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, 1998
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
- ------------------------------- -------------------
(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 issuers classes of common
equity, as of the latest practicable date.
Common Stock, $.01 par value 640,006 shares outstanding as to May 12, 1998
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31,
1998 (unaudited) and June 30, 1997
Unaudited Consolidated Statements of Income for the
three months ended March 31, 1998 and 1997 and
for the nine months ended March 31, 1998 and 1997
Unaudited Consolidated Statements of Cash Flows
for the nine months ended March 31, 1998 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
March 31, June 30,
1998 1997*
----------------------------
(unaudited)
ASSETS
Cash and cash equivalents:
Interest-bearing...................................... $ 3,358,589 $ 574,736
Noninterest-bearing .................................. 1,132,037 233,069
----------------------------
4,490,626 807,805
Investment securities, held to maturity ................... 1,285,500 --
Investment securities, available for sale ................. 17,323,618 9,849,991
Federal funds sold ........................................ 2,413,064 --
Loans receivable, net ..................................... 63,885,347 52,530,153
Accrued interest receivable ............................... 859,038 568,228
Federal Home Loan Bank stock .............................. 690,800 465,600
Premises and equipment, net ............................... 779,550 550,231
Foreclosed real estate .................................... -- --
Goodwill, net ............................................. 1,398,728 --
Other assets .............................................. 121,365 103,026
----------------------------
Total assets ..................................... $ 93,247,636 $ 64,875,034
============================
LIABILITIES
Deposits .................................................. $ 67,366,377 $ 44,754,328
Borrowed funds ............................................ 13,791,838 8,651,765
Advance from borrowers for taxes and insurance ............ 119,920 204,677
Accrued expenses and other liabilities .................... 832,199 519,441
----------------------------
Total liabilities ................................ 82,110,334 54,130,211
----------------------------
COMMITMENTS AND CONTINGENCIES
Redeemable common stock held by Employee
Stock Ownership Plan (the "ESOP") ................ 155,346 69,392
----------------------------
STOCKHOLDERS' EQUITY
Common stock:
Common stock ..................................... 6,511 6,575
Additional paid-in capital ....................... 6,113,533 6,150,032
Retained earnings ......................................... 5,645,511 5,292,419
Unrealized gain (loss) on investment securities,
available for sale, net of income taxes .......... 16,287 (3,307)
----------------------------
11,781,842 11,445,719
Less:
Cost of common shares acquired for treasury ............... (86,756) (85,827)
Deferred compensation ..................................... (124,219) (151,739)
Maximum cash obligation related to ESOP shares ............ (155,346) (69,392)
Unearned ESOP shares ...................................... (433,565) (463,330)
----------------------------
Total stockholders' equity ............................. 10,981,956 10,675,431
----------------------------
Total liabilities and
stockholders' equity........................ $ 93,247,636 $ 64,875,034
============================
*Condensed from audited financial statements.
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Income
` Three months ended Nine months ended
March 31, March 31,
---------------------------------------------------------
1998 1997 1998 1997
---------------------------------------------------------
Interest income:
Loans receivable:
First mortgage loans ..................................... $957,205 $884,140 $2,738,509 $2,568,807
Consumer and other loans ................................. 403,888 175,440 948,534 469,489
Investment securities:
Taxable .................................................. 265,151 199,561 530,772 667,001
Non-taxable .............................................. 18,112 5,433 28,845 16,300
---------------------------------------------------------
Total interest income ............................... 1,644,356 1,264,574 4,246,660 3,721,597
-------- -------- ---------- ----------
Interest expense:
Deposits ...................................................... 727,134 557,918 1,827,409 1,662,769
Borrowed funds ................................................ 173,665 70,276 439,997 233,477
-------- -------- ---------- ----------
Total interest expense .............................. 900,799 628,194 2,267,406 1,896,246
-------- -------- ---------- ----------
Net interest income ................................. 743,557 636,380 1,979,254 1,825,351
Provision for loan loss ............................................ 18,000 19,085 71,000 25,085
-------- -------- ---------- ----------
Net interest income after provision ................. 725,557 617,295 1,908,254 1,800,266
-------- -------- ---------- ----------
Noninterest income:
Security gains (losses), net .................................. -- -- -- 388
Loan originations and commitment fees ......................... 2,843 1,131 8,147 5,976
Bank service charges and fees ................................. 59,210 27,107 141,308 84,460
Insurance commissions ......................................... 11,691 14,189 57,400 61,700
Other ......................................................... 8,819 24,694 11,134 43,901
-------- -------- ---------- ----------
Total noninterest income ............................ 82,563 67,121 217,989 196,425
-------- -------- ---------- ----------
Noninterest expense:
Compensation and benefits ..................................... 253,476 185,208 661,827 544,774
Occupancy and equipment ....................................... 49,332 35,143 124,268 107,048
Deposit insurance premium ..................................... 12,947 2,014 36,829 359,167
Data processing ............................................... 21,233 20,243 60,444 57,804
Other ......................................................... 133,224 95,810 370,922 323,968
