FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 600,198 shares outstanding as of February 10, 1999
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at December 31,
1998 (unaudited) and June 30, 1998
Unaudited Consolidated Statements of Income
for the three months ended December 31, 1998
and 1997 and for the six months ended
December 31, 1998 and 1997
Unaudited Consolidated Statements of
Comprehensive Income for the three months
ended December 31, 1998 and 1997 and for the
six months ended December 31, 1998 and 1997
Unaudited Consolidated Statements of Cash Flows for the
six months ended December 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
December 31, June 30,
1998 1998
------------------------------
(unaudited)
Assets Cash and cash equivalents:
Interest-bearing ....................... $ 1,000,572 $ 1,858,527
Noninterest-bearing .................... 1,811,717 1,447,847
------------------------------
2,812,289 3,306,374
Investment securities
Held-to-maturity securities ............ 1,130,045 1,131,478
Available-for-sale securities .......... 22,671,545 19,122,283
Federal funds sold .................................. 2,810,262 659,497
Loans receivable, net ............................... 68,484,262 65,884,941
Accrued interest receivable ......................... 1,102,929 959,664
Federal Home Loan Bank stock ........................ 860,000 812,400
Premises and equipment, net ......................... 866,117 799,806
Foreclosed real estate .............................. 43,796 --
Goodwill ............................................ 1,327,806 1,375,087
Other assets ........................................ 280,883 275,416
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Total assets ....................... $ 102,389,934 $ 94,326,945
==============================
Liabilities
Deposits ............................................ $ 75,785,130 $ 66,595,476
Borrowed funds ...................................... 15,082,074 15,724,071
Advance payments from borrowers for
taxes and insurance ............................. 190,119 221,911
Accrued expenses and other liabilities .............. 573,897 660,492
------------------------------
Total liabilities .................. 91,631,220 83,201,950
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Redeemable common stock held by Employee
Stock Ownership Plan (ESOP) ............ 144,601 153,788
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Stockholders' Equity
Common stock:
Common stock ........................... 6,511 6,511
Additional paid-in capital ............. 6,139,136 6,122,664
Retained earnings ................................... 6,055,645 5,825,363
Accumulated other comprehensive income, unrealized
gain (loss) on securities available for sale, net 17,900 (507)
Less:
Cost of common shares acquired for treasury ......... (985,069) (300,944)
Deferred compensation ............................... (73,149) (104,962)
Maximum cash obligation related to ESOP shares ...... (144,601) (153,788)
Unearned ESOP shares ................................ (402,260) (423,130)
------------------------------
Total stockholders' equity ......... 10,614,113 10,971,207
------------------------------
Total liabilities and
stockholders' equity ............. $ 102,389,934 $ 94,326,945
==============================
See Notes to Consolidated Financial Statements
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Income
Three Months Ended Six Months Ended
December 31, December 31,
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1998 1997 1998 1997
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Interest income:
Loans receivable:
First mortgage loans ..................... $ 992,927 $ 905,277 $2,010,178 $1,781,304
Consumer and other loans ................. 497,253 281,128 976,412 544,646
Investment securities:
Taxable .................................. 377,876 125,757 686,366 265,621
Non-taxable .............................. 21,803 5,420 41,447 10,733
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Total interest income ................ 1,889,859 1,317,582 3,714,403 2,602,304
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Interest expense:
Deposits ..................................... 905,353 551,598 1,706,485 1,100,275
Borrowed funds ............................... 226,578 133,502 455,354 266,332
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Total interest expense ............... 1,131,931 685,100 2,161,839 1,366,607
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Net interest income .................. 757,928 632,482 1,552,564 1,235,697
Provision for loan losses ......................... 34,000 28,000 56,000 53,000
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Net interest income after
provision for loan losses .......... 723,928 604,482 1,496,564 1,182,697
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Noninterest income:
Security gains, net .......................... 10,922 - - 10,922 - -
Loan origination and commitment fees ......... 2,763 2,779 3,363 5,304
