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, 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
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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
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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.
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 598,006 shares outstanding as to November 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 September 30,
1998 (unaudited) and June 30, 1998
Unaudited Consolidated Statements of Income for the
three months ended September 30, 1998 and 1997
Unaudited Consolidated Statements of Comprehensive
Income for the three months ended September 30,
1998 and 1997
Unaudited Consolidated Statements of Cash Flows
for the three months ended September 30, 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
September 30,
1998 June 30,
(Unaudited) 1998
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Assets Cash and cash equivalents:
Interest-bearing .............................. $ 1,261,380 $ 1,858,527
Noninterest-bearing ........................... 1,108,096 1,447,847
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2,369,476 3,306,374
Investment securities
Held-to-maturity securities ................... 1,130,766 1,131,478
Available-for-sale securities ................. 22,516,624 19,122,283
Federal funds sold ............................................ 1,534,260 659,497
Loans receivable, net ......................................... 68,901,979 65,884,941
Accrued interest receivable ................................... 1,200,393 959,664
Federal Home Loan Bank stock .................................. 860,000 812,400
Premises and equipment, net ................................... 814,628 799,806
Foreclosed real estate ........................................ 100,079 --
Goodwill ...................................................... 1,351,447 1,375,087
Other assets .................................................. 268,970 275,416
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Total assets .............................. $ 101,048,623 $ 94,326,945
============= =============
Liabilities
Deposits ...................................................... $ 73,265,973 $ 66,595,476
Borrowed funds ................................................ 16,333,836 15,724,071
Advance payments from borrowers for
taxes and insurance ....................................... 116,353 221,911
Accrued expenses and other liabilities ........................ 662,728 660,492
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Total liabilities ......................... 90,378,890 83,201,950
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Redeemable common stock held by Employee
Stock Ownership Plan (ESOP) ................... 148,907 153,788
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Stockholders' Equity
Common stock:
Common stock .................................. 6,511 6,511
Additional paid-in capital .................... 6,131,174 6,122,664
Retained earnings ............................................. 5,943,340 5,825,363
Accumulated other comprehensive income, unrealized
gain (loss) on securities available for sale, net ......... 71,964 (507)
Less:
Cost of common shares acquired for treasury ................... (985,069) (300,944)
Deferred compensation ......................................... (85,493) (104,962)
Maximum cash obligation related to ESOP shares ................ (148,907) (153,788)
Unearned ESOP shares .......................................... (412,695) (423,130)
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Total stockholders' equity ................ 10,520,825 10,971,207
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Total liabilities and
stockholders' equity .................... $ 101,048,623 $ 94,326,945
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See Notes to Consolidated Financial Statements
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Income
Three months ended September 30, 1998 and 1997
1998 1997
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Interest income:
Loans receivable:
First mortgage loans ........................................... $1,017,251 $ 876,027
Consumer and other loans ....................................... 479,159 263,518
Investment securities:
Taxable ........................................................ 308,491 139,864
Non-taxable .................................................... 19,644 5,313
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Total interest income ...................................... 1,824,544 1,284,722
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Interest expense:
Deposits ........................................................... 801,132 548,677
Borrowed funds ..................................................... 228,776 132,830
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Total interest expense ..................................... 1,029,908 681,507
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Net interest income ........................................ 794,636 603,215
Provision for loan losses ............................................... 22,000 25,000
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Net interest income after
provision for loan losses ................................ 772,636 578,215
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Noninterest income:
Loan origination and commitment fees ............................... 600 2,525
Service charges and fees ........................................... 85,522 39,262
Insurance commisions ............................................... 7,479 8,892
Other .............................................................. 985 1,454
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Total noninterest income ................................... 94,586 52,133
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Noninterest expense:
Compensation and benefits .......................................... 290,491 206,751
Occupancy and equipment ............................................ 53,464 38,144
SAIF/BIF deposit insurance premium ................................. 14,196 12,176
Data processing .................................................... 23,136 21,259
Other .............................................................. 150,710 91,007
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Total noninterest expense .................................. 531,998 369,337
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Income before income taxes ................................. 335,224 261,011
Income tax expense ...................................................... 140,061 103,791
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Net income ................................................. $ 195,163 $ 157,220
========== ==========
Earnings per common share
Basic .............................................................. $ 0.34 $ 0.26
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Diluted ............................................................ $ 0.33 $ 0.25
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Weighted average common shares for:
Basic earnings per share ........................................... 574,072 605,283
Diluted earnings per share ......................................... 590,800 621,123
Dividends per common share .............................................. $ 0.12 $ 0.10
========== ==========
See Notes to Consolidated Financial Statements ..........................