-------- -------- ---------- ----------
Total noninterest expense ........................... 470,212 338,418 1,254,290 1,392,761
-------- -------- ---------- ----------
Income before income taxes .......................... 337,908 345,998 871,953 603,930
Income tax expense ................................................. 121,935 134,989 299,530 227,534
-------- -------- ---------- ----------
Net income .......................................... $215,973 $211,009 $ 572,423 $ 376,396
======== ======== ========== ==========
Earnings per common share:
Basic ......................................................... $ 0.36 $ 0.35 $ 0.94 $ 0.62
======== ======== ========== ==========
Diluted ....................................................... $ 0.35 $ 0.34 $ 0.92 $ 0.62
======== ======== ========== ==========
Dividends per common share ......................................... $ 0.12 $ 0.10 $ 0.34 $ 0.28
======== ======== ========== ==========
Weighted average common shares for:
Basic earnings per share ...................................... 605,969 605,603 605,869 607,318
======== ======== ========== ==========
Diluted earnings per share .................................... 624,776 614,266 623,390 610,305
======== ======== ========== ==========
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows
Nine months ended
March 31,
----------------------------------
1998 1997
------------ ------------
Cash Flows from Operating Activities
Net income .................................................................... $ 572,423 $ 376,396
income
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and discounts on debt securities ..................... 8,673 33,594
Amortization of goodwill ...................................................... 19,700 --
Provision for loan losses ..................................................... 71,000 25,085
(Gain) on sale of investment securities ........................................ -- (388)
(Gain) on sale of foreclosed real estate ...................................... (3,381) (36,911)
Depreciation .................................................................. 48,371 40,989
Compensation under stock award ................................................ 39,442 --
ESOP contribution expense ..................................................... 52,135 42,449
Deferred income taxes ......................................................... (31,383) (16,798)
(Increase) decrease in accrued interest receivable ............................ 13,228 (133,459)
(Increase) decrease in other assets ........................................... (17,615) 11,143
Increase in accrued expenses and other liabilities ............................ 20,729 118,720
------------ ------------
Net cash provided by operating activities ................... 793,322 460,820
------------ ------------
Cash Flows from Investing Activities
Held to maturity:
Purchases ................................................................... (65,000) --
Available for sale securities:
Sales ......................................................................... -- 911
Maturities and calls .......................................................... 8,330,029 10,093,648
Purchases ..................................................................... (5,250,000) (6,145,000)
Federal funds sold, net ................................................................ (1,226,295) --
Purchase of Federal Home Loan Bank stock ............................................... (225,200) (64,100)
Loans made to customers, net ........................................................... (3,573,890) (6,704,922)
Purchase of premises and equipment ..................................................... (51,056) (50,897)
Purchase of stock of Rubio Savings Bank of Brighton,
Iowa, net of cash received .................................................... (2,466,021) --
------------ ------------
Net cash (used in) investing activities ..................... (4,527,433) (2,870,360)
------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in deposits ........................................... 2,652,730 3,822,702
Proceeds from Federal Home Loan Bank advances ................................. 43,950,000 65,050,000
Principal payments on Federal Home Loan Bank advances ......................... (38,809,926) (64,626,498)
Net (decrease) in advances from borrowers for payment of taxes and insurance .. (84,758) (118,669)
Acquisition of 19,914 shares of common stock for Recognition and
Retention Plan .............................................................. -- (262,736)
Acquisition of 6,386 shares of common stock for retirement .................... -- (85,827)
Acquisition of 5,000 shares of common stock for the treasury .................. (93,750) --
Dividends paid ................................................................ (197,364) (155,412)
------------ ------------
Net cash provided by financing activities ................... 7,416,932 3,623,560
------------ ------------
Net increase in cash and cash equivalents ................... 3,682,821 1,214,020
Cash and cash equivalents:
Beginning ..................................................................... 807,805 1,903,352
------------ ------------
Ending ........................................................................ $ 4,490,626 $ 3,117,372
============ ============
Washington Bancorp and Subsidiary
Unaudited Consolidated Statements of Cash Flows
Nine months ended
March 31,
----------------------------------
1998 1997
------------ ------------
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ................................. $ 1,437,901 $ 1,420,143
Interest paid on other obligations .......................... 439,998 233,477
Income taxes, net of refunds ................................ 310,164 161,408
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfer from loans to foreclosed real estate ................................. 61,619 106,289
Contract sales of foreclosed real estate ...................................... 65,000 143,200
Acquisition of assets and liabilities from Rubio Savings Bank of Brighton, Iowa:
Assets acquired:
Cash and cash equivalents ................................... 2,331,668 --
Federal funds sold .......................................... 1,186,769 --
