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, 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 0-25076
Washington Bancorp
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1446740
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 East Main Street, Washington, Iowa 52353
- ---------------------------------------- ----------
(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 651,133 shares outstanding as to November 10, 1997
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 30, 1997
(unaudited) and June 30, 1997
Unaudited Consolidated Statements of Income for the
three months ended September 30, 1997 and 1996
Unaudited Consolidated Statements of Cash
Flows for the three months ended
September 30, 1997 and 1997
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,
1997 June 30,
(unaudited) 1997*
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ASSETS
Cash and cash equivalents:
Interest-bearing ...................... $ 2,001,976 $ 574,736
Noninterest-bearing ................... 312,681 233,069
------------ ------------
2,314,657 807,805
Investment securities, available for sale ...... 7,320,053 9,849,991
Loans receivable, net .......................... 54,689,348 52,530,153
Accrued interest receivable .................... 680,421 568,228
Federal Home Loan Bank stock ................... 495,100 465,600
Premises and equipment, net .................... 539,706 550,231
Foreclosed real estate ......................... -- --
Other assets ................................... 106,729 103,026
------------ ------------
Total assets .......................... $ 66,146,014 $ 64,875,034
============ ============
LIABILITIES
Deposits ....................................... $ 46,283,313 $ 44,754,328
Borrowed funds ................................. 8,324,780 8,651,765
Advance from borrowers for
taxes and insurance ................... 88,328 204,677
Accrued expenses and other liabilities ......... 556,081 519,441
------------ ------------
Total liabilities ..................... 55,252,502 54,130,211
------------ ------------
COMMITMENTS AND CONTINGENCIES
Redeemable common stock held by Employee
Stock Ownership Plan (the "ESOP") ..... 73,729 69,392
------------ ------------
STOCKHOLDERS' EQUITY Common stock:
Common stock .......................... 6,575 6,575
Additional paid-in capital ............ 6,156,311 6,150,032
Retained earnings .............................. 5,385,370 5,292,419
Unrealized gain (loss) on investment securities,
available for sale, net of income taxes 10,707 (3,307)
------------ ------------
11,558,963 11,445,719
Less:
Cost of 6,386 common shares acquired
for treasury .......................... (85,827) (85,827)
Deferred compensation .......................... (125,954) (151,739)
Maximum cash obligation related to ESOP shares . (73,729) (69,392)
Unearned ESOP shares ........................... (453,670) (463,330)
------------ ------------
Total stockholders' equity ........... 10,819,783 10,675,431
------------ ------------
Total liabilities and
stockholders' equity ............ $ 66,146,014 $ 64,875,034
============ ============
<FN>
*Condensed from audited financial statements.
</FN>
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Income
Three Months
Ended September 30,
1997 1996
----------- -----------
Interest income:
Loans receivable:
First mortgage loans ........... $ 876,027 $ 816,762
Consumer and other loans ....... 263,518 137,668
Investment securities:
Taxable ........................ 139,864 232,375
Nontaxable ..................... 5,313 5,433
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Total interest income .......... 1,284,722 1,192,238
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Interest expense:
Deposits ................................ 548,677 552,502
Borrowed funds .......................... 132,830 74,474
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Total interest expense ......... 681,507 626,976
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Net interest income ............ 603,215 565,262
Provision for loan loss ........ 25,000 3,000
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Net interest income after
provision for loan loss ...... 578,215 562,262
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Noninterest income:
Security gains(losses), net ............. -- 388
Loan origination and commitment fees .... 2,525 2,251
Service charges and fees ................ 39,262 30,980
Insurance commissions ................... 8,892 13,395
Other ................................... 1,454 9,565
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Total noninterest income ....... 52,133 56,579
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Noninterest expense:
Compensation and benefits ............... 206,751 159,713
Occupancy and equipment ................. 38,144 35,048
SAIF deposit insurance premium .......... 12,176 326,718
Data processing ......................... 21,259 13,660
Other ................................... 91,007 130,509
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Total noninterest expense ...... 369,337 665,648
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Income(loss) before income taxes 261,011 (46,807)
Income tax expense(credit) ....................... 103,791 (17,446)
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Net income(loss) ............... $ 157,220 $ (29,361)
=========== ===========
Earnings(loss) per common share
subsequent to conversion ................ $ 0.25 $ (0.05)
=========== ===========
Dividends per common share ....................... $ 0.10 $ 0.08