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
Three months ended September 30, 1998 and 1997
1998 1997
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Net income ................................................................... $ 195,163 $ 157,220
Gross unrealized gains (losses) on
securities available for sale ........................................... 115,953 22,423
Less reclassification adjustments for
gains included in net income ............................................ -- --
Income tax expense related to items
of other comprehensive income ........................................... (43,482) (8,409)
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Comprehensive income ......................................................... $ 267,634 $ 171,234
========= =========
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Three months ended September 30, 1998 and 1997
1998 1997
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Cash Flows from Operating Activities
Net income .............................................. $ 195,163 $ 157,220
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of premiums and discounts
on debt securities ............................ 1,964 2,360
Amortization of goodwill ........................ 23,640 --
Provision for loan losses ....................... 22,000 25,000
Depreciation .................................... 13,878 15,704
Compensation under stock awards ................. 19,469 25,785
ESOP contribution expense ....................... 18,945 15,939
(Increase) in accrued interest receivable ....... (240,730) (112,193)
(Increase)decrease in other assets .............. 6,446 (3,703)
Increase(decrease) in accrued expenses
and other liabilities ......................... (41,246) 28,232
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Net cash provided by operating activities 19,529 154,344
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Cash Flows from Investing Activities
Available for sale securities:
Sales ........................................... -- --
Maturities and calls ............................ 6,320,359 2,600,000
Purchases ....................................... (9,600,000) (50,000)
Federal funds sold, net ................................ (874,763) --
Purchase of Federal Home Loan Bank stock ............... (47,600) (29,500)
Loans made to customers, net ........................... (3,139,117) (2,184,195)
Purchase of premises and equipment ..................... (28,700) (5,179)
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Net cash (used in) investing activities . (7,369,821) 331,126
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Cash Flows from Financing Activities
Net increase in deposits ............................... 6,670,497 1,528,985
Proceeds from Federal Home Loan Bank advances .......... 6,510,900 22,200,000
Principal payments on Federal Home Loan Bank advances .. (5,901,136) (22,526,984)
Net increase (decrease) in advances from borrowers
for taxes and insurance ......................... (105,558) (116,349)
Acquisition of common stock ............................ (684,125) --
Dividends paid ......................................... (77,184) (64,270)
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Net cash provided by financing activities 6,413,394 1,021,382
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Net increase(decrease) in cash and cash
equivalents ........................ (936,898) 1,506,852
Cash and cash equivalents:
Beginning ............................... 3,306,374 807,805
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Ending .................................. $ 2,369,476 $ 2,314,657
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors ..................... $ 799,151 $ 541,942
Interest paid on other obligations .............. 228,776 132,830
Income taxes, net of refunds .................... 169,100 62,700
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfers from loans to foreclosed
real estate ..................................... $ 100,079 $ --
Contract sales of foreclosed real estate ............... -- --
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 September
30, 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, 1998 and all related
amendments and exhibits (including all financial statements and notes therein),
filed by the Company with the Securities and Exchange Commission.
Goodwill. Goodwill resulting from the Company's acquisition of Rubio is being
amortized by the straight-line method over 15 years. Goodwill is periodically
reviewed for impairment based upon an assessment of future operations to ensure
that it is appropriately valued.
