liabilities increased
$1.1 million to $49.9 million for the three months ended December 31, 1996 from
$48.8 million for the three months ended December 31, 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 3.14% for the three months ended December 31, 1996 compared to 2.38% for the
three months ended December 31, 1995. The average net interest margin
(annualized net interest income divided by total average assets) was 3.92% for
the three months ended December 31, 1996 compared to 2.77% for the three months
ended December 31, 1995.
Noninterest income. Noninterest income increased $14,000 to $73,000 for the
three months ended December 31, 1996 from $59,000 for the three months ended
December 31, 1995. The $7,000 increase in service charges and fees is primarily
due to the increase in overdraft fees when comparing the three months ended
December 31, 1996 to the three months ended December 31, 1995 as a result of
more stringent guidelines on overdrawn accounts. The $15,000 increase in
insurance commissions to $34,000 for the three months ended December 31, 1996
from $19,000 for the period ended December 31, 1995 is a result of the increased
sales of credit insurance products on the loan portfolio. Other noninterest
income increased $8,000 primarily as a result of an increase in gains on real
estate sold when comparing the three months ended December 31, 1996 to the three
months ended December 31, 1995. Loan fees increased $2,000 when comparing the
three months ended December 31, 1996 to the three months ended December 31,
1995. These increases were offset by a decrease of $19,000 in gains from the
sale of available-for-sale securities when comparing the three months ended
December 31, 1996 to the three months ended December 31, 1995.
Noninterest expense. Noninterest expense increased $96,000 to $388,000 for the
three months ended December 31, 1996 from $292,000 for the three months ended
December 31, 1995. Compensation and benefit expense increased $64,000 to
$200,000 for the three months ended December 31, 1996 from $136,000 for the
three months ended December 31, 1995. The increase represents normal salary
increases, a $9,000 increase in fees paid to the credit insurance brokers to
$22,000 for the three months ended December 31, 1996 from $13,000 for the three
months ended December 31, 1995, and increases in other employee benefits
including the $25,000 expense for the Recognition and Retention Plan approved on
October 15, 1996 at the Company's annual meeting. Other noninterest expense
increased $33,000 to $97,000 for the three months ended December 31, 1996 from
$64,000 for the three months ended December 31, 1995 as a result of the $5,000
increase in cost of real estate sold when comparing the three months ended
December 31, 1996 to the three months ended December 31, 1995, as well as a
$7,000 increase in legal services to $8,000 for the three months from $1,000 for
the three months ended December 31, 1995 and an $8,000 increase in auditing and
accounting when comparing the three months ended December 31, 1996 to the three
months ended December 31, 1995.
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
December 31, 1996, the Bank's liquidity ratio was 9.91%.
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 December 31, 1996, the Bank had outstanding
commitments to extend credit which amounted to $1,535,250.
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.
At December 31, 1996 the ESOP held 52,602 shares of the Company's
common stock, 4,337 of which were released for allocation and the remaining
48,265 were unreleased (unearned) shares. The 48,265 unreleased (unearned)
shares had a fair market value of approximately $615,379 at December 31, 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 February 7, 1997 /s/ Stan Carlson
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Stan Carlson, President and Chief
Executive Officer
Date February 7, 1997 /s/ Leisha A. Linge
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Leisha A. Linge, Controller