Investment securities, held to maturity ..................... 1,221,156 --
Investment securities, available for sale ................... 10,530,323 --
Loans receivable ............................................ 7,848,923 --
Premises and equipment ...................................... 226,634 --
Goodwill .................................................... 1,818,428 --
Other assets ................................................ 304,762 --
----------------------------------
25,068,663 --
Liabilities assumed:
Deposits .................................................... (19,959,320) --
Other liabilities ........................................... (311,655) --
----------------------------------
4,797,689 $ --
============ ============
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiary
Notes to Consolidated Financial Statements
Principles of consolidation. The accompanying consolidated financial statements
include the accounts of Washington Bancorp ("Washington" or the "Company"),
Washington Federal Savings Bank ("Washington Federal" or "WFSB"), WFSB's
wholly-owned subsidiary Washington Financial Services, Inc., which is a discount
brokerage firm, and Rubio Savings Bank of Brighton, Iowa ("Rubio" or "RSB"). 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 March 31,
1998 and for the nine month period ended March 31, 1998, 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 Washington Federal, 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. WFSB'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 WFSB's actual loss experience (the "Experience
Method"), or a percentage equal to 8% of WFSB'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 WFSB 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, WFSB will be required to recapture (i.e., take into income) over a
six-year period, beginning with the 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 WFSB'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 WFSB 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 WFSB
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 WFSB
during its six taxable years preceding January 1, 1996. This legislation will
result in the WFSB's recapture of reserves with an aggregate tax liability of
approximately $156,000. Since WFSB has already provided a deferred income tax
liability of this amount for financial reporting purposes, there will be no
adverse impact to WFSB'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,
WFSB'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 FASB issued Statement No. 128, Earnings per
Share, which supersedes APB Opinion No. 15. Statement No. 128 requires the
presentation of earnings per share by all entities that have common stock or
potential common stock, such as options, warrants and convertible securities,
outstanding that trade in a public market. Those entities that have only common
stock outstanding are required to present basic earnings per-share amounts. All
other entities are required to present basic and diluted per-share amounts.
Diluted per-share amounts assume the conversion, exercise or issuance of all
potential common stock instruments unless the effect is to reduce a loss or
increase the income per common share from continuing operations. Washington
initially applied Statement No. 128 for the period ended December 31, 1997 and,
as required by the Statement, has restated all per share information for the
disclosed prior periods to conform to the Statement.
Because Washington Bancorp has potential common stock outstanding (stock options
to employees), Washington is required to present basic and diluted earnings per
share ("EPS"). Washington has granted options to directors and certain employees
to purchase 60,272 shares of the Company's common stock to expire no later than
October 15, 2006 and 2,818 shares of the Company's common stock to expire no
later than October 15, 2007.
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 traded on the "Bulletin Board" of the National Quotation Bureau Inc.
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 three
separate minimum capital-to-asset requirements. The following table summarizes,
as of March 31, 1998 the capital requirements of Washington Federal Savings Bank
under FIRREA and its actual capital ratios. As of March 31, 1998 WFSB
substantially exceeded all current regulatory capital requirement standards.
At March 31, 1998
----------------------
Amount Percent
----------------------
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level ................ $6,520 9.53%
Requirement .................. 1,027 1.50%
----------------
Excess ....................... $5,493 8.03%
================
Core or Leverage Capital:
Capital Level ................ $6,520 9.53%
Requirement .................. 2,053 3.00%
----------------
Excess ....................... $4,467 6.53%
================
Risk-Based Capital:
Capital Level ................ $6,673 14.47%
Requirement .................. 3,745 8.00%
----------------
Excess ....................... $2,928 6.47%
================
Likewise, Rubio Savings Bank of Brighton continues in a strong capital position.
The following table summarizes, as of March 31, 1998 the capital requirements of
Rubio Savings Bank of Brighton and its actual capital ratios. As of March 31,
1998, RSB substantially exceeded all current regulatory capital requirement
standards.
At March 31, 1998
-----------------------
Amount Percent
-----------------------
(Dollars in thousands)
(unaudited)
Tier 1 or Leverage Capital:
Capital Level .................. $2,430 11.24%
Requirement .................... 865 4.00%
------------------------
Excess ......................... $1,565 7.24%
========================
Tier 1 Risk-based Capital:
Capital Level .................. $2,430 25.82%
Requirement .................... 377 4.00%
------------------------
Excess ......................... $2,053 21.82%
========================
Risk-Based Capital:
Capital Level .................. $2,522 26.80%
Requirement .................... 753 8.00%
------------------------
Excess ......................... $1,769 18.80%
========================
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 "WFSB") 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, Washington
Federal converted to a federal savings bank in 1994.