Foreclosed real estate. Real estate properties acquired through loan foreclosure
are initially recorded at the lower of cost or fair value less estimated selling
expenses ate the date of foreclosure. Costs relating to development and
improvement of property are capitalized, whereas costs relating to holding
property are expensed.
Earnings per common share. In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share." Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic per-share amounts are computed by dividing net
income by the weighted-average number of common shares outstanding. 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. 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. The Company initially applied Statement No. 128 for the year ended
June 30, 1998 and has restated all per share information for the prior years to
conform to Statement No. 128.
Unearned ESOP shares and expense. The receivable from the Company=s ESOP has
been treated as a reduction of equity. This amount is reduced as the ESOP shares
are allocated. 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.
Comprehensive Income. In 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income." Statement No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company initially applied Statement
No. 130 for the three months ended September 30, 1998 and the statement of
comprehensive income has been added to the accompanying financial statements.
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, 1998 the capital requirements of Washington
Federal under FIRREA and its actual capital ratios. As of September 30, 1998
Washington Federal substantially exceeded all current regulatory capital
requirement standards.
At September 30, 1998
----------------------
Amount Percent
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(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level ....................... $6,813 8.85%
Requirement ......................... 1,154 1.50%
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Excess .............................. $5,659 7.35%
Core Capital:
Capital Level ....................... $6,813 8.85%
Requirement ......................... 3,078 4.00%
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Excess .............................. $3,735 4.85%
Risk-Based Capital:
Capital Level ....................... $7,108 12.82%
Requirement ......................... 4,436 8.00%
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Excess .............................. $2,672 4.82%
The following table summarizes the capital requirements of Rubio Savings Bank of
Brighton. As of September 30, 1998 Rubio substantially exceeded all current
regulatory capital requirement standards.
At September 30, 1998
----------------------
Amount Percent
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(Dollars in thousands)
(unaudited)
Tier 1 or Leverage Capital:
Capital Level ......................... $2,588 11.27%
Requirement ........................... 689 3.00%
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Excess ................................ $1,899 8.27%
Tier 1 Risk-based Capital:
Capital Level ......................... $2,588 22.90%
Requirement ........................... 452 4.00%
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Excess ................................ $2,136 18.90%
Risk-Based Capital:
Capital Level ......................... $2,687 23.78%
Requirement ........................... 904 8.00%
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Excess ................................ $1,783 15.78%
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 Awill likely
result,@ Aare expected to,@ Awill continue,@ Ais anticipated,@ Aestimate,@
Aproject,@ Abelieve@ or similar expressions are intended to identify
Aforward-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.
Impact of the Year 2000
The Banks have conducted a comprehensive review of their computer
systems to identify applications that could be affected by the "Year 2000"
issue, and have developed implementation plans to address the issue. Rubio's
data processing in performed by an in-house system. Washington Federal's data
processing is out-sourced. The Banks have already contacted each vendor to
request time table for Year 2000 compliance and expected costs, if any, to be
passed along to the Banks. To date, the Banks have been informed that their
primary service providers anticipate that all reprogramming efforts will be
completed by December 31, 1998, allowing the Banks adequate time for testing.
Testing on the Washington Federal's data processing system was performed on
November 8, 1998. Testing on Rubio's data processing system was performed on
October 12, 1998. The testing was successful for the Banks with few applications
requiring additional attention. Management does not expect the costs of
preparing for the Year 2000 to have a significant impact on their financial
position or results of operations, however, there can be no assurance that the
vendors systems will by Year 2000 compliant, consequently the Banks could incur
incremental costs to convert to another vendor. The Banks have identified
certain of their hardware and software equipment that will not be Year 2000
compliant and have already purchased new equipment and software. The capital
expenditures to date were approximately $91,000 and are not expected to exceed
$100,000.
