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, 1997
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
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1446740
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 East Main Street, Washington, Iowa 52353
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (319)653-7256
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes[X] No[ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $.01 par value, 657,519 shares outstanding as of May 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 March 31,
1997 (unaudited) and June 30, 1996
Unaudited Consolidated Statements of Income
for the three months ended March 31, 1997
and 1996 and for the nine months ended March
31, 1997 and 1996
Unaudited Consolidated Statements of Cash Flows for the
nine months ended March 31, 1997 and 1996
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
March 31, June 30,
1997 1996*
------------ ------------
ASSETS (unaudited)
Cash and cash equivalents:
Interest-bearing.................................... $ 2,874,531 $ 1,109,583
Noninterest-bearing ................................ 242,841 793,769
------------ ------------
3,117,372 1,903,352
Investment securities, available for sale ................... 10,678,448 14,628,089
Loans receivable, net ....................................... 49,622,447 42,905,699
Accrued interest receivable ................................. 599,248 465,789
Federal Home Loan Bank stock ................................ 433,200 369,100
Premises and equipment, net ................................. 553,514 543,606
Other assets ................................................ 64,165 75,308
------------ ------------
Total assets........................................ $ 65,068,394 $ 60,890,943
============ ============
LIABILITIES
Deposits .................................................... $ 47,999,150 $ 44,176,448
Borrowed funds .............................................. 5,928,244 5,504,742
Advance from borrowers for taxes and insurance .............. 99,836 218,506
Accrued expenses and other liabilities ...................... 557,426 443,082
------------ ------------
Total liabilities .................................. 54,584,656 50,342,778
------------ ------------
STOCKHOLDERS' EQUITY Common stock:
Common stock ....................................... 6,575 6,575
Additional paid-in capital ......................... 6,183,789 6,172,680
Retained earnings ........................................... 5,162,433 4,941,449
Treasury stock .............................................. (348,562) --
Unrealized (loss) on investment securities, available for
sale, net of income taxes .......................... (47,507) (68,209)
Unearned shares, employee stock ownership plan .............. (472,990) (504,330)
------------ ------------
Total stockholders' equity ......................... 10,483,738 10,548,165
------------ ------------
Total liabilities and stockholders' equity ......... $ 65,068,394 $ 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 Nine Months
Ended March 31, Ended March 31,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Interest income:
Loans receivable:
First mortgage loans ......................... $ 884,140 $ 743,806 $2,568,807 $2,213,943
Consumer and other loans ..................... 175,440 117,619 469,489 338,818
Investment securities:
Taxable ............................. 199,561 164,339 667,001 514,086
Nontaxable .......................... 5,433 6,055 16,300 40,868
---------- ---------- ---------- ----------
Total interest income ............... 1,264,574 1,031,819 3,721,597 3,107,715
---------- ---------- ---------- ----------
Interest expense:
Deposits ..................................... 557,918 560,651 1,662,769 1,693,464
Borrowed funds ............................... 70,276 41,487 233,477 211,482
---------- ---------- ---------- ----------
Total interest expense .............. 628,194 602,138 1,896,246 1,904,946
---------- ---------- ---------- ----------
Net interest income ................. 636,380 429,681 1,825,351 1,202,769
Provision for loan loss ............................... 19,085 3,000 25,085 12,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan loss ........... 617,295 426,681 1,800,266 1,190,769
---------- ---------- ---------- ----------
Noninterest income:
Security gains, net .......................... -- 13,627 388 32,534
Loan origination - commitment fees. . ...1,131 5,326 5,976 7,441
Service charges and fees ..................... 27,107 27,465 84,460 58,242
Insurance commissions ........................ 14,189 5,794 61,700 32,231
Other ........................................ 24,694 5,234 43,901 8,086
---------- ---------- ---------- ----------
Total noninterest income ............ 67,121 57,446 196,425 138,534
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits .................... 185,208 139,244 544,774 418,565
Occupancy and equipment ...................... 35,143 33,000 107,048 111,672
SAIF deposit insurance premium................ 2,014 29,079 359,167 86,266
Data processing .............................. 20,243 22,593 57,804 64,922
Other ........................................ 95,810 80,583 323,968 194,250
---------- ---------- ---------- ----------
Total noninterest expense ........... 338,418 304,499 1,392,761 875,675
---------- ---------- ---------- ----------
Income before income taxes .......... 345,998 179,628 603,930 453,628
Income tax expense .................................... 134,989 65,936 227,534 158,139
---------- ---------- ---------- ----------
Net income .......................... 211,009 $ 113,692 $ 376,396 $ 295,489
========== ========== ========== ==========
Earnings per common share ............................. $ 0.34 $ 0.01* $ 0.61 $ 0.01*
========== ========== ========== ==========
Dividends per common share ............................ $ 0.10 n/a $ 0.28 n/a
========== ========== ========== ==========
Weighted average common shares ........................ 617,843 605,459 616,934 605,459
========== ========== ========== ==========
See Notes to Consolidated Financial Statements
*Net income subsequent to conversion on March 11, 1996 was $4,899.