Service charges and fees ..................... 59,502 42,836 145,024 82,098
Insurance commisions ......................... 14,293 36,817 21,772 45,709
Other ........................................ 9,671 861 10,656 2,315
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Total noninterest income ............. 97,151 83,293 191,737 135,426
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Noninterest expense:
Compensation and benefits .................... 289,628 201,600 580,119 408,351
Occupancy and equipment ...................... 60,089 36,792 113,553 74,936
SAIF/BIF deposit insurance premium ........... 14,985 11,706 29,181 23,882
Data processing .............................. 19,680 17,952 42,816 39,211
Goodwill ..................................... 23,640 -- 47,281 --
Other ........................................ 158,253 146,691 285,323 237,698
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Total noninterest expense ............ 566,275 414,741 1,098,273 784,078
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Income before income taxes ........... 254,804 273,034 590,028 534,045
Income tax expense ................................ 82,379 73,804 222,440 177,595
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Net income ........................... $ 172,425 $ 199,230 $ 367,588 $ 356,450
=================================================
Earnings per common share
Basic ........................................ $ 0.31 $ 0.33 $ 0.65 $ 0.59
=================================================
Diluted ...................................... $ 0.30 $ 0.32 $ 0.63 $ 0.57
=================================================
Dividends per common share ........................ $ 0.12 $ 0.12 $ 0.24 $ 0.22
=================================================
Weighted average common shares for:
Basic earnings per share ..................... 557,258 606,249 565,595 605,766
=================================================
Diluted earnings per share ................... 573,081 624,028 582,112 622,604
=================================================
See Notes to Consolidated Financial Statements.
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
December 31, December 31,
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1998 1997 1998 1997
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Net income ..................................... $ 172,425 $ 199,230 $ 367,588 $ 356,450
Gross unrealized gains (losses) on
securities available for sale ............. (75,181) (11,306) 40,772 11,117
Less reclassification adjustments for
gains included in net income .............. (10,922) -- (10,922) --
Income tax expense related to items
of other comprehensive income ............. 32,039 4,240 (11,443) (4,169)
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Comprehensive income ........................... $ 118,361 $ 192,164 $ 385,995 $ 363,398
===============================================
Washington Bancorp and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Six months ended December 31, 1998 and 1997
1998 1997
----------------------------
Cash Flows from Operating Activities
Net income ........................................... $ 367,588 $ 356,450
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of premiums and discounts
on debt securities ........................... (47,490) (1,821)
Amortization of goodwill ....................... 47,281 --
Provision for loan losses ...................... 56,000 53,000
(Gain) on sale of investment securities ........ (10,922) --
(Gain)loss on sale of foreclosed real estate ... (9,562) --
Depreciation ................................... 35,806 28,015
Compensation under stock awards ................ 31,813 42,120
ESOP contribution expense ...................... 37,342 32,861
Deferred income tax ............................ -- (31,383)
(Increase) in accrued interest receivable ...... (143,266) (550)
(Increase)decrease in other assets ............. 14,091 (9,112)
Increase(decrease) in accrued expenses
and other liabilities ........................ (117,595) 45,457
----------------------------
Net cash provided by operating
activities ............................ 261,086 515,037
----------------------------
Cash Flows from Investing Activities
Available for sale securities:
Sales .......................................... 1,000,000 --
Maturities and calls ........................... 10,450,432 6,007,252
Purchases ...................................... (14,910,000) (2,250,000)
Federal funds sold, net .............................. (2,150,765) --
Purchase of Federal Home Loan Bank stock ............. (47,600) (53,200)
Loans made to customers, net ......................... (2,689,555) (3,350,756)
Purchase of premises and equipment ................... (102,117) (21,438)
---------------------------
Net cash (used in) investing
activities ............................ (8,449,605) 331,858
---------------------------
Cash Flows from Financing Activities
Net increase in deposits ............................... 9,189,654 (282,912)