In March 1996, Washington Federal 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 was the outstanding stock of Washington
Federal, its wholly-owned subsidiary. As of January 15, 1998, Washington Bancorp
became a bank holding company and the Rubio Savings Bank of Brighton, Iowa,
became a wholly-owned subsidiary of Washington Bancorp. Rubio continues to
operate as a completely separate state-chartered financial institution with its
own charter and board of directors. Deposits of both institutions are insured by
the Federal Deposit Insurance Corporation to the full extent permitted by law
and regulation.
Washington attracts deposits from the general public in its local
market areas 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.
Financial Condition
Total assets. Total consolidated assets increased $28.3 million from $64.9
million at June 30, 1997 to $93.2 million at March 31, 1998. The increase was
primarily due to the acquisition of Rubio with total assets of $25.1 million and
liabilities of $20.3 million. Other than the acquisition of Rubio, the increase
was a due to a $3.6 million increase in loans receivable, a $1.3 million
increase in cash and cash equivalents, and a $1.2 million increase in federal
funds sold, partially offset by a $3.0 million decrease in investment
securities. The increase was primarily funded by a $5.1 million increase in
Federal Home Loan Bank advances, a $2.7 million increase in deposits and the net
proceeds from the maturities and calls in investment securities.
Loans receivable. Loans receivable, net increased $11.4 million from $52.5
million at June 30, 1997 to $63.9 million at March 31, 1998. This increase was
primarily due to the acquisition of Rubio with loans receivable, net of $7.8
million. There was also a $3.6 million increase in loans receivable, net due to
the continued increase in loan demand in Washington's market area. Washington's
non-performing assets were $202,000 or .22% of total assets at March 31, 1998 as
compared to $229,000 or .35% of total assets at June 30, 1997.
Investment securities. Held-to-maturity securities increased $1.3 million from
$0 at June 30, 1997 to $1.3 million at March 31, 1998. This increase was
primarily due to the acquisition of Rubio with held-to-maturity securities of
$1.2 million. Available-for-sale securities increased $7.5 million from $9.8
million at June 30, 1997 to $17.3 million at March 31, 1998. This increase was
primarily due to the acquisition of Rubio with total available-for-sale
securities of $10.5 million. This increase was partially offset by a decrease of
$3.0 million, primarily due to the call of $6.1 million in government agency
securities and the maturity of $2.2 million in U.S. Treasuries, government
agency and corporate securities and the purchase of $5.2 million in government
agency securities. Proceeds from the decrease in available-for-sale securities
were primarily used to fund loan activity. 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 March 31, 1998
than their carrying value due to a decline in interest rates since the purchase
date of the securities. Therefore, the total balance of available for sale
securities includes the gross effect of the unrealized gain.
Deposits. Deposits increased $22.6 million from $44.8 million at June 30, 1997
to $67.4 million at March 31, 1998. The increase is primarily due to the
acquisition of Rubio with deposits of $20.0 million in addition to an increase
of $2.6 million. Interest credited to customer accounts totalled $1.4 million,
while deposits exceeded withdrawals by $1.2 million. Transaction and savings
deposits increased as a percentage of total deposits from $14.3 million or 32.0%
at June 30, 1997 to $25.6 million or 37.9% 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 $30.4 million or 68.0% at June 30, 1997
to $41.8 million or 62.1% at March 31, 1998.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) increased $5.2 million from $8.6 million at June
30, 1997 to $13.8 million at March 31, 1998. The increase is primarily due to
the increased need to borrow to fund loan activity and to fund the one-time $2.8
million dividend paid from Washington Federal to the Company to facilitate the
acquisition of Rubio Savings Bank of Brighton. 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 $85,000 from $205,000 at June
30, 1997 to $120,000 at March 31, 1998. The decrease is primarily due to the
semi-annual disbursement of escrow funds for the payment of real estate taxes
which were due March 31, 1998.
Total stockholders' equity. Total stockholders' equity increased $307,000 from
$10.7 million at June 30, 1997 to $11.0 million at March 31, 1998. The increase
is primarily due to net income of $572,000, the amortization of deferred
compensation under the Recognition and Retention Plan of $39,000, the net
unrealized gain in available for sale securities of $20,000 and the allocation
of shares in the Employee Stock Ownership Plan of $52,000 partially offset by
the cash dividend paid to stockholders totalling $197,000, the acquisition of
5,000 shares of of the Company's common stock at a cost of $94,000 and the
change in the maximum cash obligation related to ESOP shares of $86,000.
Results of Operations - Three Months Ended March 31, 1998 As Compared To The
Three Months Ended March 31, 1997
Performance summary. Net earnings increased $5,000 to $216,000 for the three
months ended March 31, 1998 from $211,000 for the three months ended March 31,
1997. The increase is primarily due to an increase in interest income of
$380,000, an increase in noninterest income of $16,000, a decrease in income tax
expense of $13,000 and a decrease in the provision for loan loss of $1,000,
partially offset by an increase in interest expense of $273,000 and an increase
in noninterest expense of $132,000. For the three months March 31, 1998 the
annualized return on average assets was 1.02% compared to 1.30% for the three
months ended March 31, 1997, while the annualized return on average equity was
7.87% for the three months ended March 31, 1998 compared to 7.98% for the three
months ended March 31, 1997.