=========== ===========
Weighted average common shares ................... 621,123 607,628
=========== ===========
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows
Three Months
Ended September 30,
----------------------------
1997 1996
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Cash Flows from Operating Activities
Net income(loss) ................................. $ 157,220 $ (29,361)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums and discounts on debt
securities ..................................... 2,360 19,415
Provision for loan loss .......................... 25,000 3,000
(Gain) on sale of investment securities .......... -- (388)
(Gain) loss on sale of foreclosed real estate .... -- (7,720)
Depreciation ..................................... 15,704 12,910
Compensation under stock awards .................. 25,785 --
ESOP contribution expense ........................ 15,939 12,328
Deferred income taxes ............................ -- (109,778)
(Increase)in accrued interest receivable ......... (112,193) (158,984)
(Increase)decrease in other assets ............... (3,703) 4,813
Increase in accrued expenses and other liabilities 28,232 99,814
Increase in accrued SAIF assessment .............. -- 294,310
------------ ------------
Net cash provided by operating activities 154,344 140,359
------------ ------------
Cash Flows from Investing Activities
Available for sale securities:
Sales ............................................ -- 911
Maturities and calls ............................. 2,600,000 2,015,000
Purchases ........................................ (50,000) (145,000)
Purchase of Federal Home Loan Bank Stock .................. (29,500) --
Loans made to customers, net .............................. (2,184,195) (2,640,452)
Purchase of premises and equipment ........................ (5,179) (1,650)
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Net cash (used in) investing activities . 331,126 (771,191)
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Cash Flows from Financing Activities
Net increase in deposits ......................... $ 1,528,985 $ 2,216,943
Proceeds from Federal Home Loan Bank advance ..... 22,200,000 8,500,000
Principal payments on Federal Home Loan Bank
advances ...................................... (22,526,984) (9,275,019)
Net(decrease) in advances from borrowers for
taxes and insurance ........................... (116,349) (122,599)
Payment of cash dividends ........................ (64,270) (52,602)
------------ ------------
Net cash provided by financing activities 1,021,382 1,266,723
------------ ------------
Net increase in cash and cash equivalents 1,506,852 635,891
Cash and cash equivalents:
Beginning ........................................ 807,805 1,903,352
------------ ------------
Ending ........................................... $ 2,314,657 $ 2,539,243
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ............. $ 541,942 $ 514,732
Interest paid on other obligations ...... 132,830 74,474
Income taxes, net of refunds ............ 62,700 39,050
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
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.
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.
Basis of presentation. Interim Financial Information (unaudited): The financial
statements and notes related thereto for the three month period ended September
30, 1997, 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, 1997 and all related
amendments and exhibits (including all financial statements and notes therein),
filed by the Company with the Securities and Exchange Commission.
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 an
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 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 $294,000. As a result of the special assessment, the
Bank's deposit insurance premium was reduced to 6.48 basis points based upon its
current risk classification and the new assessment schedule for SAIF insured
institutions. These premiums are subject to change in future periods.
Earnings per common share. The earnings per common and common equivalent share
were computed using the weighted average number of shares, stock options and
stock awards 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. Dilutive common stock equivalents related to the
stock options were determined using the treasury stock method. Dilutive common
stock equivalents related to a stock award plan are considered to be common
stock equivalents at all times since they were awarded. Earnings per share
information for the three months ended September 30, 1997 and September 30, 1996
is calculated by dividing net income by the weighted average number of shares
outstanding.
ESOP obligations and expense. The receivable from the Company's ESOP has been
treated as a reduction from equity. Any principal repayment of the debt is
treated as an increase in equity. Compensation expense for the ESOP is based
upon the fair value of shares allocated to participants.
Stock awards. Expense for common stock to be issued under the Company's
recognition and retention plan is based upon the fair value of the shares at the
date of grant, allocated over the period of vesting.
Redeemable common stock held by ESOP. The Company's maximum cash obligation
related to these shares is classified outside stockholders' equity because the
shares are not readily traded and could be put to the Company for cash. The
maximum cash obligation represents the approximate market value of the allocated
ESOP shares at the end of the reporting period.