Proceeds from Federal Home Loan Bank advances .......... 6,250,000 35,700,000
Principal payments on Federal Home Loan Bank advances .. (6,891,997) (34,506,993)
Net increase (decrease) in advances from borrowers ..... (31,792) (26,057)
Acquisition of common stock ............................ (684,125) --
Dividends paid ......................................... (137,306) (124,556)
---------------------------
Net cash provided by financing
activities ............................... 7,694,434 759,482
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Net increase(decrease) in cash and cash
equivalents .............................. (494,085) 1,606,377
Cash and cash equivalents:
Beginning ................................ 3,306,374 807,805
----------------------------
Ending ................................... $ 2,812,289 $ 2,414,182
============================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors .................... $ 1,695,481 $ 916,770
Interest paid on other obligations ............. 455,354 266,332
Income taxes, net of refunds ................... 301,100 125,400
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfers from loans to foreclosed
real estate .................................... $ 163,967 $ --
Contract sales of foreclosed real estate ............... 129,733 --
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 December
31, 1998 and for the six month period ended December 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, 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 at 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 December 31, 1998 the capital requirements of Washington
Federal under FIRREA and its actual capital ratios. As of December 31, 1998
Washington Federal exceeded all current regulatory capital requirement
standards.
At December 31, 1998
Amount Percent
(Dollars in thousands)
(unaudited)
Tangible Capital:
Capital Level ....................... $6,547 8.47%
Requirement ......................... 1,159 1.50%
------ -----
Excess .............................. $5,388 6.97%
Core Capital:
Capital Level ....................... $6,547 8.47%
Requirement ......................... 3,091 4.00%
------ -----
Excess .............................. $3,456 4.47%
Risk-Based Capital:
Capital Level ....................... $6,852 12.23%
Requirement ......................... 4,482 8.00%
------ -----
Excess .............................. $2,370 4.23%
The following table summarizes the capital requirements of Rubio Savings Bank of
Brighton. As of December 31, 1998 Rubio substantially exceeded all current
regulatory capital requirement standards.
At December 31, 1998
Amount Percent
(Dollars in thousands)
(unaudited)
Tier 1 or Leverage Capital:
Capital Level ......................... $2,670 10.59%
Requirement ........................... 756 3.00%
------ -----
Excess ................................ $1,814 7.59%
Tier 1 Risk-based Capital:
Capital Level ......................... $2,670 22.56%
Requirement ........................... 473 4.00%
------ -----
Excess ................................ $2,197 18.56%
Risk-Based Capital:
Capital Level ......................... $2,785 23.53%
Requirement ........................... 947 8.00%
------ -----
Excess ................................ $1,838 15.53%
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 is performed by an in-house system. Washington Federal's data
processing is out-sourced. Washington Federal's primary software vendor,
Intrieve, has fully renovated its programs to be Year 2000 compliant. Washington
Federal has participated in two major tests of the Intrieve software system.
Testing on Rubio's data processing system was performed on October 12, 1998. The
testing for both Banks was successful with few applications requiring additional
attention. All "mission-critical " applications have been tested and replaced or
updated and are now Year 2000 compliant. Also, large loan customers have been
assessed for Year 2000 status. Businesses and individuals which were not
compliant are being reviewed quarterly. New loan customers are being assessed
for Year 2000 compliance at the time of application. Management does not expect
the costs of preparing for the Year 2000 to have a significant impact on either
Bank's financial position or results of operations, however, despite assurances,
there can be no guarantee that the vendors' systems will be 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 opened the Wellman branch in December of 1998 and intends to
open 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 $8.1 million from $94.3
million at June 30, 1998 to $102.4 million at December 31, 1998. The increase
was primarily due to a $3.5 million increase in investment securities, a $2.2
million increase in federal funds sold and a $2.6 million increase in loans
receivable funded by a $9.2 million increase in deposits partially offset by a
$642,000 decrease in borrowed funds and a $357,000 decrease in stockholder's
equity.