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows
Nine Months
Ended March 31,
--------------------------
1997 1996
----------- -----------
Cash Flows from Operating Activities
Net income ....................................... $ 376,396 $ 295,489
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and
discounts on debt securities ................ 33,594 61,801
Provision for loan loss .......................... 25,085 12,000
(Gain) on sale of investment securities .......... (388) (32,534)
(Gain) on sale of foreclosed real estate ......... (36,911) --
Depreciation ..................................... 40,989 60,845
ESOP contribution expense ........................ 42,449 --
Deferred income taxes ............................ (16,798) 16,347
(Increase)decrease in accrued
interest receivable ..................... (133,459) (10,330)
(Increase)decrease in other assets ............... 11,143 6,549
Increase(decrease) in accrued expenses
and other liabilities ................... 118,720 111,311
----------- -----------
Net cash provided by operating activities ........ 460,820 521,478
----------- -----------
Cash Flows from Investing Activities
Held to maturity securities:
Maturities and calls ............................. -- 166,988
Available for sale securities:
Sales ............................................ 911 3,518,244
Maturities and calls ............................. 10,093,648 2,093,554
Purchases ........................................ (6,145,000) (890,000)
Loans made to customers, net ............................ (6,704,922) (1,032,210)
Purchase of FHLB Stock .................................. (7,200) (64,100)
Purchase of premises and equipment ...................... (50,897) (23,575)
----------- -----------
Net cash provided by(used in) investing activities (2,870,360) 3,825,801
----------- -----------
(continued)
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows (Continued)
Nine Months
Ended March 31,
---------------------------
1997 1996
----------- ------------
Cash Flows From Financing Activities
Net increase in deposits................................................ $ 3,822,702 $ 6,069,379
Proceeds from Federal Home Loan Bank advances........................... 65,050,000 14,320,000
Principal payments on
Federal Home Loan Bank advances ............................... (64,626,498) (18,520,924)
Net(decrease) in advances from borrowers for
taxes and insurance ........................................... (118,669) (95,495)
Purchase of 26,300 shares of common stock
for the treasury .............................................. (348,563) --
Proceeds from issuance of 604,917 shares
of common stock ............................................... -- 6,049,170
Payments for expenses incurred relating to
conversion to stock form ...................................... -- (396,477)
Payment of cash dividends .............................................. (155,412) --
------------ ------------
Net cash provided by(used in)
financing activities ................................. 3,623,560 7,425,653
------------ ------------
Net increase in cash
and cash equivalents ................................. 1,214,020 11,772,932
Cash and cash equivalents:
Beginning .............................................................. 1,903,352 1,658,043
------------ ------------
Ending ................................................................. $ 13,430,975 $ 3,117,372
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors.................................... $ 1,420,143 $ 1,650,441
Interest paid on other obligations ............................ 233,477 221,482
Income taxes, net of refunds .................................. 161,408 134,446
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfer from loans to foreclosed real estate........................... 106,289 --
Contract sales of foreclosed real estate ............................... 143,200 --
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 nine month
periods ended March 31, 1997 and 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 has been 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 is 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 calendar year 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 reduced the assessment rate for the SAIF-assessable deposits for periods
beginning October 1, 1996. Overpayment of the fourth quarter assessment
totalling $5,806 was credited toward the regular quarterly payment due January
2, 1997. Beginning January 1, 1997 the SAIF-assessable base ranges from 0 to 27
basis points, the same risk-based assessment as BIF members. Washington Federal
Savings Bank has a risk classification of 1A and an annual SAIF-assessable base
rate of 0.