Regulatory capital requirements. 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, 1997 the capital requirements of the Bank under
FIRREA and its actual capital ratios. As of September 30, 1997 the Bank
substantially exceeded all current regulatory capital requirement standards.
At September 30, 1997
----------------------
Amount Percent
------ --------
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level ........................ $8,875 13.4%
Requirement .......................... 991 1.5%
------ ------
Excess ............................... $7,884 11.9%
Core Capital:
Capital Level ........................ $8,875 13.4%
Requirement .......................... 1,982 3.0%
------ -----
Excess ............................... $6,893 10.4%
Risk-Based Capital:
Capital Level ........................ $9,101 20.6%
Requirement .......................... 3,540 8.0%
------ -----
Excess ............................... $5,561 12.6%
Part I - Financial Information
Item 2. Management's Discussion and Analysis
Forward-Looking Statements
When used in this Form 10-QSB or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated," "estimate,"
"project," "believe" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors, including regional
and national economic conditions , changes in levels of market interest rates,
credit risks of lending activities, and competitive and regulatory factors,
could affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from those anticipated or
projected.
The Company does not undertake, and specifically disclaims any obligations, to
revise any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
General
Washington Bancorp ("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 were approved and have since
expired. The purpose of the applications was to possibly preserve Washington
Federal's branching opportunities. If future applications are submitted, no
assurance can be given that the applications will satisfy the legislation nor
that Washington Federal will open any branch offices.
On June 24, 1997, the Company entered into a definitive agreement to acquire
Rubio Savings Bank of Brighton ("Rubio") pursuant to a merger in which the
Company will pay Rubio stockholders a total of approximately $4.6 million in
cash (the "Rubio Merger"). Rubio is headquartered in Brighton, Iowa and as of
September 30, 1997 had assets of approximately $21.7 million, deposits of
approximately $18.2 million and stockholders' equity of approximately $3.3
million. The Rubio Merger will be accounted for as a purchase, is subject to
regulatory and stockholders' approval and is expected to close by calendar year
end. On November 3, 1997 Washington received approval for the acquisition from
the Board of Governor's of the Federal Reserve System.
Financial Condition
Total assets. Total consolidated assets increased $1.2 million from $64.9
million at June 30, 1997 to $66.1 million at September 30, 1997. The increase
was primarily due to a $2.2 million increase in loans receivable and a $1.5
million increase in cash and cash equivalents partially offset by a $2.5 million
decrease in investment securities. The increase was primarily funded by a $1.5
million seasonal increase in deposits.
Loans receivable. Loans receivable, net increased $2.2 million from $52.5
million at June 30, 1997 to $54.7 million at September 30, 1997. This increase
is primarily due to increased loan demand in Washington's market area.
Washington's non-performing assets were $139,000 or .21% of total assets at
September 30, 1997 as compared to $229,000 or .35% of total assets at June 30,
1997.
Investment securities. Available-for-sale securities decreased $2.5 million from
$9.8 million at June 30, 1997 to $7.3 million at September 30, 1997. This
decrease is primarily due to the call of $2.0 million in government agency
securities and the maturity of $600,000 in U.S. Treasuries and corporate
securities. The funds were primarily 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 more on September 30, 1997 than their carrying value due to
a decline in interest yields since the purchase date of the securities.
Therefore, the total balance of available for sale securities includes the gross
effect of the unrealized gain..
Accrued interest receivable. Accrued interest receivable increased $112,000 from
$568,000 at June 30, 1997 to $680,000 at September 30, 1997. The increase is
primarily due to the increase in loans receivable, net and the level of accrued
interest on available-for-sale securities with semi-annual interest payments.
Deposits. Deposits increased $1.5 million from $44.8 million at June 30, 1997 to
$46.3 million at September 30, 1997. Interest credited to customer accounts
totalled $437,000, while deposits exceeded withdrawals by $1.1 million. 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 $14.3 million or 32.0% at June 30, 1997 to $15.9 million or
34.4% at September 30, 1997. As a result of the increase in transaction and
savings deposits, certificates of deposit decreased as a percentage of total
deposits from $30.4 million or 68.0% at June 30, 1997 to $30.4 million or 65.6%
at September 30, 1997.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) decreased $300,000 from $8.6 million at June 30,
1997 to $8.3 million at September 30, 1997. The decrease is primarily due to the
decreased need to borrow to fund loan activity because of the reduction in
investment security holdings and an increase in total deposits. The borrowings
are primarily long-term advances.