General
Washington Bancorp ("Washington" or the "Company") is an Iowa
corporation which was organized in October 1995 by Washington Federal Savings
Bank ("Washington Federal") 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. Its deposits are insured up
to the applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
In March 1996, Washington Federal converted to the stock form of
organization through the sale and issuance of its common stock to the Company.
On June 24, 1997, Washington entered into a merger agreement to acquire Rubio
Savings Bank of Brighton, Iowa ("Rubio"). Rubio is held as a separate subsidiary
of Washington. In January 1998, Washington became a bank holding company upon
the completion of its acquisition of Rubio. The principal assets of the Company
are Washington Federal and Rubio (collectively, the "Banks"). The Company
presently has no separate operations and its business consists primarily of the
business of the Banks. All references to the Company, unless otherwise indicated
at or before March 11, 1996 refer to Washington Federal.
Washington Federal 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 Federal also makes commercial loans, consumer loans, automobile
loans, and has occasionally been a purchaser of fixed-rate mortgage-backed
securities.
Washington Federal filed applications with the Office of Thrift
Supervision (the "OTS") on August 19, 1998 for two branch offices. The
applications to branch into Wellman, Iowa and Richland, Iowa have been approved.
Washington Federal has received requests from its customers residing in both
communities to assist in the restoration of an active local banking relationship
by opening branches. Washington Federal intends to open the Wellman branch in
1998 and the Richland branch in 1999.
Rubio attracts deposits from the general public in its local market
area and the businesses in the Brighton area. The deposits are primarily
invested in United States Treasury bonds, agricultural operating loans,
commercial loans, one- to- four family residential real estate loans, and farm
real estate loans. Rubio also makes commercial real estate loans, automobile
loans and other consumer loans.
The executive office of the Company is located at 102 East Main Street,
Washington, Iowa 52353, telephone (319)653-7256.
Financial Condition
Total assets. Total consolidated assets increased $6.7 million from $94.3
million at June 30, 1998 to $101.0 million at September 30, 1998. The increase
was primarily due to a $3.4 million increase in investment securities and a $3.0
million increase in loans receivable funded by a $6.7 million increase in
deposits.
Loans receivable. Loans receivable, net increased $3.0 million from $65.9
million at June 30, 1998 to $68.9 million at September 30, 1998. This increase
is primarily due to increased loan demand in the Company=s market area. The
Company's non-performing assets were $328,000 or 0.32 % of total assets at
September 30, 1998 as compared to $89,000 or .09% of total assets at June 30,
1998.
Investment securities. Available-for-sale securities increased $3.4 million from
$19.1 million at June 30, 1998 to $22.5 million at September 30, 1998. 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, 1998 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 $241,000 from
$960,000 at June 30, 1998 to $1.2 million at September 30, 1998. 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 $6.7 million from $66.6 million at June 30, 1998 to
$73.3 million at September 30, 1998. Interest credited to customer accounts
totalled $799,000, while deposits exceeded withdrawals by $5.9 million. This is
primarily due to Washington Federal's certificate of deposit rates and the
seasonal fluctuation in the cash position of a local governmental agency.
Transaction and savings deposits decreased as a percentage of total deposits
from $24.3 million or 36.4% at June 30, 1998 to $24.5 million or 33.4% at
September 30, 1998. Certificates of deposit increased as a percentage of total
deposits from $42.3 million or 63.6% at June 30, 1998 to $48.8 million or 66.6%
at September 30, 1998.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) increased $610,000 from $15.7 million at June 30,
1998 to $16.3 million at September 30, 1998. The increase is primarily due to
the increased need to borrow to fund loan activity and investment activity. 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 $106,000 from $222,000 at June
30, 1998 to $116,000 at September 30, 1998. The decrease is primarily due to the
payment of the first installment of the 1998-99 county real estate tax bills due
September 30, 1998.