Net interest income. Net interest income increased $107,000 to $743,000 for the
three months ended March 31, 1998 from $636,000 for the three months ended March
31, 1997. The increase is primarily due to the increase of $380,000 in interest
income to $1,644,000 for the three months ended March 31, 1998 from $1,264,000
for the three months ended March 31, 1997 offset by an increase in interest
expense of $273,000 to $901,000 for the three months ended March 31, 1998 from
$628,000 for the three months ended March 31, 1997.
For the three months ended March 31, 1998 the average yield on interest-earning
assets was 8.13% compared to 8.23% for the three months ended March 31, 1997.
The average cost of interest-bearing liabilities was 5.20% for the three months
ended March 31, 1998 compared to 4.97% for the three months ended March 31,
1997. The average balance of interest-earning assets increased $20.5 million to
$82.0 million for the three months ended March 31, 1998 from $61.5 million for
the three months ended March 31, 1997. During this same period, the average
balance of interest-bearing liabilities increased $19.7 million to $70.3 million
for the three months ended March 31, 1998 from $50.6 million for the three
months ended March 31, 1997.
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 2.93% for the three months ended March 31, 1998 compared to 3.26% for the
three months ended March 31, 1997. The average net interest margin was 3.68% for
the three months ended March 31, 1998 compared to 3.92% for the three months
ended March 31, 1997.
Provision for loan loss. Provision for loan loss decreased $1,000 to $18,000 for
the three months ended March 31, 1998 from $19,000 for the three months ended
March 31, 1997. 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 $366,000 or .57% of loans
receivable, net at March 31, 1998 compares to $222,000 or .45% of loans
receivable, net at March 31, 1997. The allowance for loan loss as a percentage
of non-performing assets was 180.97% at March 31, 1998, compared to 154.53% at
March 31, 1997.
Noninterest income. Noninterest income increased $16,000 to $83,000 for the
three months ended March 31, 1998 from $67,000 for the three months ended March
31, 1997. The increase is primarily due to an increase in bank service fees of
$32,000 and an increase in loan originations and commitments of $2,000,
partially offset by a decrease in other noninterest income of $16,000 and a
decrease in insurance commissions of $2,000.
Bank service charges and fees increased $32,000 to $59,000 for the three months
ended March 31, 1998 from $27,000 for the three months ended March 31, 1997. The
increase is primarily due to an increase in overdraft fee income of $21,000 to
$39,000 for the three months ended March 31, 1998 from $18,000 for the three
months ended March 31, 1997, an increase in checking account fees of $6,000 to
$10,000 for the three months ended March 31, 1998 from $4,000 for the three
months ended March 31, 1997 and an increase in late fees collected of $1,000 to
$5,000 for the three months ended March 31, 1998 from $4,000 for the three
months ended March 31, 1997.
Insurance commission income decreased $2,000 to $12,000 for the three months
ended March 31, 1998 from $14,000 for the three months ended March 31, 1997
primarily due to the fluctuations in the volume of the sales of credit life and
disability products.
Other noninterest income decreased $16,000 to $9,000 for the three months ended
March 31, 1998 from $25,000 for the three months ended March 31, 1997 primarily
due to a decrease in the gains realized on foreclosed properties.
Noninterest expense. Noninterest expense increased $132,000 to $470,000 for the
three months ended March 31, 1998 from $338,000 for the three months ended March
31, 1997. The increase is primarily due to an increase in compensation and
benefits of $68,000, an increase in other noninterest expense of $37,000, an
increase in occupancy and equipment of $14,000, an increase in deposit insurance
of $11,000 and an increase in data processing of $1,000.
Compensation and benefits increased $68,000 to $253,000 for the three months
ended March 31, 1998 from $185,000 for the three months ended March 31, 1997 due
to an increase in employee compensation of $58,000 to $186,000 for the three
months ended March 31, 1998 from $128,000 for the three months ended March 31,
1997 due to normal salary increases and an increase in the number of full-time
equivalent employees. There was also an increase in retirement and ESOP expense
of $11,000 to $24,000 for the three months ended March 31, 1998 from $13,000 for
the three months ended March 31, 1997 primarily due to the amortization of the
cost of shares in the ESOP and the addition of Rubio's retirement benefits. Also
employee benefits and insurance premiums increased $9,000 to $18,000 for the
three months ended March 31,1998 from $9,000 for the three months ended March
31, 1997 due to an increase in insurance costs as well as an increase in the
number of employees insured. Travel and work expense increased $5,000 to $7,000
for the three months ended March 31, 1998 from $2,000 for the three months ended
March 31, 1997, and bonuses accrued and incentives paid for product promotions
increased $3,000 to $7,000 for the three months ended March 31, 1998 from $4,000
for the three months ended March 31, 1997. The increases were offset by a
decrease in the expense for the Recognition and Retention Plan of $16,000 to
$6,000 for the three months ended March 31, 1998 from $22,000 for the three
months ended March 31, 1997 primarily due to the amortization of the expense of
the awarded shares based upon the fair value of the shares on the date of the
grant and a decrease in credit life and disability insurance broker fees of
$1,000 to $3,000 for the three months ended March 31, 1998 from $4,000 for the
three months ended March 31, 1997.