Advances from borrowers for taxes and insurance. The total balance in advances
from borrowers for taxes and insurance decreased $117,000 from $205,000 at June
30, 1997 to $88,000 at September 30, 1997. The decrease is primarily due to the
payment of the first installment of the 1997-98 county real estate tax bills due
September 30, 1997.
Total stockholders' equity. Total stockholders' equity increased $144,000 from
$10.7 million at June 30, 1997 to $10.8 million at September 30, 1997. The
increase is primarily due to net income of $157,000, the amortization of
deferred compensation under the Recognition and Retention Plan of $26,000, the
net unrealized gain in the available for sale securities of $13,000 and the
allocation of shares in the Employee Stock Ownership Plan of $12,000 partially
offset by the cash dividend paid to stockholders on August 15, 1997 totalling
$64,000.
Results of Operations - Three Months Ended September 30, 1997 As Compared To The
Three Months Ended September 30, 1996
Performance summary. Net earnings increased $186,000 to $157,000 for the three
months ended September 30, 1997 from ($29,000) for the three months ended
September 30, 1996. The increase is primarily due to an increase in net interest
income of $38,000 and a decrease in noninterest expense of $267,000, partially
offset by an increase in provision for loan loss of $22,000, a decrease in
noninterest income of $5,000 and an increase in income tax expense of $121,000.
For the three months September 30, 1997 the annualized return on average assets
was 0.96% compared to (.19%) for the three months ended September 30, 1996,
while the annualized return on average equity was 5.81% for the three months
ended September 30, 1997 compared to (1.12%) for the three months ended
September 30, 1996.
Net interest income. Net interest income increased $38,000 to $603,000 for the
three months ended September 30, 1997 from $565,000 for the three months ended
September 30, 1996. The increase is primarily due to the increase of $93,000 in
interest income to $1,285,000 for the three months ended September 30, 1997 from
$1,192,000 for the three months ended September 30, 1996 offset by an increase
in interest expense of $55,000 to $682,000 for the three months ended September
30, 1997 from $627,000 for the three months ended September 30, 1996.
For the three months ended September 30, 1997 the average yield on
interest-earning assets was 8.07% compared to 8.16% for the three months ended
September 30, 1996. The average cost of interest-bearing liabilities was 5.18%
for the three months ended September 30, 1997 compared to 4.99% for the three
months ended September 30, 1996. The average balance of interest earning assets
increased $5.3 million to $63.7 million for the three months ended September 30,
1997 from $58.4 million for the three months ended September 30, 1996. During
this same period, the average balance of interest-bearing liabilities increased
$2.4 million to $52.6 million for the three months ended September 30, 1997 from
$50.2 million for the three months ended September 30, 1996.
Due to the decrease in yield on the interest-earning assets and the increase in
rates paid on the interest-bearing liabilities, the average interest rate spread
was 2.89% for the three months ended September 30, 1997 compared to 3.17% for
the three months ended September 30, 1996. The average net interest margin was
3.79% for the three months ended September 30, 1997 compared to 3.66% for the
three months ended September 30, 1996.
Provision for loan loss. Provision for loan loss increased $22,000 to $25,000
for the three months ended September 30, 1997 from $3,000 for the three months
ended September 30, 1996. The increase is primarily due to an increase in the
size of the loan portfolio. Washington's loan portfolio consists primarily of
residential mortgage loans and it has experienced a minimal amount of
charge-offs in the past three years. The allowance for loan losses of $247,000
or .46% of loans receivable, net at September 30, 1997 compares to $212,000 or
.47% of loans receivable, net at September 30, 1996. The allowance for loan loss
as a percentage of non-performing assets was 177.69% at September 30, 1997,
compared to 275.32% at September 30, 1996.