Loans receivable. Loans receivable, net increased $2.6 million from $65.9
million at June 30, 1998 to $68.5 million at December 31, 1998. This increase is
primarily due to increased loan demand in the Company=s market area. The
Company's non-performing assets were $463,000 or 0.46 % of total assets at
December 31, 1998 as compared to $89,000 or .09% of total assets at June 30,
1998. Management remains committed to maintaining the non-performing assets to
total assets ratio within industry standards.
Investment securities. Available-for-sale securities increased $3.5 million from
$19.1 million at June 30, 1998 to $22.6 million at December 31, 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 December 31, 1998 than their carrying value due to a decline in market
rates of interest 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 $143,000 from
$960,000 at June 30, 1998 to $1.1 million at December 31, 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 $9.2 million from $66.6 million at June 30, 1998 to
$75.8 million at December 31, 1998. Interest credited to customer accounts
totaled $1.7 million, while deposits exceeded withdrawals by $7.5 million.
Transaction and savings deposits decreased as a percentage of total deposits
from $24.3 million or 36.4% at June 30, 1998 to $25.6 million or 33.7% at
December 31, 1998. Certificates of deposit increased as a percentage of total
deposits from $42.3 million or 63.6% at June 30, 1998 to $50.2 million or 66.3%
at December 31, 1998.
FHLB Borrowings. The total principal balance in advances from the Federal Home
Loan Bank of Des Moines (FHLB) decreased $642,000 from $15.7 million at June 30,
1998 to $15.1 million at December 31, 1998. The decrease is primarily due to the
increase in deposits and the decreased 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 $32,000 from $222,000 at June
30, 1998 to $190,000 at December 31, 1998 primarily due to the payment of
semi-annual credit life and disability insurance premiums and the annual escrow
analysis performed each December. Escrow overages in excess of $50.00 are sent
directly to the customer. Escrow shortages are spread out over a twelve-month
period and added to the regular monthly escrow payment.
Total stockholders' equity. Total stockholders' equity decreased $357,000 from
$11.0 million at June 30, 1998 to $10.6 million at December 31, 1998. The
decrease is primarily due to the purchase of 37,000 shares of the Company's
common stock at a total cost of $684,000 and dividends paid of $137,000. The
decrease was partially offset by net income of $368,000, the net unrealized gain
in available- for- sale securities of $18,000, the amortization of deferred
compensation under the Recognition and Retention Plan of $32,000, the allocation
of shares in the Employee Stock Ownership Plan of $37,000 and the change in
redeemable common stock of $9,000. 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 December 31, 1998.
Results of Operations - Three Months Ended December 31, 1998 As Compared To The
Three Months Ended December 31, 1997
Performance summary. Net earnings decreased $27,000 to $172,000 for the three
months ended December 31, 1998 from $199,000 for the three months ended December
31, 1997. The decrease is primarily due to an increase in interest expense of
$447,000, an increase in noninterest expense of $151,000, an increase in income
tax expense of $9,000, and an increase in provision for loan loss of $6,000
partially offset by an increase in interest income of $572,000 and an increase
in noninterest income of $14,000. For the three months ended December 31, 1998
the annualized return on average assets was 0.68% compared to 1.21% for the
three months ended December 31, 1997, while the annualized return on average
equity was 6.53% for the three months ended December 31, 1998 compared to 7.31%
for the three months ended December 31, 1997.
Net interest income. Net interest income increased $126,000 to $758,000 for the
three months ended December 31, 1998 from $632,000 for the three months ended
December 31, 1997. The increase is primarily due to the increase of $572,000 in
interest income to $1.9 million for the three months ended December 31, 1998
from $1.3 million for the three months ended December 31, 1997 partially offset
by an increase in interest expense of $447,000 to $1.1 million for the three
months ended December 31, 1998 from $685,000 for the three months ended December
31, 1997.