Total stockholders' equity. Total stockholders' equity decreased $450,000 from
$11.0 million at June 30, 1998 to $10.5 million at September 30, 1998. The
decrease is primarily due to the payment of $684,000 for 37,000 shares of the
Company's common stock and dividends paid of $77,000. The decrease was offset by
net income of $195,000, the net unrealized gain in the available for sale
securities of $72,000, the amortization of deferred compensation under the
Recognition and Retention Plan of $19,000, the allocation of shares in the
Employee Stock Ownership Plan of $19,000, and the change in redeemable common
stock of $5,000. 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 and the fair value
of these securities is greater than their carrying value as of September 30,
1998.
Results of Operations - Three Months Ended September 30, 1998 As Compared To The
Three Months Ended September 30, 1997
Performance summary. Net earnings increased $38,000 to $195,000 for the three
months ended September 30, 1998 from $157,000 for the three months ended
September 30, 1997. The increase is primarily due to an increase in interest
income of $540,000, an increase in noninterest income of $42,000, and a decrease
in provision for loan loss of $3,000, partially offset by an increase in
interest expense of $348,000, an increase in noninterest expense of $163,000,
and an increase in income tax expense of $36,000. For the three months September
30, 1998 the annualized return on average assets was 0.83% compared to 0.96% for
the three months ended September 30, 1997, while the annualized return on
average equity was 7.26% for the three months ended September 30, 1998 compared
to 5.81% for the three months ended September 30, 1997.
Net interest income. Net interest income increased $191,000 to $795,000 for the
three months ended September 30, 1998 from $603,000 for the three months ended
September 30, 1997. The increase is primarily due to the increase of $540,000 in
interest income to $1.8 million for the three months ended September 30, 1998
from $1.3 million for the three months ended September 30, 1997 offset by an
increase in interest expense of $348,000 to $1.0 million for the three months
ended September 30, 1998 from $682,000 for the three months ended September 30,
1997.
For the three months ended September 30, 1998 the average yield on
interest-earning assets was 8.13% compared to 8.07% for the three months ended
September 30, 1997. The average cost of interest-bearing liabilities was 5.14%
for the three months ended September 30, 1998 compared to 5.18% for the three
months ended September 30, 1997. The average balance of interest earning assets
increased $26.1 million to $89.8 million for the three months ended September
30, 1998 from $63.7 million for the three months ended September 30, 1997.
During this same period, the average balance of interest-bearing liabilities
increased $27.4 million to $80.0 million for the three months ended September
30, 1998 from $52.6 million for the three months ended September 30, 1997.
Due to the increase in yield on the interest-earning assets and the decrease in
rates paid on the interest-bearing liabilities, the average interest rate spread
was 2.98% for the three months ended September 30, 1998 compared to 2.89% for
the three months ended September 30, 1997. Due to the increase in
interest-bearing liabilities as a percentage of interest-earning assets, the
average net interest margin was 3.54% for the three months ended September 30,
1998 compared to 3.79% for the three months ended September 30, 1997.
Provision for loan loss. Provision for loan loss decreased $3,000 to $22,000 for
the three months ended September 30, 1998 from $25,000 for the three months
ended September 30, 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 $415,000
or .60% of loans receivable, net at September 30, 1998 compares to $247,000 or
.46% of loans receivable, net at September 30, 1997. The allowance for loan loss
as a percentage of non-performing assets was 126.62% at September 30, 1998,
compared to 177.69% at September 30, 1997.
Noninterest income. Noninterest income increased $42,000 to $95,000 for the
three months ended September 30, 1998 from $52,000 for the three months ended
September 30, 1997. The increase is primarily due an increase in bank service
charges of $46,000 offset by a decrease in loan origination and commitment fees
of $2,000, and a decrease in insurance commissions of $2,000.