Noninterest income. Noninterest income decreased $5,000 to $52,000 for the three
months ended September 30, 1997 from $57,000 for the three months ended
September 30, 1996. The decrease is primarily due a decrease in insurance
commissions of $4,000, and a decrease in other noninterest income of $9,000,
partially offset by an increase in bank service charges of $8,000.
Insurance commission income decreased $4,000 to $9,000 for the three months
ended September 30, 1996 from $13,000 for the three months ended September 30,
1997 primarily due to a decrease in the volume of the sale of credit life and
disability products. Other noninterest income decreased $9,000 to $1,000 for the
three months ended September 30, 1997 from $10,000 for the three months ended
September 30, 1996 primarily due to a decrease in the gains realized on
foreclosed properties in 1996. Bank service charges and fees increased $8,000 to
$39,000 for the three months ended September 30, 1997 from $31,000 for the three
months ended September 30, 1996 primarily from a $3,200 increase in late fees
collected, a $2,400 increase in overdraft fee income, and a $1,200 increase in
checking account monthly charges.
Noninterest expense. Noninterest expense decreased $297,000 to $369,000 for the
three months ended September 30, 1997 from $666,000 for the three months ended
September 30, 1996. The decrease is primarily due to a $315,000 decrease in SAIF
deposit insurance premium and a $40,000 decrease in other noninterest expense,
offset by a $47,000 increase in compensation and benefits, a $3,000 increase in
occupancy and equipment, and a $7,000 increase in data processing.
SAIF deposit insurance premiums decreased $315,000 to $12,000 for the three
months ended September 30, 1997 from $327,000 for the three months ended
September 30, 1996 primarily due to the $294,000 one-time SAIF assessment
accounted for as of September 30, 1996 as well as the decrease in the annual
assessment rate to 6.48 basis points from 23 basis points charged for the
protection of FDIC insurance. Other noninterest expense decreased $40,000 to
$91,000 for the three months ended September 30, 1997 from $131,000 for the
three months ended September 30, 1996 primarily due to a decrease in auditing
and accounting fees of $21,000, a decrease in other professional fees incurred
as a result of being a public company of $10,000, and a decrease in bad debt
expense of $9,000. Compensation and benefits increased $47,000 to $207,000 for
the three months ended September 30, 1997 from $160,000 for the three months
ended September 30, 1996 primarily due to an increase in the Recognition and
Retention Plan expense of $26,000, an increase in the Employee Stock Option Plan
expense of $7,000, an increase in employee salaries of $9,000, an increase in
employee incentives of $2,000, an increase in employee insurance benefits of
$2,000 and an increase in work expenses related to travel and meals of $2,000.
Occupancy and equipment increased $3,000 to $38,000 for the three months ended
September 30, 1997 from $35,000 for the three months ended September 30, 1996
primarily due to an increase in depreciation expense. Data processing increased
$7,000 to $21,000 for the three months ended September 30, 1997 from $14,000 for
the three months ended September 30, 1996 primarily due to the timing of bill
payments.
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, 1997, the Bank's liquidity ratio was 8.19%.
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, 1997, the Bank had outstanding
commitments to extend credit which amounted to $1.7 million.
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, 1997 the stockholders of
Washington Bancorp re-elected three directors and ratified the
appointment of McGladrey and Pullen, LLP as the auditors for the
fiscal year ending June 30, 1998. Total voting by proxy was 533,129 of
the 651,133 shares outstanding.
Director Rick R. Hofer received 528,074 "for" votes and 5,055
"withhold" votes. Director Myron L. Graber received 528,674 "for"
votes and 4,455 "withhold" votes. Director Stan Carlson received
528,464 "for votes and 4,665 "withhold" votes. McGladrey and Pullen,
LLP received 513,169 "for" votes, 6,930 "against" votes and 13,030
"abstain" votes.
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, 1997 the ESOP held 52,602 shares of the Company's
common stock, 4,337 of which were allocated, 2,898 of which were
released for allocation and the remaining 45,367 were unreleased
(unearned) shares. The 45,367 unreleased (unearned) shares had a fair
market value of approximately $771,000 at September 30, 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 November 10, 1997 /s/ Stan Carlson
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Stan Carlson, President and Chief
Executive Officer
Date November 10, 1997 /s/ Leisha A. Linge
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Leisha A. Linge,Controller