For the three months ended December 31, 1998 the average yield on interest
earning assets was 7.82% compared to 8.20% for the three months ended December
31, 1997. The average cost of interest-bearing liabilities was 5.18% for the
three months ended December 31, 1998 compared to 5.18% for the three months
ended December 31, 1997. The average balance of interest earning assets
increased $32.5 million to $96.7 million for the three months ended December 31,
1998 from $64.2 million for the three months ended December 31, 1997. During
this same period, the average balance of interest-bearing liabilities increased
$34.6 million to $87.5 million for the three months ended December 31, 1998 from
$52.9 million for the three months ended December 31, 1997.
Due to the decrease in yield on the interest-earning assets and the constant
rates paid on the interest-bearing liabilities, the average interest rate spread
was 2.64% for the three months ended December 31, 1998 compared to 3.03% for the
three months ended December 31, 1997. Due to the increase in interest-bearing
liabilities as a percentage of interest-earning assets, the average net interest
margin was 3.14% for the three months ended December 31, 1998 compared to 3.94%
for the three months ended December 31, 1997.
Provision for loan loss. Provision for loan loss increased $6,000 to $34,000 for
the three months ended December 31, 1998 from $28,000 for the three months ended
December 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 $440,000 or .64% of loans
receivable, net at December 31, 1998 compared to $254,000 or .46% of loans
receivable, net at December 31, 1997. The allowance for loan loss as a
percentage of non-performing assets was 94.99% at December 31, 1998, compared to
668.62% at December 31, 1997.
Noninterest income. Noninterest income increased $14,000 to $97,000 for the
three months ended December 31, 1998 from $83,000 for the three months ended
December 31, 1997. The increase is primarily due to an increase in bank service
charges of $17,000, an increase in gains on the sale of available for sale
securities of $11,0000 and an increase in other noninterest income of $9,000
partially offset by a decrease in insurance commissions of $23,000.
Bank service charges and fees increased $17,000 to $60,000 for the three months
ended December 31, 1998 from $43,000 for the three months ended December 31,
1997 primarily due to an $8,000 increase in overdraft fee income, a $5,000
increase in checking account service charges and stop payments, and a $3,000
increase in credit card and merchant fees. Gain on the sale of available
securities increased $11,000 for the three months ended December 31, 1998 due to
the sale of U.S. Treasury securities. Other noninterest income increased $9,000
to $10,000 for the three months ended December 31, 1998 from $1,000 for the
three months ended December 31, 1997 primarily due to the gain on REO property.
Insurance commissions decreased $23,000 to $14,000 for the three months ended
December 31, 1998 from $36,000 for the three months ended December 31, 1997
primarily due to the fluctuations in the volume of sales of credit life and
disability products.
Noninterest expense. Noninterest expense increased $151,000 to $566,000 for the
three months ended December 31, 1998 from $415,000 for the three months ended
December 31, 1997. The increase is primarily due to an $88,000 increase in
compensation and benefits, a $24,000 increase in goodwill expense, a $23,000
increase in occupancy and equipment, an $11,000 increase in other expense, a
$3,000 increase in FDIC insurance premium, and a $2,000 increase in data
processing. These increases were primarily due to the acquisition of Rubio and
the addition of Washington Federal's branch in Wellman, Iowa and to a lesser
extent, Year 2000 expenses.
Income tax expense. Income tax expense increased $9,000 to $82,000 for the three
months ended December 31, 1998 from $73,000 for the three months ended December
31, 1997. The increase in income tax expense despite the decrease in net income
before income taxes is primarily due to the tax effect of goodwill expense.
Results of Operations - Six Months Ended December 31, 1998 As Compared To The
Six Months Ended December 31, 1997
Performance summary. Net earnings increased $11,000 to $367,000 for the six
months ended December 31, 1998 from $356,000 for the six months ended December
31, 1997. The increase is primarily due to an increase in interest income of
$1.1 million and an increase in noninterest income of $56,000, partially offset
by an increase in interest expense of $795,000, an increase in noninterest
expense of $314,000, an increase in income tax expense of $45,000, and an
increase in provision for loan loss of $3,000. For the six months ended December
31, 1998 the annualized return on average assets was 0.75% compared to 1.09% for
the six months ended December 31, 1997, while the annualized return on average
equity was 6.87% for the six months ended December 31, 1998 compared to 6.59%
for the six months ended December 31, 1997.