Bank service charges and fees increased $46,000 to $85,000 for the three months
ended September 30, 1998 from $39,000 for the three months ended September 30,
1997 primarily due to a $35,000 increase in overdraft fee income and a $7,000
increase in checking account service charges and stop payments. Loan origination
and commitment fees decreased $2,000 to $1,000 for the three months ended
September 30, 1998 from $3,000 for the three months ended September 30, 1997
primarily due a decreased number of loans originated with the intent to be sold
on secondary market. The Company does not charge origination or commitment fees
on loans held in portfolio. Insurance commissions decreased $2,000 to $7,000 for
the three months ended September 30, 1998 from $9,000 for the three months ended
September 30, 1997 primarily due to the fluctuations in the volume of sales of
credit life and disability products.
Noninterest expense. Noninterest expense increased $163,000 to $532,000 for the
three months ended September 30, 1998 from $369,000 for the three months ended
September 30, 1997. The increase is primarily due to a $84,000 increase in
compensation and benefits, a $60,000 increase in other noninterest expense, a
$15,000 increase in occupancy and equipment, a $2,000 increase in FDIC insurance
premium, and a $2,000 increase in data processing.
Compensation and benefits increased $84,000 to $290,000 for the three months
ended September 30, 1998 from $206,000 for the three months ended September 30,
1997 primarily due to the increase in full-time equivalent employees as a result
of the acquisition of Rubio.
Other noninterest expense increased $60,000 to $151,000 for the three months
ended September 30, 1998 from $91,000 for the three months ended September 30,
1997 primarily due to the increased cost of operating a second office since the
acquisition of Rubio. The increase is primarily due to the amortization of
goodwill of $24,000, the increase in supplies of $7,000, the increase in
auditing and accounting fees of $6,000, the increase in postage and delivery
charges of $5,000, expenses related to the Year 2000 issue and computer software
of $5,000, the increase in fees paid to SHAZAM for ATM and debit card services
of $4,000, the increase in fees paid for services provided by outside
contractors of $3,000, the increase in fees paid to federal examiners of $2,000,
the increase of fees for the promotion of the checking account program of
$2,000, and the increase in other miscellaneous fee of $2,000.
Occupancy and equipment expense increased $15,000 to $53,000 for the three
months ended September 30, 1998 from $38,000 for the three months ended
September 30, 1997 primarily due to the increased cost of a second office
building since the acquisition of Rubio. The increase is primarily due to an
increase in real estate taxes of $8,000, the increase in equipment maintenance
of $3,000, the increase in building maintenance of $2,000, the increase in
telephone expense of $1,000 and the increase in utilities of $1,000.
FDIC insurance premiums increased $2,000 to $14,000 for the three months ended
September 30, 1998 from $12,000 for the three months ended September 30, 1997
primarily due to the increase in deposits since the acquisition of Rubio. Data
processing increased $2,000 to $23,000 for the three months ended September 30,
1998 from $21,000 for the three months ended September 30, 1997 due to extra
service requested from the Company's data processor.
Liquidity and capital resources. The Banks' principal sources of funds are
deposits, amortization and prepayment of loan principal, borrowings, and the
sale and maturity 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 Banks generally manage the pricing of the 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 the competition, and when necessary, to supplement
deposits with alternative sources of funds.
Federal regulations historically have required Washington Federal 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 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 September 30, 1998, the Washington Federal's liquidity ratio was
15.77%.
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 Banks anticipate that it will have sufficient funds available to meet
current loan commitments. At September 30, 1998, Washington Federal had
outstanding commitments to extend credit which amounted to $1.8 million and
Rubio Savings Bank had outstanding commitments to extend credit which amounted
to $566,000.
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 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, 1998 the ESOP held 52,602 shares of the
Company's common stock, 8,202 of which were allocated, 3,131 of which were
released for allocation and the remaining 41,269 were unreleased (unearned)
shares. The 45,367 unreleased (unearned) shares had a fair market value of
approximately $733,000 at September 30, 1998.
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 12, 1998 /s/ Stan Carlson
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Stan Carlson, President and Chief
Executive Officer
Date November 12, 1998 /s/ Leisha A. Linge
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Leisha A. Linge,Controller