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 SAIFand 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 FICO assessment of 6.5 basis
points on SAIF members and 1.3 basis points on BIF members has been added to the
regular assessment.
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. Using the treasury stock
method, the amount of dilution as a result of the potential exercise of the
stock option plan is reported as a number of shares of common stock considered
outstanding for the purpose of computing earnings per share. Weighted average
shares of common stock purchased for the treasury are not considered outstanding
for the purpose of computing earnings per share. The weighted average shares of
common stock allocated under the recognition and retention plan are considered
outstanding for the purpose of computing earnings per share. Earnings per share
information for the three months ended March 31, 1997 and nine months ended
March 31, 1997 is calculated by dividing net income by the weighted average
number of shares outstanding. Earnings per share information for the three
months ended March, 1996 and the nine months ended March, 1996 is calculated by
dividing net income, subsequent to the mutual to stock conversion, by the
weighted average number of shares outstanding. Net income subsequent to
conversion was $4,899 for the periods ended March 31, 1996.
Regulatory capital requirements. Pursuant to the Financial Information Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), savings institutions must meet
three separate minimum capital-to-asset requirements. The following table
summarizes, as of March 31, 1997 the capital requirements of the Bank under
FIRREA and its actual capital ratios. As of March 31, 1997 the Bank
substantially exceeded all current regulatory capital requirement standards.
At March 31, 1997
----------------------
Amount Percent
------- -------
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level .............. $8,481 13.0%
Requirement ................ 977 1.5%
------ ------
Excess ..................... $7,504 11.5%
====== ======
Core Capital:
Capital Level .............. $8,481 13.0%
Requirement ................ 1,953 3.0%
------ ------
Excess ..................... $6,528 10.0%
====== ======
Risk-Based Capital:
Capital Level .............. $8,682 20.9%
Requirement ................ 3,322 8.0%
------ ------
Excess ..................... $5,360 12.9%
====== ======
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.
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. As of September 30, 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. Since January 1, 1997 the Bank has been charged
an annual SAIF FICO assessment rate of 6.5 basis points.
Washington Bancorp repurchased 26,300 shares of common stock during the three
months ended March 31, 1997 with the intention that such shares will be used to
fund the recognition and retention plan.
Financial Condition
Total assets. Total consolidated assets have increased from $60.9 million at
June 30, 1996 to $65.1 million at March 31, 1997. This net increase is primarily
due an increase in net loans receivable funded primarily by a decrease in
available for sale investment securities, an increase in deposits and to a
lesser extent, an increase in borrowings.
Loans receivable. Loans receivable, net increased from $42.9 million at June 30,
1996 to $49.6 million at March 31, 1997. 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
$36,656 at March 31, 1997. There was also a $3.6 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 $10.6 million at March 31, 1997. This decrease is
primarily due to the maturity or call of $10.1 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 March, 1997 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 $599,000 at March 31, 1997. The increase is primarily due to
the increase in loans receivable, net.
Deposits. Deposits increased from $44.2 million at June 30, 1996 to $48.0
million at March 31, 1997. Interest credited to customer accounts totalled $1.4
million, while deposits exceeded withdrawals by $2.4 million. Transaction and
savings deposits increased as a percentage of total deposits from $13.9 million
or 31.4% at June 30, 1996 to $16.5 million or 34.4% at March 31, 1997. As a
result of the increase in transaction and savings deposits, certificates of
deposit decreased as a percentage of total deposits from $30.3 million or 68.6%
at June 30, 1996 to $31.5 million or 65.6% at March 31, 1997.