Other noninterest expense increased $37,000 to $133,000 for the three months
ended March 31, 1998 from $96,000 for the three months ended March 31, 1997
primarily due to the amortization of goodwill from the acquisition of Rubio
Savings Bank of Brighton of $20,000, an increase in federal examination fees of
$8,000 to $13,000 for the three months ended March 31, 1998 from $5,000 for the
three months ended March 31, 1997, an increase in professional organization fees
of $5,000 to 9,000 for the three months ended March 31, 1998 from $5,000 for the
three months ended March 31, 1997 due to the timing of bill payments, and an
increase in legal fees of $5,000 to $7,000 for the three months ended March 31,
1998 from $2,000 for the three months ended March 31, 1997 due to the timing of
bill payments.
Occupancy and equipment expense increased $14,000 to $49,000 for the three
months ended March 31, 1998 from $35,000 for the three months ended March 31,
1997. The increase is primarily due to an increase in building and equipment
maintenance of $6,000 to $15,000 for the three months ended March 31, 1998 from
$7,000 for the three months ended March 31, 1997 due to maintaining two office
buildings since the acquisition of Rubio, an increase in telephone expense of
$3,000 to $5,000 for the three months ended March 31, 1998 from $2,000 for the
three months ended March 31, 1997, an increase in depreciation expense of $2,000
to $13,000 for the three months ended March 31, 1998 from $11,000 for the three
months ended March 31, 1997 and an increase in property tax expense of $1,000 to
$8,000 for the three months ended March 31, 1998 from $7,000 for the three
months ended March 31, 1997.
Deposit insurance premiums increased $11,000 to $13,000 for the three months
ended March 31, 1998 from $2,000 for the three months ended March 31, 1997. The
increase is primarily due to the refund of premium paid for the three months
ended March 31, 1997 as a result of the one-time SAIF premium assessed as of
September 30, 1996 and the increase in total deposits since the acquisition of
Rubio. Data processing increased $1,000 to $21,000 for the three months ended
March 31, 1998 from $20,000 for the three months ended March 31, 1997.
Income tax expense. Income tax expense decreased $13,000 to $122,000 for the
three months ended March 31, 1998 from $135,000 for the three months ended March
31, 1997 primarily due to the treatment of the Recognition and Retention Plan
market value deductibility for income tax purposes.
Results of Operations - Nine Months Ended March 31, 1998 As Compared To The Nine
Months Ended March 31, 1997
Performance summary. Net earnings increased $196,000 to $572,000 for the three
months ended March 31, 1998 from $376,000 for the nine months ended March 31,
1997. The increase is primarily due to an increase in interest income of
$525,000, a decrease in noninterest expense of $139,000 and an increase in
noninterest income of $22,000, partially offset by an increase in interest
expense of $371,000, an increase in provision for loan loss of $46,000, and an
increase in income tax expense of $72,000. For the nine months ended March 31,
1998 the annualized return on average assets was 1.02% compared to 0.79% for the
nine months ended March 31, 1997, while the annualized return on average equity
was 7.02% for the nine months ended March 31, 1998 compared to 4.75% for the
nine months ended March 31, 1997.
Net interest income. Net interest income increased $154,000 to $2.0 million for
the nine months ended March 31, 1998 from $1.8 million for the nine months ended
March 31, 1997. The increase is primarily due to the increase of $525,000 in
interest income to $4.2 million for the nine months ended March 31, 1998 from
$3.7 million for the nine months ended March 31, 1997 offset by an increase in
interest expense of $371,000 to $2.3 million for the nine months ended March 31,
1998 from $1.9 million for the nine months ended March 31, 1997.
For the nine months ended March 31, 1998 the average yield on interest-earning
assets was 8.03% compared to 8.24% for the nine months ended March 31, 1997. The
average cost of interest-bearing liabilities was 5.11% for the nine months ended
March 31, 1998 compared to 5.14% for the nine months ended March 31, 1997. The
average balance of interest-earning assets increased $10.3 million to $70.5
million for the nine months ended March 31, 1998 from $60.2 million for the nine
months ended March 31, 1997. During this same period, the average balance of
interest-bearing liabilities increased $10.0 million to $59.2 million for the
nine months ended March 31, 1998 from $49.2 million for the nine months ended
March 31, 1997.