Net interest income. Net interest income increased $317,000 to $1.5 million for
the six months ended December 31, 1998 from $1.2 million for the six months
ended December 31, 1997. The increase is primarily due to the increase of $1.1
million in interest income to $3.7 million for the six months ended December 31,
1998 from $2.6 million for the six months ended December 31, 1997 partially
offset by an increase in interest expense of $795,000 to $2.2 million for the
six months ended December 31, 1998 from $1.4 million for the six months ended
December 31, 1997.
For the six months ended December 31, 1998 the average yield on interest earning
assets was 7.92% compared to 8.14% for the six months ended December 31, 1997.
The average cost of interest-bearing liabilities was 4.97% for the six months
ended December 31, 1998 compared to 5.19% for the three months ended December
31, 1997. The average balance of interest earning assets increased $29.8 million
to $93.7 million for the six months ended December 31, 1998 from $63.9 million
for the six months ended December 31, 1997. During this same period, the average
balance of interest-bearing liabilities increased $34.2 million to $87.1 million
for the six months ended December 31, 1998 from $52.9 million for the six months
ended December 31, 1997.
Due to the decrease in yield on the interest-earning assets and the decrease in
rate paid on the interest-bearing liabilities, the average interest rate spread
was 2.95% for the six months ended December 31, 1998 compared to 2.95% for the
six months ended December 31, 1997. Due to the increase in interest-bearing
liabilities as a percentage of interest-earning assets, the average net interest
margin was 3.31% for the six months ended December 31, 1998 compared to 3.87%
for the six months ended December 31, 1997.
Provision for loan loss. Provision for loan loss increased $3,000 to $56,000 for
the six months ended December 31, 1998 from $53,000 for the six months ended
December 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 $440,000 or .64% of loans
receivable, net at December 31, 1998 compared to $254,000 or .46% of loans
receivable, net at December 31, 1997. The allowance for loan loss as a
percentage of non-performing assets was 94.99% at December 31, 1998, compared to
668.62% at December 31, 1997.
Noninterest income. Noninterest income increased $56,000 to $192,000 for the six
months ended December 31, 1998 from $135,000 for the six months ended December
31, 1997. The increase is primarily due an increase in bank service charges of
$63,000, an increase in gains on the sale of available for sale securities of
$11,000 and an increase in other noninterest income of $8,000 partially offset
by a decrease in insurance commissions of $24,000 and a decrease in loan
origination and commitment fees of $2,000.
Bank service charges and fees increased $63,000 to $145,000 for the six months
ended December 31, 1998 from $82,000 for the six months ended December 31, 1997
primarily due to an increase in overdraft fee income of $43,000, an increase in
checking account service charges and stop payments of $11,000, an increase in
credit card and merchant fees of $5,000, an increase in check cashing and
commercial exchange fees of $2,000 and an increase in safe deposit box rental
fee income of $1,000. Gain on the sale of available- for- sale securities
increased $11,000 for the six months ended December 31, 1998 due to the sale of
U.S. Treasury securities. Other noninterest income increased $8,000 to $10,000
for the six months ended December 31, 1998 from $2,000 for the six months ended
December 31, 1997 primarily due to the gain on REO property. Insurance
commissions decreased $24,000 to $22,000 for the six months ended December 31,
1998 from $46,000 for the six months ended December 31, 1997 primarily due to
the fluctuations in the volume of sales of credit life and disability products.
Loan origination and commitment fee income decreased $2,000 to $3,000 for the
six months ended December 31, 1998 from $5,000 for the six months ended December
31, 1997 due to the fluctuations in volume of loans sold to the secondary
market.