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
$5.9 million at March 31, 1997. 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 $100,000 at March 31, 1997. The decrease is primarily due to the payment of
the second half of the county real estate taxes due on March 31, 1997.
Total stockholders' equity. Total stockholders' equity decreased $64,000 when
comparing March 31, 1997 to June 30, 1996. The decrease is primarily due to the
repurchase of 26,300 shares of common stock with the intention that such shares
will be used to fund the recognition and retention plan at a cost of $349,000.
The $376,000 net income for the nine months ended March 31, 1997 was partially
offset by the cash dividends paid to shareholders on August 15, 1996, November
15, 1996, and February 15, 1997 totalling $155,000. The decrease in equity was
also offset by the $42,000 decrease in unearned shares of the ESOP and the
$20,000 decrease in unrealized loss on available-for-sale securities.
Results of Operations - Nine Months Ended March 31, 1997 As Compared To The Nine
Months Ended March 31, 1996
Performance summary. Net earnings increased $81,000 to $376,000 for the nine
months ended March 31, 1997 from $295,000 for the nine months ended March 31,
1996. The increase is primarily due to the increase of $614,000 in interest
income, a $9,000 decrease in interest expense, and a $58,000 increase in
noninterest income. This was partially offset by the $294,000 one-time SAIF
assessment included in the $517,000 increase in non-interest expense. For the
nine months ended March 31, 1997 the annualized return on average assets was
0.79% compared to 0.71% for the nine months ended March 31, 1996, while the
annualized return on average equity was 4.76% for the nine months ended March
31, 1997 compared to 7.69% for the nine months ended March 31, 1996. 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 $623,000 to $1.8 million for
the nine months ended March 31, 1997 from $1.2 million for the nine months ended
March 31, 1996. The increase is primarily due to the increase of $614,000 in
interest income to $3.7 million for the nine months ended March 31, 1997 from
$3.1 million for the nine months ended March 31, 1996. Interest expense
decreased $9,000 when comparing the nine months ended March 31, 1997 to the nine
months ended March 31, 1996.
For the nine months ended March 31, 1997 the average yield on interest-earning
assets was 8.24% compared to 7.75% for the nine months ended March 31, 1996. The
increase in the average yield on interest-earning assets can be attributed to
the increase in loans receivable; particularly commercial loans. The average
cost of interest-bearing liabilities was 5.14% for the nine months ended March
31, 1997 compared to 5.20% for the nine months ended March 31, 1996. The
decrease in average cost of interest-bearing liabilities can be attributed to
the increase in transaction and savings accounts, which have a lower interest
rate, as a ratio of total deposits. The average balance of interest-earning
assets increased $16.7 million to $60.2 million for the nine months ended March
31, 1997 from $53.5 million for the nine months ended March 31, 1996. During
this same period, the average balance of interest-bearing liabilities increased
$384,000 to $49.2 million for the nine months ended March 31, 1997 from $48.8
million for the nine months ended March 31, 1996.
Due primarily to the increase in yield on the interest-earning assets, the
average interest rate spread was 3.10% for the nine months ended March 31, 1997
compared to 2.55% for the nine months ended March 31, 1996. The average net
interest margin (annualized net interest income divided by total average assets)
was 3.85% for the nine months ended March 31, 1997 compared to 2.89% for the
nine months ended March 31, 1996.
Provision for loan loss. Provision for loan loss increased $13,000 to $25,000
for the nine months ended March 31, 1997 from $12,000 for the nine months ended
March 31, 1996. The increase is primarily due to a special provision made in
January 1997 as a result of a gain on a foreclosed property which totalled
$15,000. The regular provision for loan loss expense decreased $2,000 to $10,000
for the nine months ended March 31, 1997 from $12,000 for the nine months ended
March 31, 1996.