Due to the decrease in yield on the interest-earning assets and the decrease in
rates paid on the interest-bearing liabilities, the average interest rate spread
was 2.92% for the nine months ended March 31, 1998 compared to 3.10% for the
nine months ended March 31, 1997. The average net interest margin was 3.74% for
the nine months ended March 31, 1998 compared to 3.85% for the nine months ended
March 31, 1997.
Provision for loan loss. Provision for loan loss increased $46,000 to $71,000
for the nine months ended March 31, 1998 from $25,000 for the nine months ended
March 31, 1997. 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 $366,000 or .57% of loans
receivable, net at March 31, 1998 compares to $222,000 or .45% of loans
receivable, net at March 31, 1997. The allowance for loan loss as a percentage
of non- performing assets was 180.97% at March 31, 1998, compared to 154.53% at
March 31, 1997.
Noninterest income. Noninterest income increased $22,000 to $218,000 for the
nine months ended March 31, 1998 from $196,000 for the nine months ended March
31, 1997. The increase is primarily due an increase in bank service fees of
$57,000 and an increase in loan originations and commitments of $2,000,
partially offset by a decrease in other noninterest income of $33,000 and a
decrease in insurance commissions of $4,000.
Bank service charges and fees increased $57,000 to $141,000 for the nine months
ended March 31, 1998 from $84,000 for the nine months ended March 31, 1997
primarily due to an increase in overdraft fee income of $35,000 to $93,000 for
the nine months ended March 31, 1998 from $58,000 for the nine months ended
March 31, 1997 due to more stringent enforcement of the fee schedule and the
acquisition of Rubio. There was also an increase in checking account fee income
of $11,000 to $23,000 for the nine months ended March 31, 1998 from $12,000 for
the nine months ended March 31, 1997 due to a new checking account program and
the acquisition of Rubio, an increase in late payment charges of $5,000 to
$15,000 for the nine months ended March 31, 1998 from $10,000 for the nine
months ended March 31, 1997, the increase in merchant fee income of $3,000 to
$3,000 for the nine months ended March 31, 1998 and an increase in safe deposit
box rental income of $2,000 to $4,000 for the nine months ended March 31, 1998
from $2,000 for the nine months ended March 31, 1997.
Loan originations and commitment income increased $2,000 to $8,000 for the nine
months ended March 31, 1998 from $6,000 for the three months ended March 31,
1997 due to an increase in secondary market origination fee income. Other
noninterest income decreased $33,000 to $11,000 for the nine months ended March
31, 1998 from $44,000 for the nine months ended March 31, 1997 primarily due to
a decrease in the gains realized on foreclosed properties. Insurance commission
income decreased $4,000 to $57,000 for the nine months ended March 31, 1998 from
$61,000 for the nine months ended March 31, 1997 primarily due to a decrease in
the volume of the sales of credit life and disability products.
Noninterest expense. Noninterest expense decreased $139,000 to $1.3 million for
the nine months ended March 31, 1998 from $1.4 million for the nine months ended
March 31, 1997. The decrease is primarily due to the decrease in SAIF deposit
premiums of $322,000, partially offset by an increase in compensation and
benefits of $117,000, an increase in other noninterest expense of $47,000, and
increase in occupancy and equipment expense of $17,000 and an increase in data
processing of $2,000.
SAIF deposit insurance premiums decreased $322,000 to $37,000 for the nine
months ended March 31, 1998 from $359,000 for the nine months ended March 31,
1997 primarily due to the $294,000 one-time SAIF assessment and the decrease in
the annual assessment rate to 6.3 basis points from 23 basis points charged for
the protection of FDIC insurance at Washington Federal deposits. Rubio's annual
assessment rate is 1.3 basis points.
Compensation and benefits increased $117,000 to $662,000 for the nine months
ended March 31, 1998 from $545,000 for the nine months ended March 31, 1997
primarily due to an increase in the employee compensation and payroll taxes of
$71,000 to $403,000 for the nine months ended March 31, 1998 from $332,000 for
the nine months ended March 31, 1997 due to regular salary increases and an
increase in the number of full-time equivalent employees. Employee insurance
benefits increased $12,000 to $38,000 for the nine months ended March 31, 1998
from $26,000 for the nine months ended March 31, 1997. Incentives and bonuses
increased $10,000 to $17,000 for the nine months ended March 31, 1998 from
$7,000 for the nine months ended March 31, 1997 due to incentives paid for
product promotions and an increase in full-time equivalent employees. ESOP
expenses increased $8,000 to $50,000 for the nine months ended March 31, 1998
from $42,000 for the nine months ended March 31, 1997. Other work expenses
increased $7,000 to $21,000 for the nine months ended March 31, 1998 from
$14,000 for the nine months ended March 31, 1997.