Noninterest expense. Noninterest expense increased $314,000 to $1.1 million for
the six months ended December 31, 1998 from $784,000 for the six months ended
December 31, 1997. The increase is primarily due to an increase in compensation
and benefits of $172,000, an increase in other expense of $48,000, an increase
in goodwill expense of $47,000, an increase in occupancy and equipment of
$38,000, an increase in FDIC insurance premium of $5,000, and an increase in
data processing of $4,000.
Compensation and benefits increased $172,000 to $580,000 for the six months
ended December 31, 1998 from $408,000 for the six months ended December 31, 1997
primarily due to the increase in full-time equivalent employees as a result of
the acquisition of Rubio and Washington Federal's new branch in Wellman, Iowa.
Other noninterest expense increased $48,000 to $285,000 for the six months ended
December 31, 1998 from $237,000 for the six months ended December 31, 1997
primarily due to the increased cost of operating additional offices since the
acquisition of Rubio and the opening of Washington Federal's branch in Wellman,
Iowa. The increase is primarily due to an increase in supplies of $21,000, an
increase in expenses related to the Year 2000 issue and computer software of
$13,000, an increase in ATM and debit card processing fees of $10,000, an
increase in fees paid for services provided by outside contractors of $8,000, an
increase in postage expense of $8,000, an increase in checking account expense
of $4,000 and an increase in education and association fees of $3,000. The
increase is partially offset by a decrease in advertising expense of $11,000, a
decrease in auditing and accounting fees of $5,000, and a decrease in legal fees
of $3,000.
Goodwill expense increased $47,000 to $47,000 for the six months ended December
31, 1998 due to the acquisition of Rubio. Occupancy and equipment increased
$38,000 to $113,000 for the six months ended December 31, 1998 from $75,000 for
the six months ended December 31, 1997 primarily due to the addition of
Washington Federal's branch in Wellman, Iowa and the addition of the Rubio
Savings Bank of Brighton's office building. FDIC insurance premiums increased
$5,000 to $29,000 for the six months ended December 31, 1998 from $24,000 for
the six months ended December 31, 1997 primarily due to the increase in deposits
since the acquisition of Rubio. Data processing increased $4,000 to $43,000 for
the six months ended December 31, 1998 from $39,000 for the six months ended
December 31, 1997.
Income tax expense. Income tax expense increased $45,000 to $222,000 for the six
months ended December 31, 1998 from $177,000 for the six months ended December
31, 1997.
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 have 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 December 31, 1998, Washington Federal's liquidity ratio was 25.75%.
Liquidity management is both a daily and long-term responsibility of management.
Washington Federal 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 Washington Federal 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 they will have sufficient funds available to meet
current loan commitments. At December 31, 1998, Washington Federal had
outstanding commitments to extend credit which amounted to $1.6 million and
Rubio Savings Bank had outstanding commitments to extend credit which amounted
to $910,000.
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.
At the annual meeting on October 20, 1998 the stockholders of
Washington Bancorp re-elected three directors and ratified the appointment of
McGladrey and Pullen, LLP as the auditors for the fiscal year ending June 30,
1999. Total voting by proxy was 513,431 of the 603,006 shares outstanding.
Director James D. Gorham received 490,669 "for" votes and
22,112 "withhold" votes. Director Mary Levy received 490,035 "for" votes and
22,737 "withhold" votes. Director Dean Edwards received 501,964 "for" votes and
11,087 "withhold" votes. McGladrey and Pullen, LLP received 510,385 "for" votes,
1,520 "against" votes and no "abstain" votes.
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 the
Company 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 December 31, 1998 the ESOP held 52,602 shares of the
Company's common stock, 12,376 of which were allocated and the remaining 40,226
were unreleased (unearned) shares. The 40,226 unreleased (unearned) shares had a
fair market value of approximately $709,000 at December 31, 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 February 10, 1999 /s/ Stan Carlson
---------------------------------
Stan Carlson, President and Chief
Executive Officer
Date February 10, 1999 /s/ Leisha A. Linge
---------------------------------
Leisha A. Linge,Controller