Noninterest income. Noninterest income increased $58,000 to $196,000 for the
nine months ended March 31, 1997 from $139,000 for the nine months ended March
31, 1996. The $26,000 increase in service charges and fees is primarily due to
the increase in overdraft fees when comparing the nine months ended March 31,
1997 to the nine months ended March 31, 1996 as a result of more stringent
guidelines on overdrawn accounts. The $30,000 increase in insurance commissions
to $62,000 for the nine months ended March 31, 1997 from $32,000 for the period
ended March 31, 1996 is a result of the increased sales of credit insurance
products on the loan portfolio. The $36,000 increase in other noninterest income
is primarily due to the increase in gains on real estate sold when comparing the
nine months ended March 31, 1997 to the nine months ended March 31, 1996. These
increases were offset by a $1,000 decrease in loan fees and a $32,000 decrease
in gains from the sale of available-for-sale securities when comparing the nine
months ended March 31, 1997 to the nine months ended March 31, 1996.
Noninterest expense. Noninterest expense increased $517,000 to $1.4 million for
the nine months ended March 31, 1997 from $876,000 for the nine months ended
March 31, 1996. The $273,000 increase in SAIF deposit insurance premium is
primarily due to the $294,000 one-time SAIF assessment. Compensation and benefit
expense increased $126,000 to $545,000 for the nine months ended March 31, 1997
from $419,000 for the nine months ended March 31, 1996. The increase in
compensation is partially due to an $18,000 increase in fees paid to the credit
insurance brokers to $37,000 for the nine months ended March 31, 1997 from
$18,000 for the nine months ended March 31, 1996 as a result of increased credit
insurance sales. Also there were normal salary increases and increases in other
employee benefits totalling $108,000 which includes a $46,000 expense for the
recognition and retention plan which was ratified on October 15, 1996 and a
$42,000 expense for the ESOP. Other noninterest expense increased $130,000 to
$324,000 for the nine months ended March 31, 1997 from $194,000 for the nine
months ended March 31, 1996 primarily as a result of the increase in operating
costs since the formation of Washington Bancorp including a $27,000 increase in
the fees paid for auditing and accounting services, a $16,000 increase in
advertising expense, and a $12,000 increase in attorney fees paid. Property tax
expense has increased $7,000 to $19,000 for the nine months ended March 31, 1997
from $12,000 for the nine months ended March 31, 1996. Also, telephone expense
increased $9,000, postage and delivery expense increased $7,000, and service
fees for electronic banking products increased $5,000 when comparing the nine
months ended March 31, 1997 to the nine months ended March 31, 1996.
Results of Operations - Three Months Ended March 31, 1997 As Compared To The
Three Months Ended March 31, 1996 Performance summary. Net earnings increased
$97,000 to $211,000 for the three months ended March 31, 1997 from $114,000 for
the three months ended March 31, 1996. The increase is primarily due to the
increase of $233,000 in interest income and an increase of $10,000 in
noninterest income. This was partially offset by an increase of $26,000 in
interest expense, a $16,000 increase in provision for loan loss, a $34,000
increase in noninterest expense and an increase of $69,000 in income tax
expense. For the three months ended March 31, 1997 the annualized return on
average assets was 1.30% compared to .81% for the three months ended March 31,
1996, while the annualized return on average equity was 7.98% for the three
months ended March 31, 1997 compared to 8.88% for the three months ended March
31, 1996.
Net interest income. Net interest income increased $207,000 to $636,000 for the
three months ended March 31, 1997 from $429,000 for the three months ended March
31, 1996. The increase is primarily due to the increase of $233,000 in interest
income to $1.2 million for the three months ended March 31, 1997 from $1.0
million for the three months ended March 31, 1996. Interest expense increased
$26,000 to $628,000 for the three months ended March 31, 1997 from $602,000 for
the three months ended March 31, 1996.
For the three months ended March 31, 1997 the average yield on interest-earning
assets was 8.23% compared to 7.72% for the three months ended March 31, 1996.