Other noninterest expense increased $47,000 to $371,000 for the nine months
ended March 31, 1998 from $324,000 for the nine months ended March 31, 1997
primarily due to the amortization of goodwill for the purchase of Rubio Savings
Bank of Brighton of $20,000 and an increase in checking account expense of
$9,000 to $12,000 for the nine months ended March 31, 1998 from $3,000 for the
nine months ended March 31, 1997 due to a new checking account program. There
was also an increase in supplies of $9,000 to $36,000 for the nine months ended
March 31, 1997 from $27,000 for the nine months ended March 31, 1997, an
increase in advertising of $8,000 to $53,000 for the nine months ended March 31,
1998 from $45,000 for the nine months ended March 31, 1997 and an increase in
postage and delivery of $8,000 to $38,000 for the nine months ended March 31,
1998 from $30,000 for the nine months ended March 31, 1997 due to the promotion
of a new checking account and other bank products. Legal fees increased $3,000
to $16,000 for the nine months ended March 31, 1998 from $13,000 for the nine
months ended March 31, 1997. The increases were partially offset by a decrease
in auditing and accounting of $9,000 to $37,000 for the nine months ended March
31, 1998 from $46,000 for the nine months ended March 31, 1997.
Occupancy and equipment expense increased $17,000 to $124,000 for the nine
months ended March 31, 1998 from $107,000 for the nine months ended March 31,
1997 primarily due to an increase in building and equipment maintenance of
$11,000 to $30,000 for the nine months ended March 31, 1998 from $19,000 for the
nine months ended March 31, 1997, an increase in real estate tax expense of
$3,000 to $22,000 for the nine months ended March 31, 1998 from $19,000 for nine
months ended March 31, 1997, an increase in telephone expense of $2,000 to
$13,000 for the nine months ended March 31, 1998 from $11,000 for the nine
months ended March 31, 1997, and an increase in utilities of $1,000 to $8,000
for the nine months ended March 31, 1998 from $7,000 for the nine months ended
March 31, 1997. Data processing increased $2,000 to $60,000 for the nine months
ended March 31, 1998 from $58,000 for the nine months ended March 31, 1997.
Income tax expense. Income tax expense increased $71,000 to $300,000 for the
nine months ended March 31, 1998 from $228,000 for the nine months ended March
31, 1997 primarily due to the increase in income before income taxes.
Liquidity and capital resources. The banks' 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. The banks generally manage the pricing of its
deposits to maintain a steady deposit balance, but have from time to time
decided not to pay deposit rates that are as high as those of their competition,
and when necessary, to supplement deposits with alternative sources of funds.
Federal regulations historically have required the banks to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and for Washington Federal is
currently 4% 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. Washington
Federal has historically maintained its liquidity ratio at levels in excess of
those required. At March 31, 1998, Washington Federal's liquidity ratio was
13.70%.
Liquidity management is both a daily and long-term responsibility of management.
The banks adjust their 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 banks require funds beyond their ability to generate them
internally, Washington Federal has additional borrowing capacity with the FHLB
of Des Moines and collateral eligible for reverse repurchase agreements and
Rubio has additional borrowing capacity with the Federal Reserve.
The banks anticipate that they will have sufficient funds available to meet
current loan commitments. At March 31, 1998, the Washington Federal had
outstanding commitments to extend credit which amounted to $2.9 million and
Rubio Savings Bank had outstanding commitments to extend credit which amounted
to $572,000.
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.
Employee Benefit Plans. In conjunction with Washington
Federal's conversion to stock ownership, the Company established an Employee
Stock Ownership Plan (ESOP) for eligible employees. The plan was established by
amending Washington Federal's existing profit sharing plan. Employees of
Washington Federal 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 March 31, 1998 the ESOP held 52,602 shares of the Company's
common stock, 8,201 of which were allocated, 1,044 of which were released for
allocation and the remaining 43,356 were unreleased (unearned) shares. The
43,356 unreleased (unearned) shares had a fair market value of approximately
$821,000 at March 31, 1998.
Year 2000 Compliance. The "Year 2000" issue is one that has
received much publicity and addresses the ability of computer systems to
recognize the year 2000 and thereafter. The banks outsource their primary data
processing functions and has received verification from its vendors that plans
have been developed by them to address and correct the problems associated with
the issue. Washington has established a technology team to determine the status
of the banks' equipment and software as it relates to "Year 2000" readiness. The
Company does not anticipate that the "Year 2000" issue will pose any significant
operational problems. However, no assurance can be given that the "Year 2000"
issue will not have an adverse impact on the Company's earnings.
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
Form 8-K/A was filed on March 31, 1998 to report the proforma
financial information related to the acquisition of Rubio
Savings Bank of Brighton, Iowa.
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 13, 1998 /s/ Stan Carlson
---------------------------------
Stan Carlson, President and Chief
Executive Officer
Date May 13, 1998 /s/ Leisha A. Linge
---------------------------------
Leisha A. Linge, Controller