The increase in average yield on interest-earning assets can be attributed to
the increase in loans receivable; particularly commercial loans. The average
cost of interest-bearing liabilities was 4.97% for the three months ended March
31, 1997 compared to 4.99% for the three months ended March 31, 1996. The
decrease in average cost of interest-bearing liabilities can be attributed to
the increase in transaction and savings deposits, which have a lower interest
rate, as a percentage of total deposits. The average balance of interest-earning
assets increased $8.0 million to $61.5 million for the three months ended March
31, 1997 from $53.5 million for the three months ended March 31, 1996. During
this same period, the average balance of interest-bearing liabilities increased
$2.3 million to $50.6 million for the three months ended March 31, 1997 from
$48.3 million for the three months ended March 31, 1996.
Due primarily to the increase in yield on the interest-earning assets, the
average interest rate spread was 3.26% for the three months ended March 31, 1997
compared to 2.73% for the three months ended March 31, 1996. The average net
interest margin (annualized net interest income divided by total average assets)
was 3.92% for the three months ended March 31, 1997 compared to 2.91% for the
three months ended March 31, 1996.
Provision for loan loss. Provision for loan loss increased $16,000 to $19,000
for the three months ended March 31, 1997 from $3,000 for the three months ended
March 31, 1996. The increase is primarily due to a special provision made in
January 1997 as a result of a gain on a foreclosed property which totalled
$15,000. The regular provision for loan loss expense increased $1,000 to $4,000
for the three months ended March 31, 1997 from $3,000 for the three months ended
March 31, 1996 as a result of the increase in total loans receivable.
Noninterest income. Noninterest income increased $10,000 to $67,000 for the
three months ended March 31, 1997 from $57,000 for the three months ended March
31, 1996. The $8,000 increase in insurance commissions to $14,000 for the three
months ended March 31, 1997 from $8,000 for the period ended March 31, 1996 is a
result of the increased sales of credit insurance products on the loan
portfolio. Other noninterest income increased $20,000 primarily as a result of
an increase in gains on real estate sold when comparing the three months ended
March 31, 1997 to the three months ended March 31, 1996. Loan fees decreased
$4,000 as a result of a decline in mortgage loan refinancing or secondary-market
originating and gains from the sale of available-for-sale securities decreased
$14,000 when comparing the three months ended March 31, 1997 to the three months
ended March 31, 1996. The gains on the sale of securities in the three months
ended March 31, 1996 were a result of an opportunity to sell available for sale
securities.
Noninterest expense. Noninterest expense increased $34,000 to $338,000 for the
three months ended March 31, 1997 from $304,000 for the three months ended March
31, 1996. Compensation and benefit expense increased $46,000 to $185,000 for the
three months ended March 31, 1997 from $139,000 for the three months ended March
31, 1996. The increase represents normal salary increases, a $6,000 increase in
fees paid to the credit insurance brokers to $8,000 for the three months ended
March 31, 1997 from $2,000 for the three months ended March 31, 1996, and
increases in other employee benefits including the $22,000 expense for the
Recognition and Retention Plan approved on October 15, 1996 at the Company's
annual meeting. Other noninterest expense increased $15,000 to $96,000 for the
three months ended March 31, 1997 from $81,000 for the three months ended March
31, 1996 as a result of the $3,000 increase in cost of real estate sold when
comparing the three months ended March 31, 1997 to the three months ended March
31, 1996, as well as a $5,000 increase in professional services, a $6,000
increase in miscellaneous expenses and a $1,000 increase in legal services when
comparing the three months ended March 31, 1997 to the three months ended March
31, 1996.
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 March
31, 1997, the Bank's liquidity ratio was 5.37%.
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 March 31, 1997, the Bank had outstanding
commitments to extend credit which amounted to $405,000.
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.
At March 31, 1997 the ESOP held 52,602 shares of the Company's common
stock, 5,303 of which were released for allocation and the remaining
47,299 were unreleased (unearned) shares. The 47,299 unreleased
(unearned) shares had a fair market value of approximately $674,010 at
March 31, 1997.
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 May 7, 1997 /s/ Stan Carlson
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Stan Carlson, President and Chief
Executive Officer
Date May 7, 1997 /s/ Leisha A. Linge
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Leisha A. Linge, Controller